How China Government Regulates Risk Prevention for Bitcoin Transaction?

(By You Yunting)  The Circular on Issues Concerning Risks Prevention for Bitcoin was published on December 3rd in regards to regulating the bitcoin bubble, a virtual currency bubble, that has exploded in popularity in China and soared in value in recent months.The circular was issued jointly by People’s Bank of China, Ministry of Industry and Information Technology (the “MIIT”), China Banking Regulatory Commission (the “CBRC”), China Securities Regulatory Commission (the “CSRC”) and China Insurance Regulatory Commission (the “CIRC”), which states that Bitcoin has no legal status of monetary equivalent and must not circulate on the Chinese market.

We organize the content of the  as follows:

I.  Attributes of Bitcoin

While Bitcoin is called “money”, it is not a true currency as defined by the four characteristics of currency: it has no central fixed issuer, has a limited amount of use and no geographical restrictions, as well as anonymity, even though it is named as a “coin”. Bitcoin is just a specific virtual commodity without the legal equivalency of a “currency” and cannot and should not be circulated in the market.

II.  Financial institutions and payment agencies shall not conduct Bitcoin transaction.

At this stage, no financial intuitions and payment agencies are authorized to assess the value of commodities and services through Bitcoin, buy or sell Bitcoin as a central buyer, insure insurance businesses related to Bitcoin or put Bitcoin into the scope of insurance, provide direct or indirect services related to Bitcoin to the customers, including:

Providing customers with Bitcoin registration, exchange, liquidation and settlement and other services;

Accepting or using Bitcoin as payment;

Developing RMB or foreign currency exchange services with Bitcoin;

Absorbing, depositing or pledging using/in name of Bitcoin;

Issuing financial commodities related to Bitcoin;

Engaging in investing trust and funds using/in name of Bitcoin;

III.   Strengthening Bitcoin’s website approval

According to the Telecommunication Regulations and the Administrative Measures for Internet Information Services, websites that provide Bitcoin’s registration, exchange and other services shall be placed on the record with the telecommunication administration authority.

IV.  Services agents for Bitcoin shall be supervised and regulated to support anti-money laundering efforts

Regarding its high risk potential for use in money laundering and unlawful actions, the Circular requires that related authorities shall perform their duties of anti-money laundering by identifying the client’s data and reporting suspicious transactions and preventing money laundering activities related to Bitcoin in accordance with the Anti-Money Laundering Law.

V. Bitcoin’s websites shall apply to real-name registration system

The Circular stipulates that websites of Bitcoin’s registration and exchange shall identify users by personal information including real name, registered names, and ID numbers for the identification purposes.

Lawyers’ Comment:

I.  China has already had regulations of virtual currency prior to Bitcoin

In relation to virtual currency, as it involves the currency of the sovereign country, the Chinese government has been very vigilant. Earlier in June 2009, the Ministry of Culture (the “MOC”) and the Ministry of Commercepublished the Notice on Strengthening the Administration of Online Game Virtual Currency. In our previous post Is It Necessary ToDifferentiate Virtual Currency and Game Coin in Game Designing , we discussed how the MOC attempted to supervise the Q coin, a virtual currency that issued by Tencent and used to buy virtual value-added services with RMB at a fixed rate of 1:1.

II.    Bitcoin will face government regulations in China.

1.  ICP record

The Circular regulates that the website of Bitcoin exchange shall be placed on the record with the telecommunications administration authority in accordance with the Telecommunication Regulations and the Administrative Measures for Internet Information Services.There are two recording-systems in the Circular, i.e, the ICP record and the Value-added Telecommunication Service License. It is likely that the websites shall apply for ICP for the record because issuing a Value-added Telecommunication Service License by local telecommunications administration authority implies recognition on sensitive services carried out on Bitcoin exchange websites. Additionally, Local telecommunications administration authorizes are unwilling to assume liability for issuing a Value-added Telecommunication Service License in the event of problems with the Bitcoin exchange website.

2. Required real name registration by users

The Circular orders users registering with Bitcoin websites to identify themselves by their registration with their real name, ID number and other information. Whereas there is no requirement of real-name registration on Bitcoin websites outside of China, even if only China requires real-name registration, there is large possibility that users won’t be trading on China’s Bitcoin transaction websites. This policy demonstrate the Chinese governments’ official attitude towards Bitcoin: Bitcoinisnot welcome in China.

Lawyer Contacts

YouYunting86-21-52134918  youyunting@debund.com/yytbest@gmail.com

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