China prohibits financial institutions from engaging in cryptocurrency business

May 19, 2021 8:59 am

China prohibits financial institutions and payment companies from providing services related to cryptocurrency transactions, and warns investors not to engage in speculative crypto transactions.

Details: National Internet Finance Association, China Banking Association, Payment and Clearing Association of China jointly issued an announcement on May 18, ordering financial institutions, including banks and online payments channels, must not offer clients any service involving cryptocurrencies, such as registration, trading, clearing, and settlement. 

"Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people's property and disrupting the normal economic and financial order," they said in the statement.

The institutions must not provide saving, trust, or pledging services of cryptocurrency, nor issue financial products related to cryptocurrency, the statement also said.

The statement also highlighted the risks of cryptocurrency trading, saying virtual currencies "are not supported by real value", their prices are easily manipulated, and trading contracts are not protected by Chinese law.

Context: Although the central government, especially financial regulators, embrace Bitcoin's underlying blockchain technology, they do not back cryptocurrency trading. In 2017, Beijing banned initial coin offerings and cracked down on businesses involved in cryptocurrency operations.

In June 2019, the People's Bank of China issued a statement saying it would block access to all domestic and foreign cryptocurrency exchanges and Initial Coin Offering websites, aiming to clamp down on all cryptocurrency trading with a ban on foreign exchanges.