While the SEC has signalled greater scrutiny of ICOs and the issuance of digital tokens, the People’s Bank of China has taken this one step further by announcing, on September 4, 2017, an immediate ban on ICO funding by Chinese banks, issuers and investors, and requiring that those who have already raised money pursuant to an ICO provide refunds. The statement from the Chinese regulator states that it will strictly punish ICO offerings in the future while penalizing legal violations in those already completed.
In conjunction with the ban on ICOs, the Chinese regulator has also declared that:
- Digital token financing and trading platforms are prohibited from conducting conversions of coins with fiat currencies;
- Digital tokens cannot be used as currency on the market; and
- Banks are forbidden from offering services to initial coin offerings.
It is important to note that the Chinese government has chosen to specifically target the ban at digital token financing and exchange platforms, rather than the digital currency (e.g., bitcoin) itself given that prior to the ban, a significant amount of total global bitcoin exchange volume was exchanged through the three largest bitcoin exchanges in China. Following the ban, one of the three exchanges announced on September 14, 2017 that it would shut down its operations by September 30, 2017.
For the time being, the People’s Bank of China appears firm in its determination to defend its legal currency and has opted to enact a blanket ban on ICOs. It is likely that this ban is a temporary one to allow the Chinese regulators to enact appropriate regulations for ICOs. Another possibility is that China may consider creating its own version of digital tokens.