A troika of alerts issued by the Hong Kong Securities and Futures Commission has thrown the spotlight on the ongoing challenge of regulating trading in virtual assets via unlicensed and/or fraudulent platforms.

The regulator has issued warnings against 'VBIT Exchange', 'Tokencan' and 'HKD.com Corporation' - all of whom are reported to be trading unlicensed and/or committing fraud, for example, by withholding withdrawals from customers.

  • Tokencan – a purported VATP operated in Hong Kong without a licence which claims to provide cryptocurrency trading services and uses social media platforms to refer investors to its websites for investment in cryptocurrencies. It provided the SFC with false information and falsely claimed it had filed a licence application with the SFC. Investors reported withdrawal issues and their accounts were frozen subsequently.
  • VBIT Exchange – an entity suspected of actively marketing its purported VATP services to Hong Kong investors without a licence, and falsely claimed to be regulated by authorities in various jurisdictions on its website.
  • HKD.com Corporation – an entity that has adopted a name and logo that is very similar to another VATP when they are not associated. Investors were asked to deposit funds into designated bank accounts for investment purposes, but subsequently they reported difficulties with fund withdrawal.

The regulator states: "Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, it is an offence to carry on a business of providing a virtual asset service (ie, operating a virtual asset exchange) in Hong Kong and/or actively market such services to Hong Kong investors without a licence."

"At the SFC’s request, the Hong Kong Police has taken steps to block access to relevant websites and social media pages. Notwithstanding the action taken, the public should beware that scammers may continue to create websites with similar domain names."

"Once again, the SFC cautions investors against trading virtual assets on unregulated VATPs. Investors may risk losing their entire investment held on the platform if it ceases operation, collapses, is hacked or otherwise suffers from any misappropriation of assets. If in doubt about the licensing status of a VATP, please refer to the SFC’s List of licensed virtual asset trading platforms."

Trading in virtual assets remains a relatively new phenomenon in Hong Kong.

It was only as recently as 28 May that the HKSFC issued a statement that the "non-contravention period for virtual asset trading platforms (VATPs) operating in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (AMLO) will come to an end on 1 June 2024."

"All VATPs operating in Hong Kong must be either licensed by the SFC, or "deemed-to-be-licensed" VATP applicants under the AMLO. It is a criminal offence to operate a VATP in Hong Kong in breach of the AMLO, and the SFC will take all appropriate actions against any breaches of the law."

Also in Hong Kong it was only as recently as end October 2022 that the SFC authorised virtual asset futures ETFs for public offering. Local exchange, the HKEX welcomed its first three listed crypto asset ETFs on 31 January 2023.

In mainland China, the issue of virtual asserts remains somewhat murky. For example, while cryptocurrency has ostensibly been banned by Beijing for many years, it was reported in Cointelegraph in September 2023 that a People's Court noted in a ruling that "virtual assets under the current legal policy framework are still legal property and protected by law."

Other similar legal expressions of opinion have been heard in China, but the ongoing risk of downsides, as Beijing sees it, associated with cryptocurrencies, such as unregulated capital outflows, remains a key reason why the Chinese view on cryptoassets is unlikely to shift significantly in the medium term, noted Forbes in January 2024.