The People’s Bank of China, the Office of the Central Cyberspace Affairs Commission, the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange jointly issued the Circular on the Further Prevention and Handling of the Speculation Risk in Virtual Currency Trading (Yinfa  No. 237) (the “Circular”) on September 15, 2021. The release of the Circular signifies another escalation in the supervision and regulation of virtual currencies in China. This article briefly describes the important contents of the Circular.
1. Per the list of authorities that issued the Circular, this is the first time the Supreme People’s Court and the Supreme People’s Procuratorate joined the effort. As the highest judicial organs in China, the Supreme People’s Court and the Supreme People’s Procuratorate being listed among the issuing authorities means that the risk of criminal liability arising from virtual currency trading will increase significantly, and the Supreme People’s Court and the Supreme People’s Procuratorate are expected to subsequently issue judicial interpretations regarding virtual currencies.
2. The Circular reiterates China’s consistent regulatory policy on virtual currencies. As early as 2013, the People’s Bank of China, the Ministry of Industry and Information Technology, and the China Banking Regulatory Commission issued the Circular on Preventing Bitcoin Risks, which specifically stipulated that Bitcoin is a virtual commodity and does not have the same legal status as a currency. The Circular again declares that virtual currencies such as Bitcoin, Ethereum, and Tether, whose primary characteristics are that they are not issued by monetary authorities, use cryptography, distributed accounts or similar technologies and exist in digital form, do not have the same legal status as a legal tender, and cannot be circulated in the market as a currency.
3. The Circular specifies the virtual currency-related business activities that are deemed illegal financial activities, which include: conducting exchange business between legal currencies and virtual currencies, exchange business between virtual currencies, trading virtual currencies as a middleman, acting as an intermediary for trading information and providing pricing services for virtual currency transactions, token issuance financing, and virtual currency derivatives trading. All illegal issuance of tokens, public offering of securities, operation of futures business, illegal fundraising and other illegal financial activities in relation to the aforementioned business activities will be strictly prohibited, and if they constitute a crime, criminal liability will be pursued in accordance with law.
4. One of the highlights of the Circular is the clear regulation on continuing to provide services to residents in China after moving servers overseas, which the Circular also deems as illegal. The Circular stipulates clear rules regarding the staff of overseas exchanges in China and the right to pursue the relevant liabilities of such staff as well as those of the legal persons, unincorporated organizations, and natural persons who provide marketing, payment settlement and technical support services to overseas virtual currency exchanges despite knowing or should have known that they are engaging in virtual currency-related business.
5. The Circular emphasizes the legal risks of participating in virtual currency investment and trading activities. All relevant civil acts engaged by any legal person, unincorporated organization, or natural person who invests in virtual currencies and related derivatives are contrary to public order and are thus invalid, and they shall bear the resulting losses on their own.
In addition, the Circular proposes specific work measures for the speculation risk in virtual currency trading, including the establishment of departmental collaboration and coordination, strengthening the early detection and warning of speculation risking virtual currency trading, and building a multi-dimensional and multi-level risk prevention and handling system. The joint action by state departments and governments at all levels shows the state’s strong intent to strictly regulate virtual currencies. Therefore, relevant enterprises and individuals are being specifically asked to exercise caution in participating in virtual currency trading activities.