Cryptocurrency Oversight in Hong Kong

Louise Ho Pui-shan, Hong Kong’s Commissioner of Customs and Excise, has called for increased oversight and regulatory measures in response to rising money-laundering risks in the cryptocurrency industry.

The HK$1.5 billion ($191 million) JPEX scandal revealed regulatory gaps in the city’s oversight of cryptocurrency exchanges.

In October 2023, the JPEX cryptocurrency scandal exposed vulnerabilities in Hong Kong’s existing regulatory framework for virtual asset platforms.

This event has prompted a review of the governance options available to businesses that facilitate cash exchange for cryptocurrencies, also known as cash-for-crypto shops.

The South China Morning Post reported that Hong Kong Customs Chief Ho emphasized addressing two fundamental aspects of regulating these over-the-counter (OTC) exchange shops.

The first concern is combating money laundering and preventing the financing of terrorism, which is exacerbated by the anonymity that cryptocurrencies offer.

The second aspect focuses on protecting investors’ interests, particularly in light of the JPEX scandal, in which some OTC shops actively promoted dubious investment offerings that the Securities and Futures Commission described as “too good to be true.”

Commissioner Ho’s stance on the need for a comprehensive regulatory review has garnered attention and sparked optimism that the Customs and Excise Department, which oversees conventional money changers in the city, may extend its jurisdiction to include OTC cryptocurrency exchanges.

However, the Commissioner refrained from providing specifics and emphasized that relevant authorities and regulatory agencies were evaluating potential governance options.

Recently, Hong Kong has seen an increase in money laundering cases involving cryptocurrencies, especially in the context of large-scale schemes.

Concerns have been raised over the ability of existing regulations to effectively combat illegal activities that exploit the anonymity inherent in crypto transactions.

Additionally, Commissioner Ho emphasized the significance of international cooperation in addressing the issue of money laundering in the cryptocurrency industry.

Recognizing that money launderers frequently utilize the global nature of digital currencies to evade detection, Hong Kong is actively enhancing collaboration with international counterparts to combat this transnational threat effectively.

As previously reported, the JPEX scandal in Hong Kong has shaken the confidence of retail investors in cryptocurrencies, as 41% of people do not wish to own cryptocurrencies.