ohn September 15, 2021, the People’s Bank of China (PBOC), together with nine other government departments, jointly issued the Notice on Additional Prevention and Management of Speculation Risk in Virtual Currency Transactions.
In recent years, growing speculation surrounding the trading of cryptocurrencies such as bitcoin has disrupted the economic and financial order and spawned illegal activities such as money laundering, illegal fundraising, fraud, and fraud. pyramid sales, all of which seriously endanger the safety of people’s property.
In accordance with the decisions and provisions of the CPC Central Committee and the State Council, the PBOC, together with the relevant departments, has issued a series of policies and measures aimed at denying the status of cryptocurrencies as legal tender. , to prohibit financial institutions from performing and participating in cryptocurrency-related businesses, and to clean up and ban domestic cryptocurrency transactions and token issuance funding platforms.
In order to establish a standardized working mechanism and maintain the high-pressure crackdown on cryptocurrency trading, the PBOC and nine other ministries jointly issued the notice by summarizing past regulatory experience and analyzing emerging risks. .
Clarify the nature of cryptocurrencies and related activities. The opinion emphasizes that:
- Cryptocurrencies do not have the same legal status as legal currencies. The main characteristics of cryptocurrencies such as bitcoin, ETH and USDT include: (1) not being issued by monetary authorities; (2) using encryption technology, distributed accounts or similar technologies; and (3) existing in digital form.Cryptocurrencies do not have a legitimate clearing nature and cannot be released into the market as currencies.
- All cryptocurrency related businesses are illegal fundraising activities. Any entity involved in cryptocurrency related activities – such as those that trade between legal currencies and cryptocurrencies, trade between different cryptocurrencies, buying and selling cryptocurrency as as central counterparty, correspondence and pricing services for cryptocurrency transactions, issuance and funding of tokens and cryptocurrency derivatives transactions – will be suspected of carrying out illegal financial activities such as the illegal sale of token banknotes, unauthorized public issuance of securities, illegal exploitation of futures activities and illegal fundraising. All the aforementioned businesses will be strictly prohibited and strictly prohibited in accordance with the law. In the event that illegal financial activities constitute a crime, criminal liability will also be imposed.
For the first time, the notice makes it clear that it is also illegal for overseas cryptocurrency exchanges to provide services to Chinese residents through the internet. In accordance with the law, relevant responsibilities will be imposed on the domestic staff of the relevant overseas cryptocurrency exchanges, as well as the legal person, the unincorporated organization and the natural person who knows or should know that she is engaged in an activity related to cryptocurrency. , but still provide marketing advertising, payment and settlement, technical support, and other services for these exchanges.
The advisory also highlights the legal risks associated with cryptocurrency investment trading. For the first time, the notice states that for any legal person, unincorporated organization and natural person to invest in cryptocurrencies and related derivatives, if such investment violates public order and good customs, the relevant civil legal acts will be invalid and the losses incurred will be borne by themselves. In the event that investments are suspected of harming financial order and endangering financial security, the relevant department must investigate and take action in accordance with the law.
Clarify restrictions on trading activities related to cryptocurrency. Following the rules and regulations promulgated in recent years, the notice also stipulates a ban on financial institutions and non-bank payment establishments from providing services for business activities related to cryptocurrency.
Financial institutions and non-bank payment institutions: (1) will not provide services such as account opening, transfer of funds, clearing and settlement for commercial activities related to cryptocurrencies; (2) does not include cryptocurrencies in connection with mortgages and collateral; (3) must not carry out insurance activity related to cryptocurrencies or include cryptocurrencies within the scope of insurance liability; and (4) should report to relevant departments in a timely manner if they find any evidence of violations of laws and regulations.
Since cryptocurrency-related activities mostly take place online, the advisory strengthens the management of internet news content and access to cryptocurrencies. Internet businesses should not provide services such as online business premises, commercial signage, marketing advertising, and paid diversion for cryptocurrency related business activities.
If they detect violations of laws and regulations, they should report it to the relevant departments in a timely manner and provide technical support and assistance for the relevant investigation. According to clues provided by the Financial Management Department, the relevant Network Information and Telecommunications Department will promptly shut down Internet applications, websites, mobile applications and applets that conduct crypto-related business activities. cash.
The opinion also sticks to the principle of cracking down on illegal financial activities related to cryptocurrencies and cracking down on criminal activities related to cryptocurrencies, and also stresses the requirement to strengthen industrial self-discipline.
Build a working mechanism to manage the risks associated with speculative cryptocurrency trading. The notice specifies the joint operations between the different departments as well as the location of the risk control work.
Strengthening of risk monitors and alerts regarding speculative cryptocurrency trading. The notice strengthens the overall risk monitoring and risk alert requirements for speculative cryptocurrency trading and stipulates the establishment of the mechanism for sharing information and rapid reactions.
The notice not only provides insight into how cryptocurrency trading within or from China will be handled in the future, but also has an impact on offshore service providers to clients based in China. China. Offshore exchanges or companies with China-based trading team members who engage in offshore cryptocurrency trading should consider the following steps:
- Make sure they understand the terms of the advice and its potential implications;
- Consider whether and how existing activities need to be restructured, including by facilitating the relocation of clients from the continent or by moving trading activities to other jurisdictions;
- Determine whether existing systems can identify customers using a VPN to mask their actual location and, if not, what adjustments need to be made; and
- Update internal policies and procedures to ensure compliance with the terms of the notice.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on the basis of this information without seeking professional legal advice. You can contact Baker McKenzie by emailing Howard Wu (Shanghai) at [email protected]