The Announcement is by far the most stringent measure to regulate cryptocurrencies in China to date. Prior to the Announcement:
- cryptocurrencies (such as Bitcoin) were not regulated clearly in China - there were only a few policies which suggested that Bitcoin, although not a legal currency, was to be treated as a virtual product;2 and
- there was no clear guidance as to how ICOs should be regulated.
With the issuance of the Announcement, the Chinese authorities have clearly indicated their position that token offerings such as ICOs are classified as illegal fundraisings.
Clearly this will significantly impact China’s booming cryptocurrency market. Given that the Chinese authorities have indicated they can punish both past and future violations, businesses engaging in ICOs in China must take immediate action to:
- suspend any ongoing fundraising activities through the offering of tokens or virtual currencies; and
- conduct a comprehensive compliance review of any completed token offering projects (including ICOs) to mitigate both non-compliance risk and the risk of criminal liability.
Given ICOs are subject to different regulatory regimes in different jurisdictions, it is important for any business that is contemplating conducting an ICO to:
- obtain multi-jurisdictional securities law advice and to consider whether any jurisdictions (or categories of persons) need to be excluded from the ICO; and
- carry out investor identification checks to facilitate and support any such exclusions.