China has reiterated its ban on financial institutions and payment companies providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading. Chinese regulators have tightened restrictions that ban financial institutions and payment companies from providing services related to cryptocurrencies, marking a fresh crackdown on digital money.
Compared with a previous ban issued in 2017, the new rules greatly expanded the scope of prohibited services, and judged that “virtual currencies are not supported by any real value”.
Notably, China has not barred individuals from holding cryptocurrencies. Additionally, some Mainland Chinese courts have recognized Bitcoin as a “virtual commodity” or “virtual asset” (see (2019) Hu 01 Min Zhong No. 13689)
WHAT ARE THE NEW MEASURES?
Three financial industry associations on Tuesday directed their members, which include banks and online payment firms, not to offer any crypto-related services, such as account openings, registration, trading, clearing, settlement and insurance, reiterating the 2017 ban.
The new ban, which was posted by the People’s Bank of China (PBOC), also covers services that were not previously mentioned.
For example, it made clear that institutions must not accept virtual currencies, or use them as a means of payment and settlement. Nor can institutions provide exchange services between cryptocurrencies and the yuan or foreign currencies. Institutions were also prohibited from providing cryptocurrency saving, trust or pledging services and issuing crypto-related financial products, and virtual currencies must not be used as investment targets by trust and fund products.
Banks and payment companies were also urged to step up monitoring of money flows involved in cryptocurrency trading, and coordinate more closely in identifying such risks.
WHAT WERE EARLIER RULES IN CHINA AGAINST CRYPTOCURRENCIES?
China does not recognize cryptocurrencies as legal tender and the banking system does not accept cryptocurrencies or provide relevant services.
In 2013, the government defined bitcoin as a virtual commodity and said individuals were allowed to freely participate in its online trade.
However, later that year, financial regulators, including the PBOC, banned banks and payment companies from providing bitcoin-related services.
In September 2017, China banned Initial Coin Offerings (ICOs) in a bid to protect investors and curb financial risks.
The ICO rules also banned cryptocurrency trading platforms from converting legal tender into cryptocurrencies and vice versa.
The restrictions prompted most such trading platforms to shut down with many moving offshore.