China bans financial, payment institutions from cryptocurrency business

19 May, 2021 10:06
source: Singularity Financial

Singularity Financial Hong Kong May 19, 2021 – China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.

The directives were made in a joint statement from the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.

They stated that any activity related to the exchange of fiat money for cryptocurrencies, providing intermediary services to facilitate trading, or conducting token-based derivatives trading, could be charged as a criminal offence in China.

The warning, which was republished by the People’s Bank of China (PBOC), the country’s central bank, underlines Beijing’s caution when it comes to the financial risks and money laundering concerns raised by cryptocurrencies.

It was China’s latest attempt to clamp down on what was a burgeoning digital trading market. Under the ban, such institutions, including banks and online payments channels, must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement, three industry bodies said in a joint statement on Tuesday.

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”.

WHAT ARE THE NEW MEASURES?

The Inner Mongolia autonomous region, which recently started a campaign to stamp out cryptocurrency mining in a bid to cut carbon emissions, announced Tuesday it had set up a platform for residents to report on illegal projects.

The same day, Three Chinese state-backed financial associations have jointly issued a warning banning financial institutions and payment companies from directly or indirectly providing cryptocurrency services to customers, including accepting the currency as payment. They also warned about the risks of speculating in cryptocurrencies and urged individuals to be wary of scams after police in Anhui province said they busted a digital currency pyramid scheme involving around 2,000 people and more than 200 million yuan ($31 million).

The new ban 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.

Additionally, institutions were 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.

China has long taken a negative view of cryptocurrencies amid concerns over the potential risks to the domestic financial system posed by a surge in speculation. In 2014, financial regulators banned financial and payments institutions from conducting Bitcoin-related business, including accepting it as payment. In September, the People’s Bank of China (PBOC) banned initial coin offerings (ICO) and in February 2018, a PBOC-affiliated newspaper said the central bank wouldblock access to domestic and foreign cryptocurrency exchanges.