Karl Zhang
On May 18, 2021, the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued the Announcement on Preventing Cryptocurrency Speculation Risk to announce the following:
1. The nature and characteristics of cryptocurrencies and related business activities need to be properly understood.
Cryptocurrency is a specific virtual commodity that is not issued by a monetary authority, does not have the characteristics and enforceability of legal tender, is not a real currency and should not and cannot be used as currency for circulation in the market.
Establishing an exchange between a legal tender and cryptocurrencies, acting as a central counterparty for trading cryptocurrencies, providing intermediary and pricing services for such transactions, issuing tokens for financing and trading activities relating to cryptocurrency derivatives violate the relevant laws and regulations and also involve illegal fund raising, illegal issuance of securities, illegal sale of tokens and coupons as well as other offenses.
2. Relevant institutions shall not develop cryptocurrency-related business.
Financial institutions, payment institutions and other membership organizations should effectively increase their social responsibility and shall not use cryptocurrencies to price products and services, engage in cryptocurrency-related insurance services or include cryptocurrencies in the scope of insurance liability, directly or indirectly provide customers with other services related to cryptocurrencies, such as cryptocurrency registration, trading, settlement, storage, escrow and collateral; accept or use cryptocurrencies as payment and settlement tools; establish exchange services between cryptocurrencies and RMB foreign currencies; issuing financial products related to cryptocurrencies; investing in using cryptocurrencies by trusts and mutual funds.
Financial institutions, payment institutions and other membership organizations should thoroughly strengthen the monitoring of cryptocurrency trading funds, rely on industry self-regulatory mechanisms, improve sharing of risk information as well as the level of joint prevention and control of industry risks. If there is evidence of suspected illegal activities, measures such as restrictions, suspensions or termination of relevant transactions and services shall be timely implemented and reported to the relevant departments in accordance with the required procedures. Meanwhile, customer awareness and education should be done through multiple channels and forms with an active effort to provide proper warnings of risks associated with cryptocurrencies.
Internet membership platform organizations shall not provide network business premises, commercial display, marketing and publicity, paid traffic and other services to cryptocurrency-related businesses. If evidence of relevant issues are detected, it should be promptly submitted to the relevant departments, and technical support and assistance should be provided in the course of the relevant investigation work.
3. Consumers should raise their risk awareness to prevent loss of property and interests.
Cryptocurrency prices are not backed with any actual value and are highly susceptible to manipulation. Participating in relevant investment activities are fraught with risk of false assets, operation failure, speculative investment, etc. According to the existing judicial practice in China, cryptocurrency trading contracts are not protected by law, and the consequences and losses caused by investment transactions are borne by the parties themselves.
Consumers should thus raise their risk awareness and establish a proper investment concept, refrain from participation in cryptocurrency trading speculation activities, and be vigilant of damage to their personal property and interests. They should cherish their personal bank accounts and not use them for activities such as cryptocurrency account top-ups and withdrawals, purchase and sell relevant transaction top-up codes and transfer relevant transaction funds so as to prevent illegal use and leakage of personal information.
4. The self-regulation of membership organizations should be enhanced.
Membership organizations are required to strictly implement the relevant national regulatory requirements, abide by the industry’s self-regulatory commitments, and resolutely refrain from developing or participating in any business activities related to cryptocurrencies. The three associations will strengthen the self-regulatory supervision of their members; those who are found to have violated the relevant regulatory provisions and industry self-regulatory requirements will be subject to disciplinary measures in accordance with the relevant self-regulatory norms such as reporting within the industry, suspension of membership rights and cancellation of membership, along with a report to the financial regulatory authorities. In addition, those who are suspected of criminal offenses shall have the matter transferred to public security authorities.
The Financial Stability and Development Committee of the State Council held a meeting on May 21, 2021 in which it specifically proposed to strengthen the supervision of financial activities of platform companies and to “crackdown on bitcoin mining and trading practices.”