China’s State Administration of Foreign Exchange has rolled out new regulations requiring banks to identify and report high-risk transactions, including those tied to cryptocurrencies.
This move is expected to create significant hurdles for mainland investors seeking to trade Bitcoin and other digital assets, according to the South China Morning Post.
The new directive reportedly mandates local banks to monitor “risky foreign exchange trading activities,” including those linked to underground banks, cross-border gambling, and illegal financial transactions involving cryptocurrencies. The banks must assess risks based on factors like the identity of participants, the source of funds, and trading frequency. They are also required to enforce risk-control measures and restrict specific services for flagged entities.
The South China Morning Post quoted Liu Zhengyao, a lawyer at ZhiHeng Law Firm in Shanghai, saying that the new rules provide a stronger legal basis for penalizing crypto-related activities.
“It can be foreseen that mainland China’s regulatory attitude towards cryptocurrencies will continue to tighten in the future,”
Liu reportedly stated.
The lawyer explained that using yuan to purchase crypto and converting it to foreign currencies could now be classified as “cross-border financial activities involving cryptocurrencies” if it exceeds legal limits, making it harder to evade forex controls via crypto.
The regulatory tightening aligns with China’s broader efforts to curb financial risks, as highlighted in the People’s Bank of China’s China Financial Stability Report 2024. The report discusses global cryptocurrency regulation, spotlighting Hong Kong’s advancements and the market’s recovery to $1.55 trillion in 2023. However, it also reiterates concerns about potential threats to financial stability.
These new measures reflect China’s ongoing crackdown on crypto-related activities, reinforcing its commitment to stringent regulatory oversight amid growing global discussions on the future of digital assets. Local authorities instituted and enforced a complete ban on crypto and related services in 2021 over concerns about its negative impact on the financial and economic system and its association with criminal activity. Instead, it promoted the use of its Central Bank Digital Currency (CBDC), the digital yuan (e-CNY). The Chinese central bank recently announced a new physical card offering for digital currency.
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