China Establishes Stricter Regulations on Banks to Monitor Crypto Transactions

In an effort to mitigate illicit cross-border financial activities, China has implemented more stringent regulations that necessitate banks to track and record risky crypto transactions.

China has implemented new regulations that mandate that banks monitor and report unsafe foreign exchange and cryptocurrency transactions in order to prevent illicit cross-border financial activities. A notice was recently issued by the State Administration of Foreign Exchange (SAFE) to banks, directing them to monitor transactions related to illicit crypto-related activities, cross-border betting, and illegal banking.

Banks are required to monitor the identities of individuals and institutions, trace the sources of funds, and observe the frequency of trading in accordance with these regulations. It is anticipated that the heightened scrutiny will present a greater challenge for Chinese investors who wish to trade Bitcoin and other cryptocurrencies. All institutions in China are obligated to follow to this requirement, indicating a nationwide initiative to implement stricter financial supervision.

For years, China has maintained a strict anti-crypto stance, interpreting digital assets as a threat to financial stability. Liu Zhengyao, a lawyer at ZhiHeng law firm, observed that these new measures establish an additional legal basis for penalizing cryptocurrency trading. He cautioned that it may now be considered illicit cross-border financial activity to purchase cryptocurrencies with the yuan and subsequently exchange them for foreign fiat currencies, particularly if the transactions exceed legal limits.

This enforcement is indicative of China’s ongoing attempt to regulate the use of cryptocurrency within its borders. According to the government, cryptocurrencies have the potential to disrupt the financial ecosystem of the country and undermine the yuan. China continues to be the second-largest government recipient of Bitcoin, with more than 190,000 BTC acquired through raids associated with illicit financial operations, despite its anti-crypto stance.

The nation’s crypto policies have been restrictive since 2017, when it prohibited financial institutions from facilitating cryptocurrency transactions. The People’s Bank of China (PBOC) declared all cryptocurrency trading activities illegal in 2021. However, the persistence of a certain degree of trading activity has been facilitated by loopholes and clandestine networks, which has led to the implementation of these most recent regulations.

It is intriguing that, despite the severe posture, there have been recent changes that indicate a degree of adaptability. Recent rulings by a Chinese court have established that crypto assets are protected under Chinese law and possess property attributes. However, this protection is limited to commodities rather than currency or business instruments. This distinction maintains the prohibition on the use of digital assets as financial instruments, while simultaneously providing limited legal protection to crypto holders.

Justin Sun, the inventor of the Tron blockchain, has been a proponent of a more progressive cryptocurrency policy in China. He suggested in July 2024 that China could strategically position itself against the United States by adopting a competitive approach to Bitcoin regulation. Sun believes that this policy change could have a beneficial effect on the global cryptocurrency industry.

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