Author｜Chu Yan
Recently, a screenshot of the JPEX exchange's withdrawal page has caused heated discussions among cryptocurrency users. This screenshot shows that the exchange's withdrawal limit is 1000U, the withdrawal fee is as high as 999U, and the user actually only receives 1U. This routine of preventing users from withdrawing money often appeared in some swindling exchanges. The exchange bought time to transfer platform assets by significantly raising the withdrawal threshold.
So what is the actual situation of the JPEX exchange case that has attracted the attention of Hong Kong regulators? What impact will this case have on the future regulatory compliance of Hong Kong virtual currency exchanges? The author will interpret the above questions through this article.
Timeline of events
- July 2020 - JPEX Exchange was established, headquartered in Dubai, and is mainly engaged in virtual currency trading services in the Asia-Pacific region;
- 2021 - JPEX Exchange will conduct offline promotion in places such as the Hong Kong subway, buses, and top floors of buildings, and will also work with KOLs and celebrities in Hong Kong, Taiwan and other places to promote its exchange business online;
- June 2022 - JPEX launches a partner program that rewards recruitment and partners with high commissions;
- July 2022, 7 - JPEX Exchange was included in the list of unlicensed companies and suspicious websites of the Hong Kong Securities and Futures Commission;
- January 2023 - A user reported that he had used JPEX to invest in cryptocurrencies since June 1, and had invested about $2022 in JPEX, but had been unable to withdraw his money since January 6. The exchange's customer service invited him to go to Hong Kong to handle the withdrawal procedures, but when he went to Hong Kong to handle the withdrawal procedures, he was attacked by suspected exchange-related personnel, and then called the police in Hong Kong for help;
- April 2023 - The Hong Kong Securities and Futures Commission received complaints from JPEX investors;
- September 2023, 9 - The Hong Kong Securities and Futures Commission issued a "Warning Statement on Unregulated Virtual Asset Trading Platforms" in response to the JPEX Exchange case, announcing some factual issues involved in the case;
- September 2023, 9 - JPEX Exchange restricts the withdrawal amount and increases the withdrawal fee. The Hong Kong Securities and Futures Commission refers the case to the Hong Kong police for handling;
- September 2023, 9 - JPEX Exchange removed the game lobby product, which included the 16S contract guessing game;
- September 2023, 9 - JPEX Exchange admitted that it had not submitted an application for a Hong Kong virtual currency exchange license;
- September 2023, 9 - JPEX exchange delisted BTC, ETH, USDT and other financial products, which previously had an APY of up to 18%.
- September 2023, 9 - Hong Kong police announced the operation model and promotion method of JPEX exchange at a press conference. Hong Kong artist Zhang Zhilin, who was once the spokesperson of JPEX, assisted the police in the investigation;
- September 2023, 9 - The Hong Kong Securities and Futures Commission issued another statement saying that JPEX violated the confidentiality provisions of the Securities and Futures Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and disclosed confidential communications between it and the Hong Kong Securities and Futures Commission's Regulatory Enforcement Department;
- September 2023, 9 - Hong Kong Chief Executive John Lee expressed concern about the JPEX exchange case;
- September 2023, 9 - The Hong Kong Securities and Futures Commission stated at a press conference that it will announce four lists of virtual asset trading platforms in the next step, including lists of licensed trading platforms, closed trading platforms, and platforms that have submitted license applications.
As of now, a total of 2305 victims involved in the JPEX exchange case have reported to the police in Hong Kong. The amount involved is as high as 14.3 billion Hong Kong dollars. The Hong Kong police have arrested 11 people and frozen 1500 million bank accounts, 800 million Hong Kong dollars in cash and properties worth 4400 million Hong Kong dollars involved in the case.
Hong Kong regulators have issues with virtual currency exchanges
1. Hong Kong regulators are still not familiar with the business of centralized virtual currency exchanges
At a press conference, Hong Kong police revealed JPEX's operating model and promotional methods, pointing out that the JEPX exchange was secretly holding user address private keys, thereby controlling user assets. Those familiar with centralized exchanges know that leading centralized exchanges typically have user assets custodied by the platform to ensure asset security. This method lowers the barrier to entry and improves the user experience, but its drawback is that if the exchange acts maliciously, user asset security cannot be guaranteed. This incident demonstrates that the Hong Kong police's understanding of the cryptocurrency exchange business is still insufficient and may influence future regulatory policies.
In addition, during the arrest of individuals involved in the JPEX exchange case and the recovery of related assets, only physical assets such as cash and bank accounts were seized. In cases involving virtual currency exchanges, the majority of assets are virtual currencies. From the perspective of protecting investors' assets, Hong Kong police should focus on recovering the virtual currency assets held by users on the platform's escrow service. This would minimize losses for victims. However, based on currently available information, the Hong Kong police's efforts to track down the virtual currency assets involved in the case are progressing slowly.
2. JEPX exchange has low asset security and compliance
In its regulatory response, JPEX stated that due to service providers blocking the trading platform, users were unable to receive SMS verification codes. JPEX advised users to use the last six digits of their mobile phone number as the withdrawal verification code in such cases. Currently, rampant telecom fraud is largely due to the serious leakage of citizens' personal information, such as mobile phone numbers, which is exploited by criminal organizations for fraudulent purposes. JPEX's withdrawal method is clearly extremely irresponsible towards user asset security; criminal groups could easily use the leaked mobile phone number database to log in and steal user assets held by the platform.
In addition, the 45S Contract War product launched in the platform’s game hall is also very likely to involve the crime of opening a casino according to mainland criminal law, and the platform’s partnership model also has the risk of being suspected of organizing and leading pyramid schemes.