Central Bank of China to Crack Down on Crypto Speculation; Hong Kong Revises Regulations


Recently, Pan Gongsheng, the newly appointed head of the People’s Bank of China (PBOC), highlighted the need for the agency to severely crack down on illegal financial activities such as cryptocurrency transactions in the country. During his speech titled “Report on the Financial Work of the State Council” at the 14th National People’s Congress Standing Committee meeting on Saturday, he mentioned that the PBOC will reduce consumer risks by eliminating fake gold exchanges, third-party wealth management companies, illegal fund-raising, and digital currency transactions.

Pan also noted the importance of the PBOC to effectively implement macroeconomic controls, strengthen financial supervision, and expand domestic demand. He was appointed as the PBOC Governor in July this year and is tasked with tackling the nation’s growing national debt and housing crisis.

In September 2021, the PBOC declared all crypto transactions such as trading and mining illegal. However, research from The Wall Street Journal revealed that China still remains the largest market for international cryptocurrency exchange Binance, with Chinese investors trading around US$90 billion in crypto in May 2021.

In an effort to promote a more permissive environment for digital assets, authorities have positioned Hong Kong as a regulatory testing area. Angelina Kwan, Chief Executive Officer of Stratford Finance and a former regulator at the Securities and Futures Commission of Hong Kong (SFC), stated that Hong Kong now serves as a crypto “sandbox” for mainland China.

Nevertheless, authorities are clamping down on the industry following a US$180 million fraud at cryptocurrency exchange JPEX in September. To address the risks posed to retail customers by certain “complex” virtual asset (VA) products and services, the SFC and Hong Kong Monetary Authority (HKMA) issued a joint circular on Friday. It stated that VA-related products, such as an overseas VA non-derivative ETF, should only be offered to professional investors. Before issuance, VA intermediaries must assess the client’s understanding of digital asset investment and the net worth required to cover any losses. If the client does not possess such knowledge, the intermediary may only proceed if it has provided adequate training on the nature and risks of virtual assets.

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