Eight departments issue notice to further prevent and address risks of virtual currency trading and speculation — key points summarized

Recently, speculative activities related to virtual currencies and the tokenization of real-world assets (RWA) have occurred from time to time, disrupting the economic and financial order and endangering the property safety of the people.

Today, the People’s Bank of China, the China Securities Regulatory Commission, and six other departments jointly issued the “Notice on Further Preventing and Disposing of Risks Related to Virtual Currencies and Other Issues.” What are the key points of this notice? Compared to the “Notice on Further Preventing and Disposing of Risks of Virtual Currency Trading and Speculation,” also known as Document No. 237, issued jointly by the central bank and ten other departments in 2021, what revisions and clear regulations are introduced for the first time in this “Notice”? An in-depth analysis.

No domestic or foreign entities and individuals are allowed to issue stablecoins pegged to the Renminbi outside China

The “Notice” states that virtual currencies do not have the same legal status as legal tender. Virtual currencies such as Bitcoin, Ethereum, and Tether are not legally enforceable and should not and cannot be used as currency in the market.

Regarding the recently popular stablecoins, the “Notice” also makes the first regulation: without the approval of relevant authorities in accordance with laws and regulations, no domestic or foreign entities and individuals are allowed to issue stablecoins pegged to the Renminbi outside China.

Activities related to virtual currencies are considered illegal financial activities

The People’s Bank of China states that virtual currencies currently cannot effectively meet requirements for customer identification, anti-money laundering, and other aspects, and pose risks of being used for money laundering, fundraising scams, illegal cross-border fund transfers, and other illegal activities. The “Notice” clearly states that within China, virtual currencies are strictly prohibited, and activities related to virtual currencies are considered illegal financial activities, which must be strictly prohibited and lawfully shut down.

What specific activities are related to virtual currency business activities? The “Notice” mentions: conducting exchange services between legal currency and virtual currency within China, exchange between virtual currencies, buying and selling virtual currencies as a central counterparty, providing information intermediary and pricing services for virtual currency trading, token issuance and financing, and trading of virtual currency-related financial products, as well as suspected illegal issuance of tokens or securities, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities—all are strictly prohibited and must be lawfully shut down. Foreign entities and individuals are not allowed to illegally provide virtual currency-related services to domestic entities in any form.

Because virtual currencies rely on blockchain technology and support peer-to-peer transactions, breaking through the physical concept of “borders,” related risks are easily transmitted across borders. The “Notice” explicitly states for the first time that, without the approval of relevant authorities in accordance with laws and regulations, domestic entities and their controlled foreign entities are not allowed to issue virtual currencies outside China.

Engaging in RWA business within China is suspected of illegal financial activities

This time, the “Notice” also clarifies the concept and connotation of real-world asset (RWA) tokenization and emphasizes that conducting RWA activities within China, as well as providing related intermediary and information technology services, are suspected of illegal financial activities.

Real-world asset (RWA) tokenization refers to using encryption technology and distributed ledger or similar technology to convert ownership rights, income rights, and other interests into tokens (certificates) or other rights and debt instruments with token (certificate) characteristics, and conducting issuance and trading activities.

The “Notice” clearly states that engaging in real-world asset tokenization activities within China, as well as providing related intermediary and information technology services, are suspected of illegal issuance of tokens or securities, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities, and should be prohibited; except for activities approved by the competent business authorities in accordance with laws and regulations and conducted through specific financial infrastructure. Foreign entities and individuals are not allowed to illegally provide real-world asset tokenization-related services to domestic entities in any form.

Continuing to crack down on virtual currency “mining” activities

The issued “Notice” also clearly states that the National Development and Reform Commission, together with relevant departments, will strictly control virtual currency “mining” activities, conduct comprehensive inspections and shut down existing virtual currency “mining” projects, prohibit new “mining” projects, and ban “mining” machine manufacturers from providing sales and other services within China.

Maintaining a high-pressure stance against illegal activities related to virtual currencies and RWA

The “Notice” mentions that since last year, market speculation related to virtual currencies and RWA has increased, and some lawbreakers have taken advantage of the situation to carry out illegal fundraising, pyramid schemes, and other illegal activities under the guise of virtual currencies, RWA, and mining, or use virtual currencies to transfer illegal proceeds, severely endangering public property safety and disrupting normal economic and financial order. The “Notice” reiterates that efforts will be made to strengthen cross-departmental cooperation, enhance coordination between central and local authorities, and further improve risk monitoring, prevention, and disposal regulations, maintaining a high-pressure stance against illegal activities related to virtual currencies and RWA.

(Source: CCTV News Client)