China Regulatory Analysis
Current Regulations
1. The Essential Attributes of Fundraising Through Coin Offering
- Characterized ICOs as unauthorized and illegal public fundraising suspected of involving criminal activities.
- No Organizations or Individuals Shall Engage in Illegal Fundraising through Coin Offering.
- Bans fundraising through ICOs or token sales, and orders individuals and organizations who have raised funds using these mechanisms to refund them to the investors.
2. What did the recent Public Notice from The People’s Bank of China actually say?
- Management of Related Platforms Shall be Strengthened.
- Platforms and virtual currency exchanges are not to engage in any sort of trading activities that involves tokens or coins proceeding from ICOs.
- Financial Institutions and Non-Bank Payment Institutions Shall Not Conduct Businesses Related to Coin Offering Fundraising and Trading.
- Financial Institutions and Non-Bank Payment Institutions cannot directly or indirectly provide products or services for fundraising through ICOs, or insure businesses related to these activities, or include these tokens or coins in insurance coverage.
3. What did the recent Public Notice from The People’s Bank of China actually say?
- There has been pressure to protect less experienced investors from Ponzi Scheme ICOs, and market sentiment is that this ban is not permanent, but a temporary measure until more robust regulations are in place.
4. If you're a Non-Chinese firm, do you have to block Chinese individuals?
- If you are hoping to do business with China in future, the safest option would be to abide by the existing rules.
- Otherwise, assess which jurisdictions you care about in the long term and the risk you are willing to take on.
5. If you're an Non-Chinese exchange, what do you do with Chinese tokens from previous ICOs?
- The answer to this is less clear. It is possible that Chinese regulators will mandate a return of tokens and money.
- This could pose problems for a US-based exchange as the token would need to be assessed as a security or otherwise.
- It is helpful to consider the regulations in the jurisdiction the exchange is operating in.
6. The Chinese Government revealed a list that named 60 different companies and ICO platforms slated for investigation.
- The list shows they were reviewing a Canadian company. What could they do?
- There is a penalty for violating Chinese securities laws, but they don’t seem to be enforced widely outside of China.
- Violating the laws while operating within the country is more of a concern.
7. If you're in Switzerland and your ICO accepts Chinese customers, what could happen?
- This may be problematic as the activity would not be lawful in China.
- One should check if Swiss law has any rules against this, and perform a risk-based evaluation, weighing up whether you are willing to get on the bad side of Chinese regulators, and if access to a good customer base is worth the risk.
- Also remember: the ban is likely temporary, and you won’t want to be on regulators’ bad side when it lifts and you seek to do business in China.
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