7 Associations collectively warn about virtual currency risks

Reporter: Li Bing, Xiong Yue

Recently, seven associations including the China Internet Finance Association, the China Banking Association, the China Securities Association, the China Securities Investment Fund Association, the China Futures Association, the China Listed Companies Association, and the China Payment and Clearing Association jointly issued a risk alert regarding the prevention of illegal activities related to virtual currencies (hereinafter referred to as “the alert”).

The alert mentions that some unscrupulous individuals are taking the opportunity to promote trading speculation activities, conducting illegal fundraising, pyramid schemes, and other illegal activities under the guise of stablecoins, air coins (such as π coins), real-world asset (RWA) tokens, and “mining,” and are using virtual currencies to transfer the proceeds of illegal crimes, which seriously harms the property safety of the public and disrupts the normal economic and financial order.

As a result, the seven associations jointly remind that: first, it is essential to correctly understand the essential attributes of virtual currencies, real-world asset tokens, and related activities; second, relevant institutions must not engage in business related to virtual currencies and real-world asset tokens; third, the public should remain highly vigilant against all forms of virtual currency and real-world asset token business activities.

The alert clarifies the nature of virtual currencies and activities related to virtual currencies. The alert states that virtual currencies are not issued by monetary authorities, are not legal tender, do not have the same legal status as legal currency, and cannot be circulated or used as currency within our country. Domestic institutions and individuals conducting activities such as the exchange of legal currency and virtual currencies, the issuance and financing of real-world asset tokens within the territory are suspected of illegal activities such as the illegal sale of token vouchers, illegal fundraising, unauthorized public issuance of securities, and illegal operation of futures business. Foreign virtual currency and real-world asset token service providers directly or indirectly engaging in related business activities within our country are also considered illegal financial activities. Domestic staff of relevant foreign virtual currency service providers, as well as domestic institutions and individuals who knowingly or should have known that they are providing services for virtual currency-related businesses will be held legally accountable.

The seven associations clearly require that relevant institutions must not conduct business related to virtual currencies and real-world asset tokens, and delineate compliance boundaries for various types of institutions, including banks, payment institutions, securities, funds, futures institutions, and internet platform companies.

For example, member units of banks and payment institutions must not provide services for the issuance and trading of virtual currencies and real-world asset tokens within the territory, must not provide any form of financial services and credit support for virtual currency “mining” enterprises and projects, must strictly conduct customer due diligence, timely assess whether there are risks related to virtual currency and real-world asset token trading or money laundering, ensure that their operations comply with regulatory requirements, and report any suspicious leads to the relevant authorities in accordance with procedures.

The seven associations further state that the public should remain highly vigilant against all forms of virtual currency and real-world asset token business activities. The alert mentions several types of illegal activities that the public should be cautious about, including being wary of joining communities promoting virtual currency and real-world asset token business activities, and being alert to false advertising containing historical returns of virtual currencies, real-world asset tokens, buying and selling suggestions, or speculative prospects.

Liu Bin, director of the Financial Research Office of the China (Shanghai) Pilot Free Trade Zone Research Institute, told a Securities Daily reporter that as ordinary investors, they should: first, recognize the nature of virtual currencies as non-legal tender and resolutely avoid participating in related trading and derivative activities; second, stay away from virtual currency promotion and publicity, not trust false promises, and not engage with overseas illegal platforms; third, abandon a speculative mindset and enhance their risk identification capabilities.

Tian Lihui, a professor of finance at Nankai University, stated that ordinary investors should remember the “three no” principle to prevent risks related to virtual currency trading activities: do not participate, do not trust, and do not spread. Do not participate in virtual currency trading, do not trust false advertising of “high returns, low risks,” and do not disseminate related promotional information, staying away from links and QR codes of overseas trading platforms.

(Edited by: Wen Jing)

Keywords:

Virtual Currency