7 Associations collectively warn about virtual currency risks

Our reporters Li Bing and Xiong Yue

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

The Warning states that some criminals are taking the opportunity to promote trading and speculation activities, disguising illegal fundraising, pyramid schemes, and scams under the pretexts of stablecoins, air coins (π coins, etc.), real-world asset (RWA) tokens, and “mining.” They also use virtual currencies to transfer illegal gains, severely infringing on the property safety of the public and disrupting normal economic and financial order.

Accordingly, the seven associations jointly remind that: First, to correctly understand the essential nature of virtual currencies, real-world asset tokens, and related activities; second, relevant institutions must not engage in activities related to virtual currencies and real-world asset tokens; third, the public should remain highly vigilant against various forms of virtual currency and real-world asset token activities.

The Warning clarifies the nature of virtual currencies and related activities. It states that virtual currencies are not issued by monetary authorities, are not legal tender, and do not have the same legal status as legal currency. They cannot be circulated or used as currency within China. Domestic institutions and individuals engaging in activities such as exchanging legal currency for virtual currencies, issuing and financing real-world asset tokens, or conducting related financial activities within China may be suspected of illegal issuance of tokens or securities, illegal fundraising, unauthorized public issuance of securities, or illegal futures trading. Providing services directly or indirectly through various means to conduct related activities within China by overseas virtual currency and real-world asset token service providers is also considered illegal financial activity. Staff of these overseas service providers operating within China, as well as domestic institutions and individuals who knowingly or should have known about their involvement in virtual currency activities and still provide services, will be held legally responsible.

The seven associations explicitly require that relevant institutions must not engage in activities related to virtual currencies and real-world asset tokens, and they have delineated compliance boundaries for different types of institutions, including banks, payment institutions, securities, funds, futures companies, and internet platform enterprises.

For example, member banks and payment institutions are prohibited from providing services related to the issuance and trading of virtual currencies and real-world asset tokens within China. They must not offer any financial services or credit support to virtual currency “mining” enterprises and projects. They should conduct strict customer due diligence, promptly assess whether transactions involve virtual currencies, real-world asset tokens, or money laundering risks, ensure compliance with regulatory requirements, and report suspicious clues according to procedures.

The seven associations further emphasize that the public should remain highly vigilant against various forms of virtual currency and real-world asset token activities. The warning highlights several types of illegal activities that the public should be cautious of, including joining communities promoting virtual currencies and real-world asset tokens, and being wary of false propaganda claiming high returns, trading advice, or speculative prospects related to virtual currencies and real-world asset tokens.

Liu Bin, Director of the Financial Research Office at the China (Shanghai) Pilot Free Trade Zone Research Institute, told Securities Daily that as ordinary investors, they should: first, recognize the nature of virtual currencies as non-legal tender and resolutely avoid participating in related transactions and activities; second, stay away from virtual currency promotions and propaganda, avoid false promises, and do not engage with overseas illegal platforms; third, abandon speculative mindsets and improve risk identification capabilities.

Tian Lihui, Professor of Finance at Nankai University, stated that ordinary investors should remember the “Three No’s” principle to prevent risks related to virtual currency transactions: no participation, no belief, and no spreading. They should not participate in virtual currency trading, not believe in false propaganda of “high returns and low risks,” and not spread related promotional information, avoiding links and QR codes to overseas trading platforms.

(Edited by: Wen Jing)

Keywords: Virtual Currency