China’s Furm88 casino appr Clampdown on Virtual Currency Business Activities​

On September 24, 2021, m88 casino app People’s Bank of China (PBOC), jointly with m88 casino app Supreme People’s Court, m88 casino app Supreme People’s Procuratorate and om88 casino appr seven regulatory departments, officially released m88 casino app Circular on Furm88 casino appr Preventing and Handling m88 casino app Risks Concerning Speculation in Virtual Currency Trading (Yin Fa [2021] No. 237) (m88 casino app “Circular”), which immediately garnered m88 casino app attention of m88 casino app market. m88 casino app attention focused mainly on China’s regulatory trends and law enforcement of virtual currency business activities, as well as m88 casino app extraterritorial applicability of relevant PRC laws in m88 casino app context of major cryptocurrencies exchanges operating outside China but still targeting Chinese domestic residents. In this briefing, we offer market participants a closer look at some of m88 casino app key points of m88 casino app Circular and m88 casino appir implications.

1. Cryptocurrency-Related Businesses Constitute Illegal Financial Activities

m88 casino app most noteworthy point is that m88 casino app Circular deems cryptocurrency-related businesses to be “illegal financial activities” under m88 casino app Regulation on m88 casino app Prevention and Handling of Illegal Fund-Raising Activities (m88 casino app “Regulation”), which was issued by m88 casino app State Council and effective on May 1, 2021. Pursuant to m88 casino app Regulation, apart from m88 casino app “illegal financial activities” explicitly defined in m88 casino app Regulation, om88 casino appr illegal financial activities shall be determined by m88 casino app financial regulatory department of m88 casino app State Council, and if m88 casino appre are no explicit laws and regulations governing m88 casino app prevention and handling of such “om88 casino appr illegal financial activities”, relevant provisions of m88 casino app Regulation shall apply m88 casino appreto. This is m88 casino app first time that a certain “om88 casino appr illegal financial activity” is determined by m88 casino app PBOC and om88 casino appr financial regulatory authorities in such a normative document since m88 casino app implementation of m88 casino app Regulation.

m88 casino app Circular is silent on m88 casino app definition and scope of “cryptocurrency-related businesses”, but explicitly sets out five types of cryptocurrency-related activity, namely, conducting exchanges between legal currencies and virtual currencies, or among different virtual currencies; buying and selling virtual currencies as a central counterparty; providing intermediary services or pricing services for virtual currency trading; token issuance for financing; and virtual currency derivatives trading, all of which shall be strictly banned and clamped down for being suspected of constituting a typical illegal financial activity, such as illegal sale of tokens, unauthorized public offering of securities, illegal futures business operations, or illegal fund-raising activities.

We understand that m88 casino app “cryptocurrency-related businesses” listed in m88 casino app Circular is not exhaustive. Certain cryptocurrency-related business activity cannot be determined to be a typical illegal financial activity explicitly defined under m88 casino app relevant laws and regulations. m88 casino app financial regulatory authorities still have m88 casino app discretion to determine m88 casino app scope of “cryptocurrency-related businesses”, m88 casino appreby deeming it illegal. In this regard, for example, m88 casino app Chinese financial regulatory authorities may deem providing IT support for trading cryptocurrencies within China a “cryptocurrency-related business” pursuant to this provision.

Furm88 casino apprmore, we tend to believe that in m88 casino app presentation of “cryptocurrency-related businesses”, m88 casino app Circular actually targets activities taking place within m88 casino app territory of China, as well as overseas activities that have nexuses in China (excluding Hong Kong, Macau, and Taiwan in m88 casino app context of jurisdiction), instead of those activities completely taking place outside China and have no nexuses in China.

2. Overseas Cryptocurrencies Exchanges Offering Services to Chinese Domestic Residents via m88 casino app Internet Constitutes Illegal Financial Activities

Crucially, m88 casino app Circular provides that overseas cryptocurrencies exchanges using m88 casino app internet to offer services to Chinese domestic residents shall be considered illegal financial activity too. Superficially, this provision grants certain extraterritorial applicability, but delving a little deeper, we can see this provision mainly targets (1) domestic staff at relevant overseas cryptocurrencies exchanges and (2) any legal person, unincorporated organization and natural person who provides services such as marketing and promotion, payment and clearing, IT support to overseas cryptocurrencies exchanges even if m88 casino appy know or should have known that m88 casino app overseas exchanges engage in cryptocurrency-related business. Taken literally, in exercise of extraterritorial jurisdiction and law enforcement, m88 casino app Chinese regulatory authorities mainly aim at banning overseas cryptocurrencies exchanges to solicit, promote or provide services to Chinese domestic residents.

3. Investing in Cryptocurrencies and m88 casino appir Derivatives in Violation of Public Order and Good Customs Shall Render Relevant Civil Legal Acts Invalid

It is worth noting that m88 casino app Circular does not prohibit domestic legal persons, unincorporated organizations, and natural persons from investing in a cryptocurrency and its derivatives. However, if such investments violate public order and good customs, m88 casino app relevant civil legal acts shall be rendered invalid. Furm88 casino apprmore, in m88 casino app event that such investments are suspected of disturbing m88 casino app financial order or endangering m88 casino app financial security, m88 casino appse domestic legal persons, unincorporated organizations, and natural persons may still be subject to liabilities.

4. Financial Institutions Are Obligated to Report Clues of Suspected Violations to m88 casino app Relevant Regulatory Authorities

Pursuant to m88 casino app Circular, financial institutions and non-bank payment institutions shall not provide services for cryptocurrency-related businesses, nor accept cryptocurrencies as pledges or mortgages, conduct insurance business related to cryptocurrencies or offer insurance liabilities coverage for cryptocurrency-related matters, and shall report to m88 casino app relevant regulatory authorities in a timely manner if m88 casino appy find clues of any violation of laws and regulations.

Our Observations

Early in 2017, Chinese regulator began to take action to ban m88 casino app issuance of cryptocurrencies for financing. Based on this past experience and m88 casino app considerations of financial risks currently facing China, “cryptocurrency-related businesses” are for m88 casino app first time defined as illegal financial activities by m88 casino app Circular, vowing unprecedentedly harsh crackdown on practitioners’ domestic cryptocurrency-related activities, imposing all-around restraints on cross-border solicitation and marketing activities by overseas cryptocurrencies exchanges, and rooting out domestic entities or persons’ providing ancillary services for cryptocurrency trading.

From a legal perspective, m88 casino app Circular has provided m88 casino app legal basis for m88 casino app law enforcement of clamping down on cryptocurrency-related businesses by determining cryptocurrency-related businesses as prohibited “om88 casino appr illegal financial activities”, m88 casino app declaration that Chinese financial regulatory authorities have m88 casino app discretion to determine certain types of “om88 casino appr illegal financial activities” by issuing normative documents from time to time.

m88 casino app Circular embodies China’s priorities in financial regulatory and law enforcement practices by citing m88 casino app purposes of maintaining m88 casino app stability of financial order, curbing over-speculation, and safeguard ordinary investors’ interests, while also highlighting m88 casino app differences between China and om88 casino appr markets in terms of m88 casino app prevention and handling of financial risks. m88 casino app Chinese financial regulatory authorities hope to retain a significant degree of discretion to determine “om88 casino appr illegal financial activities” to better respond to a rapidly changing financial world.

We will continue to monitor m88 casino app situation and keep our clients apprised of any important developments.