China Implements New Regulations for Banks to Monitor Crypto Transactions
China has implemented new regulations requiring banks to monitor and report risky foreign exchange and cryptocurrency transactions to combat illegal cross-border financial activities. The State Administration of Foreign Exchange (SAFE) issued a notice for banks to track transactions related to underground banking, cross-border gambling, and illegal crypto activities.
The rules require banks to monitor the identities of individuals and institutions, track sources of funds, and observe trading frequency. This increased scrutiny is expected to complicate trading in Bitcoin and other cryptocurrencies for Chinese investors. All banks must comply, indicating a nationwide effort for stricter financial oversight.
China's long-standing anti-crypto stance views digital assets as threats to financial stability. Lawyer Liu Zhengyao from ZhiHeng law firm stated that these measures provide a legal basis for penalizing cryptocurrency trading. He noted that purchasing cryptocurrencies with yuan and exchanging them for foreign fiat currencies may now be deemed illegal cross-border financial activity if transactions exceed legal limits.
This crackdown reflects China's ongoing attempts to control cryptocurrency use domestically. The government perceives cryptocurrencies as potential disruptors of the yuan and the financial ecosystem. Notably, China is the second-largest government holder of Bitcoin, with over 190,000 BTC obtained through seizures linked to illegal financial operations.
The restrictive policies date back to 2017 when financial institutions were banned from facilitating cryptocurrency transactions. In 2021, the People’s Bank of China (PBOC) declared all cryptocurrency trading illegal. However, loopholes and underground networks have allowed some trading to persist, leading to these new regulations.
Despite the strict stance, recent developments suggest some flexibility. A Chinese court ruled that cryptoassets possess property attributes and are protected under Chinese law when classified as commodities, not as currency or business instruments. This distinction provides limited legal protection to crypto holders while prohibiting the use of digital assets as financial instruments.
Justin Sun, founder of the Tron blockchain, has advocated for more progressive cryptocurrency policies in China. In July 2024, he suggested that a competitive approach to Bitcoin regulation could position China strategically against the US, benefiting the global cryptocurrency industry.
Nevertheless, the current trend indicates further tightening of crypto regulations in China. SAFE’s directive emphasizes the government's commitment to eliminating perceived risky financial activities. As stricter controls are enforced, the global crypto community observes whether these measures will successfully reduce illegal activities or drive them further underground.
Chinese investors currently face a restricted environment for cryptocurrency trading. The new regulations reflect a firm stance from authorities, with financial institutions tasked with monitoring and reporting violations. While cryptoassets receive limited legal recognition in China, their use as financial tools remains prohibited, and breaches will incur serious consequences.