What Does China’s Ban on ICOs Mean?
On September 4, 2017, the People’s Bank of China (“PBoC”) issued a statement banning Initial Coin Offerings (“ICOs”) and crypto token sales in order to avoid suspected illegal financial activities and the serious disruption of financial order in the People’s Republic of China (“PRC”).
In its statement, the PBC claims that token sales are an illegal open financing behavior worthy of close monitoring by local governments and judicial departments. This language echos similar concerns issued by The Monetary Authority of Singapore in early August, 2017, which opined that:
“ICOs are vulnerable to money laundering and terrorist financing (ML/TF) risk due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raised in a short period of time.”
The PBoC statement further claims that because virtual currency coins are not issued by a monetary bank or authority, they do not have the legal status equivalent to fiat money and cannot be circulated as currency in the market.
According to Business Insider, in July a PRC news agency cited a governmental agency’s report that:
“There had been 65 ICOs so far during the year raising a combined 2.62 billion yuan ($394.6 million) from 105,000 individuals in the country.”
Due to such high activity, token trading platforms are to immediately cease operation and if they do not comply, law enforcement will freeze their website, mobile app and revoke their business license among other legal repercussions.
Moreover, in an effort to protect consumers, South Korea regulators have joined PRC and the U.S. Securities and Exchange Commission’s (“SECs”) regulation of ICOs in vowing to tighten the monitoring of digital currency, including bitcoin.
South Korea’s Financial Supervisory Commission (“FSC”) announced on September 3rd, 2017 that it held a joint currency task force meeting in order to secure transparency in digital currency transactions. South Korea plans on revising current laws on the reporting and use of financial transaction information in introducing regulations on domestic trading of digital currencies.
Additionally, the FSC will closely monitor bitcoin-based remittance FinTechs and will punish ICOs that raise funds in the form of stocks. Bitcoin-based remittance services are extremely popular in the region as they guarantee same-day foreign transfers for lower fees in comparison to traditional remittances services that incur higher transaction fees and take days to transfer.
According to Business Korea however, Kim Yong-Beom, the Secretary-General of the FSC, has said that:
“At this point, digital currencies cannot be considered money and currency, [nor are they] financial products.”
Like the PRC, South Korea will also closely inspect digital currency trading platforms in order to take disciplinary action for violations to its digital currency laws.