Hong Kong Combats Crypto Scams: Balancing Innovation with Investor Protection

Hong Kong has established a joint task force to combat cryptocurrency scams, following a high-profile incident that defrauded over 2,300 victims of approximately $182.9 million. The collaboration between the Hong Kong Police Force and the Securities and Futures Commission (SFC) aims to address the growing threat of fraudulent activities in the crypto sector. The task force, formed after a September 28 meeting of officials, integrates divisions such as Commercial Crime, Cyber Security, and Financial Intelligence from the police force with the SFC’s Enforcement and Intermediaries teams. Its objectives include sharing intelligence on suspicious activities, conducting risk assessments, and coordinating investigations to disrupt illegal schemes [4].

The JPEX scam, involving an unlicensed Dubai-based exchange operating in Hong Kong, underscored the urgency for stricter oversight. The incident highlighted vulnerabilities in the regulatory framework, as JPEX exploited gaps to mislead investors. In response, the SFC introduced measures on September 25 to enhance transparency by publishing a list of licensed, deemed-licensed, and pending virtual asset trading platforms (VATPs). These steps aim to protect investors while fostering a secure environment for crypto transactions [4].

Hong Kong’s regulatory evolution has been marked by a series of milestones since 2020, culminating in 2025 with a comprehensive licensing regime for crypto exchanges and service providers. The SFC’s ASPIRe framework, launched in 2025, emphasizes five pillars—Access, Safeguards, Products, Infrastructure, and Relationships—to balance innovation with investor protection. Initiatives such as licensing for OTC trading and crypto custody services, alongside the HKMA’s Project Ensemble regulatory sandbox, reflect Hong Kong’s ambition to become a global hub for digital assets. These frameworks align with global standards, including the Financial Action Task Force (FATF) guidelines, to mitigate risks like money laundering and sanctions evasion [1].

The joint task force’s formation follows a surge in crypto-related frauds, with the Hong Kong Police arresting four individuals in July 2025 for orchestrating a $3.2 million scam through a fake platform, DGCX Xinkangjia. The scheme exploited stablecoins like USDT, complicating asset recovery due to their liquidity. Such cases highlight the challenges of tracking illicit flows, particularly as geopolitical tensions increase the likelihood of crypto being used to circumvent sanctions. Blockchain analytics tools, such as Elliptic’s Lens and Investigator, are critical for real-time monitoring and cross-chain investigations, enabling regulators to stay ahead of fraudsters [2].

The SFC’s regulatory advancements are part of a broader strategy to position Hong Kong as a leader in the Asia-Pacific crypto ecosystem. The city’s approach contrasts with China’s blanket ban on crypto activities, offering a more flexible environment that attracts global players. By 2025, Hong Kong had processed over $12 billion in virtual asset transactions in the first half of the year alone, demonstrating its appeal to investors and businesses. The SFC’s emphasis on investor protection, including mandatory risk management protocols and enhanced customer due diligence (CDD), aims to build trust while curbing fraudulent practices [3].

The joint task force and regulatory measures signal a pivotal shift in Hong Kong’s approach to crypto governance. As scams grow more sophisticated—leveraging tactics like address poisoning and AI-driven deepfakes—collaborative efforts between regulators, industry leaders, and analytics providers will be essential. The SFC’s proactive stance, coupled with the task force’s operational focus, sets a precedent for jurisdictions grappling with the dual challenge of fostering innovation and combating financial crime. Hong Kong’s experience may influence global regulatory trends, emphasizing the need for adaptive frameworks to address the evolving crypto landscape [1].