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China has banned all Security Token Offerings and all activities linked to them. The government wants to regulate the new tokens before legalizing them to eliminate cases of fraud.
The emerging cryptocurrency industry is revolutionizing the entire global financial system. Many central banks and governments are gradually adopting the new technology. However, some governments oppose the digital currencies with China leading the pack. The People’s Bank of China banned ICOs in 2017.
They declared all such fundraising-related activities as illegal. Now, Beijing has recently imposed yet another ban. This time it is directed towards the Security token offerings (STO). Big debate and controversy have vibrated throughout the crypto market since the introduction of STOs. The enormous scrutiny and involvement by regulatory watchdogs in the growing crypto space have brought STOs into the limelight again.
The People’s Bank of China (PBOC) went ahead to ban security token offering (STO) businesses on December 8. An STO is a type of fundraising that divides all accumulated profits. It also pays interest to the token holder subject to an underlying asset hence considered as a ‘safer’ process of raising funds.
The ‘safe’ tokens must always have the backing of something tangible including assets, profits, and revenue of a firm. The deputy governor of PBOC, Pan Gongsheng, addressed an internet finance forum in Beijing. He confirmed that “illegal” financing activities through ICOs and STOs still thrive in the mainland. He told the forum:
“The STO business that has arisen recently is still fundamentally an illegal financial activity in China. Also, virtual money has become an accomplice to all kinds of illegal and criminal activities.”
China has increased restrictions on all cryptos since 2016. The country has also begun enforcing multiple stringent regulations since the government issued a total ban on ICOs in 2017. Pan stated that many of the financing operations done through ICOs in China could be illegal fundraising activities.
His remarks amount to a top financial official publicly accepting the existence of a ban on STOs and ICOs for the first time. This move enhances the Chinese government’s resolution in extensively controlling cryptocurrency fundraising in the whole country. Before the crackdown, around 80% of all the world’s virtual currency transactions and ICO financing occurred in mainland China.
The head of the Beijing Financial Supervision Authority, Huo Xuewen, confirmed at the December 1st Global Wealth Management Forum that China would crack down on STOs. He said:
“I want to warn those who are promoting STO fundraising in Beijing. Don’t do it in Beijing. You will be kicked out if you do it.”
While Beijing steps up the policing of peer-to-peer lending other governments are embracing the new market. For example, nearby South Korea’s National Assembly and Congress hold the first official crypto debate on December 10.
All comments made by Huo and Pan prove that China’s financial watchdog is highly cautious of STOs. The negative sentiments by the government may be attributed to their current low reports of success rates. Also, STOs are still in the early stages of development.