Following arrests linked to an unlicensed cryptocurrency exchange, Chief Executive John Lee signals Hong Kong will enhance digital asset regulations and investor education on virtual investment risks.

The arrested parties include social media influencers who promoted the JPEX currency exchange and JPEX employees, according to the police. The exchange affected over 1,600 investors and more than $150 million in assets.

Lee emphasized the importance of investors choosing licensed platforms when investing in virtual assets, stating that the Securities and Futures Commission (SFC) would closely monitor the situation to ensure investor protection.

In response to the incident, the government plans to enhance education on the risks associated with virtual asset investments and the regulation of platforms. Police Senior Superintendent Kung Hing-fun revealed that most affected investors were inexperienced and lured by promises of high returns and low risks.

Elizabeth Wong, who heads the Securities and Futures Commission's fintech unit, confirmed that an investigation was underway to determine if JPEX had violated anti-money laundering regulations. The case has been referred to the police, with the SFC offering assistance in the investigation.

The arrests followed last week's announcement by the SFC, highlighting that JPEX operated without a license. Numerous investors had reported difficulties in withdrawing their virtual assets or discovering discrepancies in their account balances.

JPEX temporarily suspended trading on its platform and negotiated with third-party market makers to resolve the liquidity shortage. The exchange alleged "unfair treatment by relevant institutions" in Hong Kong, specifically accusing an unnamed market maker of maliciously freezing funds.

Law enforcement has frozen bank accounts totaling 15 million Hong Kong dollars ($1 million) and seized properties worth 44 million Hong Kong dollars ($5.6 million). The police have received 1,641 complaints amounting to $1.2 billion Hong Kong dollars ($153 million) regarding JPEX.

Since mainland China banned cryptocurrency transactions in 2021, many Chinese cryptocurrency firms have sought refuge in Hong Kong. Only OSL Exchange and Hashkey Exchange have received approval to operate in the territory.

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