Shanghai and Shenzhen Launch Crackdowns on Cryptocurrency Exchanges

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Over two years after the Chinese central bank imposed a ban on initial coin offerings (ICO’s) and cryptocurrency financing, the two leading tech and financial hubs of Shanghai and Shenzhen have launched further crackdowns on cryptocurrency exchanges within their jurisdictions.

On 21 November the official website for the Shenzhen municipal finance department announced that it had launched an investigation and rectification campaign targeting virtual currency exchanges, as well as issued a risk warning on illegal activities in relation to virtual currencies.

The announcement arrived just after the Shanghai Financial Stability Joint Office (上海市金融稳定联席办) and the Shanghai office of the Chinese central bank jointly issued the “Notice Concerning Undertaking Investigation and Rectification of Virtual Currency Platforms” (关于开展虚拟货币交易场所排摸整治的通知) on 14 November.

According to the Notice Shanghai had recently seen a resurgence in “blockchain technology propaganda” and “virtual currency speculation,” prompting local authorities to launch investigations that were scheduled to conclude prior to 22 November.

Domestic media indicates that a number of Chinese enterprises have arranged for virtual currency transactions in the name of “blockchain innovations;” issued virtual currencies under the guise of “blockchain application scenarios” and provided advertising and agency transaction services for ICO’s and virtual currency platforms registered outside of China.

PBOC first cracked down on the Chinese cryptocurrency sector in September 2017, with issuance of the “Pub­lic No­tice Con­cern­ing the Pre­ven­tion of Cryp­tocur­rency Is­suance Fi­nan­cial Risk” (关于防范代币发行融资风险的公告).

The Notice prohibited in­di­vid­u­als and or­gan­i­sa­tions from en­gag­ing in ICO’s, called for the im­me­di­ate sus­pen­sion of all cryp­tocur­rency fi­nan­cial ac­tiv­i­ties, and for in­di­vid­u­als and or­gan­i­sa­tions that had raised funds via cryp­tocur­rency is­suance to make arrange­ments for re­pay­ments to in­vestors.

The Notice also stated that “so-called cryp­tocur­rency fi­nanc­ing and trans­ac­tion plat­forms” are pro­hib­ited from en­gag­ing in trans­ac­tions in­volv­ing vir­tual cur­rency, the con­ver­sion of vir­tual cur­ren­cies into fiat money, and the pro­vi­sion of ser­vices in­clud­ing pric­ing and in­for­ma­tion in­ter­me­di­a­tion in re­la­tion to vir­tual cur­ren­cies.

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