The director of the Central Bank of China revealed that the Securities Law had discussed the formulation of ICO regulations. Is there a glimmer of hope for compliance?

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Wu Blockchain learned that on August 21, the "China Finance Magazine" under the supervision of the central bank published an article by Sun Guofeng, director of the Monetary Policy Department of the People's Bank of China, and others, revealing very important internal information.

Wu said blockchain learned that the article said that the regulation of ICOs involved in the Telegram case was discussed in the last revision of the Securities Law in my country, but it did not appear in the latest revision of the Securities Law implemented at the beginning of this year. The article suggested learning from the reference significance of the Telegram case in the United States and expanding the scope of securities in the Securities Law to cover P2P, digital currency ICO, etc.

In September 2018, the People's Bank of China and six ministries and commissions jointly issued the "Notice on Preventing Risks in Currency Issuance and Financing", prohibiting ICOs of non-sovereign digital currencies in China. Subsequently, the Chinese government shut down non-sovereign digital currency exchanges in China. This article shows that the central bank's jurisdiction over digital currencies is not 100% conservative, and the compliance management of digital currency exchanges, ICOs, etc. in the future is in progress and under discussion.

The article is titled "Legal Regulatory Path for Non-Sovereign Digital Currency in the United States". The article begins by pointing out that although administrative supervision can quickly control the ICO of non-sovereign digital currency, it cannot fundamentally solve the problems of the undetermined regulatory framework, lack of regulatory laws and regulations, and unclear regulatory path in the field of non-sovereign digital currency. The lack of an effective and feasible regulatory system has hindered the development of financial innovation and often puts regulators in a dilemma of having no law to rely on.

"If we fail to innovate and reconstruct the regulatory system to make it applicable to emerging financial technology products, other financial products may disrupt the financial order in the future. Learning from foreign experience is conducive to improving our regulatory system and building a regulatory path with Chinese characteristics. Recently, the U.S. Securities and Exchange Commission (SEC) v. Telegram (Telegram Group Inc.) case provides an opportunity for reference."

The article reviewed the entire process of Telegram's case and commented that the Telegram case is an innovative breakthrough in the field of securities regulation, indicating that the US federal court supports the SEC's increasingly strong regulatory stance in the field of digital currency. The judge used the principle of economic reality and ignored the guarantee of the ICO issuer in the purchase agreement to evaluate whether the ICO of Grams digital currency is a securities issuance under the Howey test. This judgment will have a substantial impact on the regulation of digital currency, not only basically solving the regulatory attributes of virtual digital currency, but also determining the regulatory attributes of financial technology products or tools used for financing in the future.

Finally, the article states that the current financial technology has led to the emergence of financing tools, and China's regulatory dilemma in the field of digital currency has not yet been resolved. The issue of regulating ICO regulations in the Telegram case was discussed in the last revision of the Securities Law in China, but did not appear in the latest revision of the Securities Law implemented at the beginning of this year.

The article states that, first of all, investment contracts are not included in the scope of securities. The scope of securities in Article 2 of the latest revised Securities Law only includes stocks, corporate bonds, depositary receipts and other securities recognized by the State Council in accordance with the law. During this revision process, some experts suggested that the scope of securities should be expanded from equally divisible and transferable or tradable certificates to investment contracts, covering more types of property rights.

The article states that by drawing on overseas experience and starting from the prevention of systemic financial risks, all financial instruments with securities attributes should be included in the scope of securities. This will not only effectively regulate the financial products based on financial technology that have already emerged, such as P2P and digital currency 1CO, but also cover the financial products that may appear in the future.

Secondly, from the perspective of protecting the rights and interests of investors and avoiding systemic financial risks, the Telegram case has important reference significance for my country. It is necessary to study and expand the scope of securities in the Securities Law to provide a legal basis for new securities activities and provide legal support for regulators to crack down on illegal securities activities.

The authors of the article are Sun Guofeng, Director of the Monetary Policy Department of the People's Bank of China, and Chen Shi, from the School of Law of Southwestern University of Finance and Economics. The Monetary Policy Department of the Bank is responsible for researching, formulating and implementing monetary policy control plans; formulating monetary policy intermediate targets and organizing implementation; researching and proposing various monetary policy tool options and organizing implementation; formulating and organizing implementation of domestic and foreign currency deposit reserve policies, domestic and foreign currency interest rate policies, re-loan and re-discount policies and related management methods; formulating and organizing implementation of the central bank's domestic and foreign currency open market operation plans and operating procedures; formulating monetary policy strategies, studying policy measures to improve the monetary policy framework, and improving the monetary policy control system; and undertaking related work of the coordination mechanism of macroeconomic control departments.

Wu said that the article did not explain why ICO was discussed but not included in the new Securities Law. There may be different voices within the government. For example, the relevant departments and other departments responsible for supervision may prefer stricter and more conservative measures. Bloomberg's report on the outflow of 50 billion cryptocurrencies from China on the 20th will certainly make regulators more worried. But in general, as digital currencies are more widely used, it is a general trend for Chinese regulators to make them compliant.

Lawyer Xia Wei said that, as the article said, the definitions and application scenarios of sovereign digital currencies and non-sovereign digital currencies need to be clarified urgently, and the attitudes of all parties are not yet clear. Before a large-scale consensus is reached on the supervision of new financial products, it is more appropriate to supervise them with more flexible and less effective subordinate laws, such as more flexible and mobile departmental regulations and local regulations, and constantly adjust them in the process, and finally form a mature and stable regulatory policy, which will then be incorporated into the law.

Original link: "China Finance" | Legal and regulatory path for non-sovereign digital currencies in the United States