China Regulators: “Institutions…Must Not Engage in Virtual Currency Transactions or Disguised Transactions”

Noting “signs of (a) resurgence of virtual currency trading activities in the country,” four finance regulators in China (the Beijing Local Financial Supervision Bureau, the People’s Bank of China Business Management Department, the Beijing Banking and Insurance Regulatory Bureau, and the Beijing Securities Regulatory Bureau) “jointly issued a risk alert,” December 27th warning the country’s “institutions and personnel” that they, “must not engage in virtual currency transactions or disguised transactions with investors,” Shanghai Securities News reports.

China officially banned Bitcoin in late 2016, but foreign and domestic exchanges (many operating from nearby offshore locations), OTC-desks and word-of-mouth schemes continued to serve ongoing demand for cryptocurrencies in China.

Stories of cryptocurrency online forums being de-platformed and promotional events being forbidden in main cities did come out, but, until recently, enforcement seemed somewhat spotty or reliant on voluntary compliance.

When Chinese President Xi Jinping endorsed “blockchain”  this October, an explosion of cryptocurrency speculation in China ensued, suggesting that much crypto infrastructure was waiting in the wings in China.

In the aftermath of the explosion, the government took pains trying to remind the public about the difference between “blockchain” (distributed database technology with possibly useful industrial applications) and cryptocurrencies.

Blockchain, the government hopes, will empower state and industrial interests.

But in the wake of trade wars and downward pressure on the yuan, Chinese leaders now seem keen to control activity that could eviscerate the yuan from within.

Within weeks of the speculative trading surge this fall, “rectification” raids ensued in China’s major cities. At the end of November, the People’s Bank of China (PBOC) announced it had closed two-thirds of the country’s online lending platforms and 173 cryptocurrency entities.

Even in the face of these efforts, China regulators note a persistence of certain types of cryptocurrency activity there, including:

  • “virtual currency trading platforms provide virtual currency trading services to domestic residents”
  • “launch (of) zero-interest loans”
  • “dual currency financial management”
  • “(sale of) digital currency mortgages”

The four regulators say this activity, “seriously violates the ‘Announcement on Preventing the Financing Risks of Token Issuance,'” and implies, “illegal financial activities and disrupting the economic and financial order.”

State enforcement branches are accordingly asked to “maintain high pressure” on China’s cryptocurrency sector:

“The risk reminder states that the financial management departments, network telecommunications management departments, and public security departments within the jurisdiction continue to maintain high pressure on virtual currency transactions, ICOs and disguised ICOs, and comprehensively use methods such as on-site interviews, administrative investigations, website closures, and criminal filing.”

Further, the four regulators, “… seriously warn institutions and personnel in Beijing that carry out related activities. They must not publicize and promote relevant virtual currency projects or platforms, they must not conduct virtual currency business sales or transactions, they must not engage in virtual currency transactions or disguised transactions with investors, and they must not engage in or Acting on domestic and overseas virtual currency issuance and trading activities, financial institutions and non-bank payment institutions within its jurisdiction shall not provide services for any virtual currency transaction.”

For their part, investors are asked to, “maintain rationality, strengthen risk prevention awareness and identification ability, beware of being deceived, and promptly report relevant clues about violations of laws and regulations.”

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