China’s foreign exchange regulator has introduced new rules requiring banks to increase scrutiny and monitoring of cryptocurrency-related transactions, signaling tighter controls on digital asset activities.
Background
- China’s State Administration of Foreign Exchange (SAFE) announced new foreign exchange (forex) regulations aimed at flagging and restricting risky financial activities, including those involving cryptocurrencies
- Banks across mainland China are now mandated to monitor and report cross-border financial activities linked to underground banking, illegal cross-border transactions, and cryptocurrency trading
- The regulations require financial institutions to track activities based on identity verification, source of funds, trading frequency, and other risk factors
- Banks must also implement risk-control measures to prevent illegal activities and may restrict specific services to flagged entities
- These rules come as part of China’s ongoing efforts to maintain financial stability and curb capital outflows through cryptocurrency trading
Why should you pay attention?
- Increased Surveillance: Financial institutions in China will now face stricter requirements for identifying and reporting crypto-related transactions, reducing opportunities for unregulated trading
- Legal Implications: The new rules provide an additional legal foundation for penalizing cryptocurrency trading, making compliance more challenging for crypto traders and investors in mainland China
- Global Impact: Given China’s historical influence in cryptocurrency markets, these regulatory measures could have global repercussions on trading volumes and liquidity
- Cross-Border Activities Targeted: The practice of using the yuan to buy cryptocurrencies and convert them into foreign fiat currencies will face heightened scrutiny under these rules
Who said what?
- State Administration of Foreign Exchange (SAFE) stated:
“Banks are required to monitor and report risky foreign exchange trading behaviors, including illegal financial activities involving cryptocurrencies”
- Liu Zhengyao, a lawyer at ZhiHeng Law Firm in Shanghai, commented:
“The new rules will provide another legal basis for punishing cryptocurrency trading. Mainland China’s regulatory attitude towards cryptocurrencies will continue to tighten in the future”
- On evasion of forex regulations through crypto:
“It will become increasingly difficult to bypass China’s forex regulations through cryptocurrency transactions”
Zooming out
- These new measures reflect Beijing’s persistent crackdown on cryptocurrency activities, reinforcing previous bans on initial coin offerings, trading, and mining.
- China’s latest forex rules add another layer of control, further narrowing the window for crypto-related financial activities within the country
- The focus on cross-border financial activities involving digital assets indicates China’s commitment to preventing capital flight through cryptocurrency
- While cryptocurrency trading continues globally, China’s stance remains one of the strictest, and these latest rules further cement its regulatory position in the digital asset space
