The Hong Kong police have officially reported a substantial rise in the utilization of cryptocurrencies in fraudulent activities from 2022 to 2023.
Starting from mid-2023, Hong Kong has emerged as a favored hub for cryptocurrency trading, bolstered by a well-established regulatory framework. This sets it apart from mainland China, where all crypto trading has been prohibited since December 2021.
Although Hong Kong is part of China, its stance on cryptocurrency is noticeably more supportive, with Chinese government agencies endorsing crypto adoption in the region.
As of July 1, data from Hong Kong police reveals a significant increase in cryptocurrency-related crimes, soaring from 2,336 cases in 2022 to over 3,415 cases in 2023, totaling HK$4.33 billion (approximately $553 million). More than 90% of these cases were related to fraud.
The disclosed information sheds light on two main types of virtual asset service platform fraud schemes utilized by scammers.
In the initial scam type, scammers trick victims into transferring anonymous cryptocurrencies to their digital wallets.
Due to the decentralized nature of cryptocurrencies, which aren’t overseen by central authorities, users can create private wallets without divulging personal details, posing challenges for law enforcement in tracing their identities.
The second scam type sees fraudsters leveraging overseas platforms regulated by Hong Kong, adding complexity to the task of tracking and halting illicit funds for law enforcement.
At the same time, Hong Kong authorities are implementing substantial measures to strengthen regulations and improve oversight to counter the surge in cryptocurrency-related scams.
By permitting only compliant and reputable exchanges to function within its jurisdiction, the city seeks to boost investor trust and protect the financial ecosystem from fraudulent practices.
Hong Kong Set to Approve 11 Crypto Exchanges
As per a Bloomberg report, Hong Kong’s securities regulator has indicated that 11 cryptocurrency exchanges are nearing approval for licenses. This development comes a year after the implementation of a digital asset rulebook intended to establish the region as a leading hub for the industry.
The Securities & Futures Commission’s website states that applicants like Crypto.com and Bullish are now “deemed to be licensed.”
These platforms are among those with significant global trading volumes.
Notably, major digital asset platforms such as OKX and Bybit, which typically witness substantial activity, have withdrawn their permit applications. Binance Holdings Ltd., the world’s largest exchange, did not seek a license, nor did prominent U.S. platforms Coinbase Global Inc. or Kraken.
Hong Kong established a deadline of June 1 for crypto exchanges to either obtain a license or be considered as such. Companies must be at least deemed licensed to offer and promote services to local investors.
The issuance of actual permits will occur after the Securities & Futures Commission (SFC) verifies consistent compliance with regulatory requirements.
Striving to Become a Crypto Hub: Strategic Ambitions
Hong Kong embarked on its journey to become a virtual asset hub in late 2022, part of broader initiatives to reclaim its status as a financial center amid political unrest.
The city’s crypto endeavors encompass expanding licensed exchanges, introducing spot Bitcoin and Ether exchange-traded funds (ETFs), and formulating frameworks for stablecoins and digital bond issuance via tokenization platforms.
In its pursuit to lead in digital assets, Hong Kong contends with competitive forces from Dubai and Singapore. The city’s stringent regulatory framework aims to fortify investor protection while combatting money laundering and terrorism financing, albeit at a notable compliance cost.
Presently, HashKey exchange and OSL Group have secured full licenses, with roughly two dozen firms applying to operate crypto exchanges ahead of the February 29 deadline.
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