BEIJING - Chinese regulators are taking steps to shut down the country's cryptocurrency exchanges and ban trading of digital cryptocurrency to rein in financial risks.
All Beijing-based cryptocurrency exchanges had to halt new user registration by midnight on Sept 15 and publicly notify users when they formally close, according to a policy document issued by local regulators this week.
The document, issued by the Beijing branch of a central bank-led committee overseeing online financial risks, also required all cryptocurrency exchanges under its purview to submit detailed plans to exit the market by 6 pm on Sept 20, according to the Xinhua-run Economic Information Daily.
It also reported that Shanghai bitcoin exchanges had been told to shut down last week.
Shanghai-based BTC China, one of the largest Chinese bitcoin exchanges, said last Thursday that it would close by the end of the month. It was followed by Huobi and OKCoin, two large Chinese cryptocurrency exchanges, which announced last Friday that they would notify all users to halt trading by Sept 30.
The move came after China's central bank ordered a complete halt on Initial Coin Offerings (ICOs) on Sept 4, a digital coin fundraising scheme, in which technology start-ups issue their own digital coins, or tokens, to investors to access funds.
"ICOs, in essence, are a type of unauthorized and illegal public fundraising suspected of being related to criminal activities such as financial fraud and pyramid schemes," the People's Bank of China (PBOC) said.
ICOs allowed companies to issue tokens, or cryptocurrencies, to investors in exchange for currencies of more liquid value such as Bitcoin, without the need to follow rules associated with traditional channels such as IPOs.
Unlike IPOs, in which investors buy stocks in companies, investors in ICOs receive digital coins developed by the firms, which could appreciate in value if the companies fare well and demand for their currencies grows.
"The cryptocurrency exchanges must be regulated, for it has created fertile ground for scammers looking to take money from ignorant investors under the guise of ICOs," said Li Aijun, an expert of Internet finance law at the China University of Political Science and Law.
So far this year, 65 ICOs in China raised 2.62 billion yuan ($397.5 million) from 105,000 investors, according to a report by the National Committee of Experts on the Internet Financial Security Technology.
"Cryptocurrency exchanges also provide channels for money laundering, criminal financing and dodging foreign exchange control with no effective supervision," said Xue Hongyan with Suning Financial Research Institute.
China's bans on ICOs and cryptocurrency exchanges are part of a broader campaign to curb the country's financial risks as the country faces a build-up of debt, and booming new financial products challenge regulations.
Starting from the end of last year, China launched a regulatory windstorm with major financial regulatory bodies rolling out policies to identify and punish many types of illegal activity.
In April, amid complaints about reckless speculation on financial markets, the China Banking Regulatory Commission outlined 10 detailed fields for strengthened risk control, including traditional sectors such as credit, liquidity, real estate and local government debt as well as non-traditional areas such as Internet finance.
The China Insurance Regulatory Commission recently asked insurance firms to report typical cases and data on new types of fraud.
Other regulatory upgrades included the introduction of a new committee on financial stability and development, announced during a two-day National Financial Work Conference in July.
"Chinese regulators' ban on cryptocurrency exchanges is a timely manner to address risks arising from technology-based finance, but it is not a denial of innovative technology such as blockchain," said Sun Guofeng, head of the financial research institute affiliated to People's Bank of China.
The blockchain business, a form of decentralized or fluid database, which keeps track of digital transactions, is "supported by regulators and actively promoted by financial institutions," Xue said.