Chinese regulators appear to be stepping up efforts to bring order to their nation’s digital currency landscape in the wake of the SEC’s denial of the Winklevoss twins’ ETF proposal. While People’s Bank of China director Zhou Xuedong recently acknowledged the importance of tech innovation, he also declared that regulation is essential to prevent illicit activities and financial bubbles. According to Xuedong:
“A certain level of regulations on bitcoin trading platforms are indeed necessary. Without the regulations, bubbles will be amplified by speculations. So, I recommend some red lines should not be crossed. To sum up, when regulating bitcoin trading platforms, we shall adopt a forgiving attitude toward innovations, observe carefully, and regulate them based on China’s actual conditions.”
Within days of those comments, the PBOC had already started to circulate proposed regulatory guidelines for the industry. If enacted, those rules would include requirements that would force Bitcoin exchanges to do more to identify their customers and comport with the country’s banking regulations.
Under the guidelines, exchanges would have to comply with know-your-customer and anti-money-laundering rules, and would need to begin using systems designed to identify and report any “suspicious” activities to the appropriate authorities. The PBOC would maintain the authority to issue sanctions against exchanges that fail to comply with these new regulations.
The proposed regulations could be a positive step for the Chinese Bitcoin markets, which have seen investors pull back from trading in the wake of PBOC investigations of the country’s exchanges. The move has the potential to provide some level of assurance to traders, since it signals that the central bank remains open to allowing digital currency trading to continue.