Photo/Shetuwang

Sept. 25 (NBD) -- As Chinese authorities make moves to straighten virtual currency exchanges and ICOs (Initial Coin Offering), some trading platforms detour to overseas incorporation in order to bypass domestic supervisions and regulations.

Chinese regulators including the Office of the Central Cyberspace Affairs Commission and the China Banking and Insurance Regulatory Commission have been warning investors against risks of illegal fundraising in the forms of cryptocurrency trading and ICOs.

Firms register overseas to bypass supervision

The Shanghai Branch of the People's Bank of China and the Shanghai Financial Service Office last Tuesday jointly issued a public notice, reminding customers and investors of the illegal fundraising nature of cryptocurrency trading and urging investors to keep away from such transactions.

Huang Zhen, a professor at Central University of Finance and Economics, held under increasingly strict supervision, Bitcoin transactions in renminbi have dropped sharply and the number of platforms and channels for Bitcoin trading has been declining, which reduces the possible impact and negative influence of virtual currency and ICOs on the country's financial system.

However, driven by interest, some platforms got back in the game through changing their places of incorporation to other countries or regions.

It's detected that trading sites of virtual currencies generally employ two ways to disguise. First, companies which previously were incorporated in China get registered overseas and continue to provide cryptocurrency trading services for users in China. Second, after the ban on ICO, there emerges token issuances in the name of IFO (Initial Fork Offering) and IEO (Initial Exchange Offering), as well as cryptocurrency speculation under the cover of IMO (Initial Miner Offering).

Besides taking advantages of loopholes in current rules and regulations, some sites even provide cryptocurrency lending transactions, through which customers pledge virtual currency in exchange for other virtual currencies, fiat money or stable currencies.

Yang Dong, vice dean of Law School at Renmin University of China, pointed out some platforms offer intermediary services to help individuals carry out peer-to-peer transactions between virtual currencies and fiat money.

Photo/VCG

Cross-border cooperation needed to crack down on illegal ICOs

Distributed development of virtual currencies poses a great challenge to regulators around the globe, which, together with varying attitudes of different countries towards cryptocurrencies, creates readily exploitable loopholes for speculators and lawbreakers.

Against such background, regulatory bodies should strengthen related laws and regulations to prevent loss of sensitive data, guard against cross-border crimes, protect interests of financial customers and ensure the country's financial stability and national security, Yang added.

Xiao Sa, member of the China Banking Law Society, explained that trading sites' measures to distance from domestic users on the surface, conduct transactions overseas only, and to move servers abroad wouldn't shield them from domestic laws and regulations. Any Chinese, if conducting illegal and criminal activities at home or abroad, shall fall within the jurisdiction of laws of China, Xiao underlined.

Yang called for cross-border cooperation regarding virtual currencies and digital currencies. As the U.S. has brought virtual currency trading under the regulation of its legal system, and countries including Australia, Singapore and South Korea are mulling similar arrangements, China can collaborate with them to enforce joint regulation, so as to protect legitimate interests of financial consumers.

Email: gaohan@nbd.com.cn