Recent media reports, including in State-connected media, suggest that China is about to block access to all cryptocurrency trading platforms, including those operating overseas. In September 2017, the People’s Bank of China (“PBOC”) and six other government agencies jointly issued guidance immediately banning fundraising through offerings of tokens, such as initial coin offerings (“ICOs”), and requiring the closure of cryptocurrency exchanges in China by the end of September 2017.
The Chinese government’s most recent announcement would extend an effective ban on the use of cryptocurrencies to platforms that operate outside of China and offer services to mainland residents. The guidance would not apply to residents of Hong Kong or Macau. The move is widely seen as a response to the “offshoring” of virtual currency exchanges since the September 2017 notice, and is expected to be implemented through a combination of regulatory action and efforts to blacklist foreign-based cryptocurrency exchanges as part of China’s policy of internet censorship. Separately, on February 7, 2018, the Beijing Internet Finance Association issued a circular to members reminding them of the September 2017 PBOC notice, and advising them not to “participate in or organize” cryptocurrency, ICO or related business activities.
Meanwhile, in recent days authorities throughout Asia/Pacific have reiterated their respective positions on cryptocurrency trading. In response to Parliamentary questions, on February 5, 2018, Singapore’s Deputy Prime Minister said that country does not intend to ban cryptocurrencies, but was monitoring developments. On January 30, South Korea’s finance minister said the government has no intention of banning cryptocurrency trading despite prior indications that South Korean authorities might move to limit such trading. Other jurisdictions have taken a more aggressive posture. On February 9, Hong Kong’s Securities and Futures Commission announced having recently sent letters to cryptocurrency exchanges warning them not to deal in ICOs or other cryptocurrency transactions that amount to offerings of equity without a license, as such transactions may constitute securities transactions under Hong Kong law. Although Japan’s Financial Services Authority (“FSA”) expressed its intention to apply “light-touch” regulation to cryptocurrency, on February 8, it was reported that the FSA may begin conducting targeted on-site inspections of cryptocurrency exchanges. In December, Malaysia’s central bank and principal financial regulator published draft regulations requiring reporting of various types of cryptocurrency transactions pursuant to that country’s anti-money laundering legislation.
As China’s most recent action confirms, the regulatory environment for cryptocurrency transactions and businesses remains in a period of transformation. Companies and individuals who transact in cryptocurrencies or rely on related technologies, particularly those who transact across borders or who operate in countries subject to significant currency-related restrictions, should pay close attention to these ongoing developments and develop contingency plans to adapt in the event of regulatory change.