7 Associations collectively warn about virtual currency risks

Staff Reporter: Li Bing, Xiong Yue

Recently, seven industry associations in China, including the China Internet Finance Association, the China Banking Association, the China Securities Association, the China Securities Investment and Fund Industry Association, the China Futures Industry Association, the China Listed Companies Association, and the China UnionPay Payments and Clearing Association, jointly issued a risk alert regarding measures to prevent illegal activities involving “virtual currencies,” etc. (hereinafter referred to as the “Alert”).

The Alert states that some criminals take advantage of the situation to promote and encourage related trading and speculation activities, using the pretexts of stablecoins, scam tokens/aircoins (such as π coins), real-world asset (RWA) token(s), “mining,” and so on, to carry out illegal activities such as unlawful fundraising and pyramid schemes and fraud, and to use virtual currencies to transfer proceeds from illegal and criminal acts. This seriously infringes the property security of the general public and disrupts the normal order of economic and financial operations.

Accordingly, the seven associations jointly issued the Alert, stating that (1) people must correctly recognize the nature and attributes of virtual currencies, real-world asset tokens, and related activities; (2) relevant institutions must not conduct business related to virtual currencies and real-world asset tokens; and (3) the general public must remain highly vigilant regarding various forms of business activities involving virtual currencies and real-world asset tokens.

The Alert clarifies the nature of virtual currencies and activities conducted involving virtual currencies. The Alert states that virtual currencies are not issued by monetary authorities; they are not legal tender issued by the state; they do not have the same legal status as legal tender; and they cannot be used to circulate as currency within China.

Within China, institutions and individuals engaging in activities such as exchanging legal tender for virtual currencies, issuing real-world asset tokens, and raising financing, are suspected of carrying out illegal financial activities such as the illegal sale of token securities, illegal fundraising, unlawful public issuance of securities, and illegal operation of futures businesses, etc. Overseas virtual currencies and real-world asset token service providers that directly or indirectly provide services, by any means, to support related business activities within China are also considered illegal financial activities. The onshore personnel of relevant overseas virtual currency service providers, as well as onshore institutions and individuals that knowingly or should have known that they were engaging in virtual-currency-related business and still provided services, will be held legally liable.

The seven associations clearly require that relevant institutions must not conduct business related to virtual currencies and real-world asset tokens, and they should demarcate the boundaries for compliant business development from different types of institutional entities, such as banks, payment institutions, securities, fund, and futures institutions, and internet platform enterprises, etc.

For example, bank and payment institution member units must not provide services for activities related to the issuance and trading of virtual currencies and real-world asset tokens within China, and must not provide any form of financial services or credit support to “mining” enterprises and projects for virtual currencies. They must strictly conduct customer due diligence, promptly assess whether virtual currency and real-world asset token trading or money-laundering risks are involved, ensure that business development complies with regulatory requirements, and when suspicious leads are found, take measures in accordance with procedures and report to relevant departments.

The seven associations further stated that the general public must remain highly vigilant regarding business activities involving virtual currencies and real-world asset tokens of various forms. The Alert mentions several types of illegal and criminal activities that the public needs to be wary of, including being cautious about joining communities that promote business activities involving virtual currencies and real-world asset tokens, and watching out for false publicity that contains information such as historical yields of virtual currencies and real-world asset tokens, buy/sell recommendations, or speculative prospects.

Liu Bin, Director of the Financial Research Office at the China (Shanghai) Pilot Free Trade Zone Research Institute, told a reporter from The Securities Daily that, as ordinary investors, (1) they must clearly recognize the essence that virtual currencies are not legal tender, and resolutely not participate in related transactions and derivative activities; (2) they must stay away from promotions and publicity for virtual currencies, not trust false promises, and not engage with overseas non-compliant platforms; (3) they should abandon a speculative mindset and improve their ability to identify risks.

Tian Lihui, a professor of finance at Tianjin Nankai University, said that, for ordinary investors to prevent risks related to transactions involving virtual currencies, they need to keep in mind the “three no’s” principle: not participate, not trust blindly, and not spread information. Do not participate in virtual currency transactions; do not trust false publicity of “high returns and low risk”; do not spread related promotional information; and stay away from links and QR codes of overseas trading platforms, etc.

(Editor: Wen Jing)

Keywords:

                                                            Virtual currency