7 Associations collectively warn about virtual currency risks

Reporter Li Bing, Reporter Xiong Yue

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

The Alert said that some unlawful actors take advantage of the situation to hype up related trading and speculative activities. They carry out illegal fundraising, fraud by means of pyramid schemes, and other illegal activities under the guise of stablecoins, aircoins (such as π coins), real-world asset (RWA) token(s), and “mining,” and they use virtual currencies to transfer proceeds from illegal and criminal activities. This seriously infringes the financial security of the general public and disrupts the normal order of China’s economic and financial system.

Accordingly, the seven associations jointly pointed out that first, people must correctly recognize the nature and attributes of virtual currencies, real-world asset tokens, and related activities; second, relevant institutions must not carry out businesses related to virtual currencies and real-world asset tokens; and third, members of the public should remain highly vigilant against business activities involving virtual currencies and real-world asset tokens in all forms.

The Alert clarified the nature of virtual currencies and the nature of activities carried out in connection with virtual currencies. The Alert said that virtual currencies are not issued by monetary authorities, are not legal tender of the state, do not have the same legal status as legal tender, and cannot be used to circulate as currency within China. Domestic institutions and individuals carrying out within China activities such as exchanging legal tender for virtual currencies, issuing and financing real-world asset tokens, and so on, are suspected of engaging in illegal financial activities such as illegal sale of token securities, illegal fundraising, unauthorized public offering of securities, and illegal operation of futures business. Overseas virtual currency and real-world asset token service providers that directly or indirectly provide services within China to carry out related business activities also fall under the category of illegal financial activities. Domestic staff of relevant overseas virtual currency service providers, as well as domestic institutions and individuals that know of or should know that they are engaged in virtual currency-related business but still provide services for it, will be held accountable in accordance with the law.

The seven associations clearly require that relevant institutions must not carry out businesses related to virtual currencies or real-world asset tokens, and they should delineate the boundaries of compliant business development from different types of institutional entities, including banks, payment institutions, securities, fund institutions, futures institutions, and internet platform enterprises.

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

The seven associations further stated that the general public should remain highly vigilant about virtual currency and real-world asset token business activities in all forms. The Alert mentioned several types of illegal and criminal conduct that the public should watch out for, including being cautious about joining communities that promote virtual currency and real-world asset token business activities, and being alert to false publicity that contains claims about historical returns from virtual currencies and real-world asset tokens, trading and buying suggestions, or speculative prospects.

Liu Bin, head of the Financial Research Office of the China (Shanghai) Pilot Free Trade Zone Research Institute, told reporters from Securities Daily that, as ordinary investors, first, they need to recognize the essence that virtual currencies are not legal tender and resolutely not participate in related transactions or derivative activities; second, they should stay away from virtual currency promotional propaganda, not trust false promises, and not deal with overseas noncompliant platforms; third, they should discard a speculative mindset and improve their ability to identify risks.

Tian Lihui, a professor of finance at Nankai University, said that for ordinary investors to prevent risks in activities related to virtual currency transactions, they need to remember the “three nos” principle of not participating, not believing lightly, and not spreading: do not participate in virtual currency transactions; do not believe false publicity claiming “high returns and low risk”; do not spread related promotional information; and stay away from links to overseas trading platforms and QR codes, and so on.

(Editor: Wen Jing)

Keywords:

                                                            Virtual currency