China’s foreign exchange regulator has introduced new laws requiring banks to flag risky transactions, including those involving cryptocurrencies.
The State Administration of Foreign Exchange (SAFE) issued a notice last week outlining that banks must monitor and report “risky foreign exchange trading behaviors.”.
China Forces Banks to Report Risky Crypto Trades
According to the latest report, these regulations will make it harder for Chinese investors to trade Bitcoin and other digital assets. The banks must report on forex activities, including underground banking, cross-border gambling, and illegal financial transactions involving cryptocurrencies.
Also, the report specified that the rules will be applicable to all Chinese banks. The banks will now track trades based on the identities of the individuals and institutions involved, the source of funds, and the frequency of trades.
This move reflects China’s ongoing strict approach to regulating commercial crypto activities. Cryptocurrencies are viewed as a threat to the nation’s financial stability.
Liu Zhengyao, a lawyer at ZhiHeng law firm in Shanghai, commented on the new regulations in WeChat, according to the South China Morning Post.
“ The new rules will provide another legal basis for punishing cryptocurrency trading. It can be foreseen that mainland China’s regulatory attitude towards cryptocurrencies will continue to tighten in the future.” Liu said.
Liu also noted that the practice of using yuan to buy cryptocurrencies and then exchanging them for foreign fiat currencies could now be considered a “cross-border financial activity involving cryptocurrencies,” especially if the transaction amount exceeds the legal limit.
China’s Anti-Crypto Stance
Since 2017, China has restricted cryptocurrency trading and banned banks and payment systems from handling digital assets. In May 2021, the People’s Bank of China (PBOC) declared all transactions involving Bitcoin and other cryptocurrencies illegal.
Despite its anti-crypto position, China holds more than 190,000 BTC. This makes it the second-largest government holder of Bitcoin, following the US. China acquired the assets through seizures linked to illegal trading activities.
Interestingly, Justin Sun, founder of the Tron blockchain, urged China to adopt a more forward-thinking approach to cryptocurrency policy in July 2024.
“China should make further progress in this area. Competition between China and the US in Bitcoin policy will benefit the entire industry,” Sun said.
More recently, a Chinese court ruled that cryptoassets have “property attributes,” and Chinese law does not prohibit them outright. However, these protections only exist for crypto as a commodity, not as currency or business instrument.
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