Beijing launches ICO liquidation work, regulators say liquidation plan will not be one-size-fits-all

On September 4, the Office of the Leading Group for the Special Rectification of Internet Financial Risks in Beijing (hereinafter referred to as the “Beijing Rectification Office”) issued the “Notice on Cooperating in the Cleanup and Rectification of Token Financing Trading Platforms” (hereinafter referred to as the “Notice”), requiring all platforms to do a good job in the cleanup and rectification work - stop issuing all types of ICO tokens, and formulate specific liquidation plans for those that have already been issued, and report to the Beijing Rectification Office, the People’s Bank of China’s Business Management Department and the district financial office where they are located.

A person from a local financial office told The Paper that given that the issue price of tokens issued by ICO (initial coin offering) in the initial financing and the secondary market price on the exchange are different, there will not be a "one-size-fits-all" approach when clearing investors' funds, and the specific method of clearing funds will be analyzed based on specific circumstances.

An industry insider told The Paper that ICO is similar to "buying new stocks", with low token prices, and generally a large increase in the secondary market. Since the beginning of this year, ICO tokens have generally increased by 20 times. Therefore, those who enter the market later are likely to become "leeks".

The Notice requires that all platforms should take the initiative to clean up and rectify, protect the interests of investors and maintain stability, and immediately stop the issuance of all types of ICO tokens and their promotion and promotion activities. For ICO projects that have been issued or completed, all platforms should formulate specific withdrawal plans with the issuers, jointly carry out the clearance and withdrawal work, and submit them to the Beijing Rectification Office, the People's Bank of China Business Management Department and the district financial office.

The Notice also stated that all platforms must immediately stop the exchange of legal tender and tokens, "virtual currencies" with each other; all platforms must not buy or sell tokens or "virtual currencies" or act as central counterparties to buy or sell tokens or "virtual currencies"; all platforms must not provide pricing, information intermediary and other services for tokens or "virtual currencies", and must submit the following information to the Beijing Rectification Office and the People's Bank of China Business Management Department before 16:00 on the 5th, and be responsible for the authenticity:

(1) The number of completed ICO projects, project completion time, financing scale, number of registered platform users, and cumulative number of ICO participants since its establishment;
(2) The storage address, flow and use of the virtual currency raised, whether it has been converted into cash and the purpose of conversion;
(3) Whether the ICO projects launched have been subject to project authenticity review, technical feasibility and application value assessment;
(iv) Specific information of the ICO project entity, including but not limited to team member composition, contact information, operating entity, office location, etc.;
(V) Basic information on the shareholders, actual controllers, senior management, financial managers, and core technology managers of the token financing trading platform;
(VI) ICO project fee rates and platform revenues;
(VII) Details of the company’s bank accounts and related accounts.

The "Notice" requires that all platforms need to place the "Notice" of the People's Bank of China and other seven departments on the homepage of the website before 15:00 on the afternoon of the 5th to warn investors of risks. During the cleanup and rectification period, shareholders, actual controllers, senior managers, financial managers, and core technology managers of each platform must do their best to clean up and rectify the platform in Beijing. In addition, the Beijing Rectification Office requires that each platform should report in writing to the financial office of the district where it is located before 17:00 every day on the platform operation status, customer virtual assets and fund balances, and the status of cleanup and withdrawal work.

At 3 p.m. on September 4, the People’s Bank of China (PBOC) and seven other departments jointly issued the “Announcement on Preventing the Risks of Token Issuance and Financing” (hereinafter referred to as the “Announcement”), defining ICO as “an act of illegal public financing without approval” and stating that all types of token issuance and financing activities should be stopped immediately, and organizations and individuals that have completed token issuance and financing should make arrangements for liquidation.

On the same day, the Beijing Business Management Department of the People's Bank of China issued a notice to banks and payment institutions under its jurisdiction, requiring the implementation of the cleanup and rectification of token issuance and financing and strengthening of payment and settlement management. Banks and third-party payment institutions should immediately stop directly or indirectly providing account opening, registration, trading, clearing, settlement and other payment and clearing services for existing token issuance and financing trading platforms. In addition, banks and payment institutions shall not open new accounts for token issuance and financing trading platforms, and shall monitor the funds in existing accounts on a daily basis, and report the previous day's account balance and account transaction information to the Beijing Business Management Department before 9 am every day.

In the notice, the Beijing Branch of the People's Bank of China required that personal accounts on the token issuance and financing trading platforms on the list be screened, and large or high-frequency capital inflow and outflow transactions be restricted. If they meet the anti-money laundering suspicious transaction reporting standards, appropriate restrictive measures should be taken immediately to prevent financial risks, and reports should be made to the Beijing Rectification Office and the People's Bank of China's Beijing Branch in a timely manner.

For bank accounts and payment accounts suspected of token issuance and financing transactions, relevant institutions should also report to the Beijing Rectification Office and the People's Bank of China Business Management Department and monitor the account funds. If large or high-frequency deposits and withdrawals are found, they should be reported immediately to the Beijing Rectification Office and the People's Bank of China Business Management Department, and compulsory measures should be taken immediately against the relevant accounts to prevent the funds from running away.