7 Associations collectively warn about virtual currency risks

Reporter Li Bing, Xiong Yue

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

The Warning mentions that some criminals take advantage of the situation to promote related trading and speculation activities, and under the guise of stablecoins, aircoins (such as π coins), real-world asset (RWA) token, and “mining,” carry out illegal fundraising, pyramid scheme fraud, and other illegal activities. They also use virtual currencies to transfer illegal and criminal proceeds, which seriously infringes on the property safety of the general public and disrupts the normal order of economic and financial operations.

Accordingly, the seven associations jointly issued the following warnings: first, to correctly understand the essential attributes of virtual currencies, real-world asset token and related activities; second, relevant institutions must not conduct business related to virtual currencies or real-world asset tokens; third, the general public should be highly vigilant against business activities of virtual currencies and real-world asset tokens in all forms.

The Warning clarifies the nature of virtual currencies and activities related to virtual currencies. The Warning states 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 as currency for circulation within China. Domestic institutions and individuals carrying out activities such as exchanging legal tender for virtual currencies, issuing real-world asset token and financing within China are suspected of illegal activities, including the illegal issuance of token securities, illegal fundraising, unauthorized public issuance of securities, and illegal operation of futures business. Overseas virtual currency and real-world asset token service providers that directly or indirectly take various means to provide services to offer related business activities to be carried out within China are also engaged in illegal financial activities. Domestic staff of relevant overseas virtual currency service providers, as well as domestic institutions and individuals that knowingly or should have known that they were engaging in virtual-currency-related business and still provided services for it, will be held legally accountable.

The seven associations have clearly required that relevant institutions must not conduct business related to virtual currencies or real-world asset tokens, and should draw compliance business boundaries from different types of institutional entities, such as banks, payment institutions, securities, fund institutions, futures institutions, and internet platform companies.

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

The seven associations further stated that the general public should be highly vigilant about business activities of virtual currencies and real-world asset tokens in all forms. The Warning mentions several types of illegal and criminal activities that the public needs to be wary of, including being cautious about joining communities that promote virtual currency and real-world asset token business activities, and watching out for false publicity that contains historical returns of virtual currencies and real-world asset tokens, buy/sell recommendations, or speculative prospects, etc.

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: first, one must recognize the essential nature of virtual currencies as illegal tender and resolutely not participate in related transactions or derivative activities; second, stay away from virtual currency promotional hype, do not trust false promises, and do not get involved with overseas noncompliant platforms; third, abandon a speculative mindset and improve risk-identification capabilities.

Tian Lihui, a professor of finance at Tianjin University, said that to prevent risks from virtual-currency-related trading activities, ordinary investors need to remember the “three no’s” principle: do not participate, do not easily believe, and do not spread. Do not participate in virtual currency trading; do not easily believe false publicity of “high returns, low risk”; do not spread related promotional information; and stay away from links to offshore trading platforms and QR codes, etc.

(Editor: Wen Jing)

Keywords:

                                                            Virtual currencies