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China bans fundraising through ICOs

4 September 2017 - update

18 July 2019

A cross-agency working committee of China (led by the People's Bank of China, and including the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration of Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission) issued the Circular on Preventing Risks related to Initial Coin Offerings on 4 September 2017.

This is the first time that Chinese regulators voice their stance in respect of initial coin offerings (ICOs) in China after the digital token offerings/sales have been burgeoning for months. Among others, the following key aspects of the Circular are worth noting:

  • ICOs are reiterated as an unauthorized and illegal public fundraising activity in nature, and may constitute a number of crimes such as illegal quasi-currency instruments offering, illegal securities offering, illegal fundraising, financial fraud and pyramid selling schemes. The digital tokens used in ICOs are not currencies issued by competent authorities and may not be circulated or used as currency on market;
  • all ICOs in China should be halted immediately, and issuers that have completed ICOs should provide refunds to investors;
  • digital token financing/trading platforms (including websites and APPs) are prohibited from (i) providing conversion services between the tokens and the lawful currencies, (ii) selling/purchasing (as the central counterparty or otherwise)  the tokens or other virtual currencies, or (iii) providing pricing or information/data intermediary services in relation to the tokens. The relevant platforms may be closed or barred from operating, and the business licenses of entities running such platforms may be revoked;
  • financial institutions and non-banking payment institutions are prohibited from  directly or indirectly providing any ICOs-related services (such as accounts opening, registration, trading, settlement, clearing, and ICOs-related insurance); and
  • investors are also required to be wary of the multiple-layer risks inherent in ICOs, refrain themselves from participating in ICOs and report the crimes to the police.