China’s State Administration of Foreign Exchange has introduced new regulations requiring banks to identify and report high-risk transactions, including those linked to cryptocurrencies.
Stringent Measures on Cryptocurrency Control
The new directive 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. 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.
Legal Basis and Impact on Chinese Investors
Liu Zhengyao, a lawyer in Shanghai, pointed out that the new rules provide a stronger legal basis for penalizing crypto-related activities. He reportedly stated, “It can be foreseen that mainland China’s regulatory attitude towards cryptocurrencies will continue to tighten in the future.” 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.
Global Perspective and Future of Digital Assets
The regulatory tightening aligns with China’s broader efforts to curb financial risks. The People’s Bank of China’s China Financial Stability Report 2024 discusses global cryptocurrency regulation, highlighting Hong Kong’s advancements and the market’s recovery to $1.55 trillion in 2023, while also reiterating 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.
China continues to tighten cryptocurrency regulations, maintaining strict control over financial transactions as part of its strategy to mitigate financial risks and promote the digital yuan.
