New Chinese Regulations Mandate Stricter Bank Oversight on Cryptocurrency Transactions
The Chinese foreign exchange authority has issued new regulations obliging banks to report transactions they deem as high-risk, including those associated with cryptocurrencies. This step could complicate the ability of investors on the mainland to engage in the trading of bitcoin and similar digital currencies.
The guidelines now instruct banks to detect and document any signs of potential ‘risky foreign exchange trading practices’ that include informal banking operations, international gambling, and illicit activities regarding cross-border finance with cryptocurrencies. This directive comes directly from a recent communique by the State Administration of Foreign Exchange.
Nationwide, Chinese banks must administer these rules, meticulously tracking activities by identifying and assessing the parties involved, the origins of the capital, and the frequency of the transactions, among other criteria.
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Additionally, the financial institutions must implement risk management protocols that encompass oversight of such entities and restrict them from accessing certain services, as mandated by the authorities.
These latest requirements underscore the stringent approach Beijing is maintaining to eliminate market activities relating to cryptocurrencies, such as trading and mining of bitcoin, due to perceiving them as threats to national financial security.
Chinese regulators continue to stand against activities concerning bitcoin and alternative cryptocurrencies. Photo: Shutterstock alt=Chinese regulators steadfast against activities involving bitcoin and other cryptocurrencies. Photo: Shutterstock
“The new regulations establish an additional legal framework for penalizing cryptocurrency transactions,” expressed Liu Zhengyao, a legal expert at ZhiHeng law firm in Shanghai, via a WeChat message last week. “It is expected that the regulatory stance in mainland China towards cryptocurrencies will get more strict over time.”
According to Liu, using the yuan to purchase cryptocurrencies and then converting these digital assets into various foreign currencies might fall under ‘cross-border financial activities involving cryptocurrencies’ as per the new foreign exchange guidelines, especially if the amount transacted exceeds the legal limit.
“As time goes on, using crypto to bypass the nation’s foreign exchange laws will become increasingly challenging,” Liu mentions.
Initial coin offerings were prohibited by Beijing in 2017, a move followed by a shutdown of cryptocurrency exchanges. This offensive intensified in 2021 with a ban on bitcoin mining and a declaration that all crypto-related business activities were illegal.
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