China Revises Anti-Money Laundering Regulations, Includes Crypto
China plans to include cryptocurrency transactions into AML regulations, which is anticipated to be officially enacted by 2025.
China plans to modify its Anti-Money Laundering (AML) regulations, including cryptocurrency transactions. The revised draft of the AML regulations has been incorporated into the State Council’s legislative agenda for 2023 and is anticipated to be officially enacted by 2025, marking the first significant revision to China’s AML regulations since 2007.
The decision aligns with the increasing demand from policymakers within the country for enhanced oversight of the emerging cryptocurrency sector. Notable scholars and financial experts engaged in the discussions on the updated AML regulations said that the AML law is broad, posing challenges for the draft to be comprehensive.
As highlighted by Wang Xin, a professor at Peking University Law School actively involved in the discussions, there is a pressing requirement to address cryptocurrency-related money laundering issues at a legal level.
The use of cryptocurrency and digital assets in money laundering has increasingly become a mainstream trend while existing Chinese laws do not provide a distinct definition of digital assets.
Despite the revised draft incorporating measures to prevent money laundering involving digital assets, there is a lack of operational guidance for subsequent actions such as seizure, freezing, deduction, and confiscation of assets in cases of money laundering crimes, resulting in a “disconnect.” However, there is still room for enhancement in addressing money laundering linked to digital assets, according to Wang Xin.
In 2021, China implemented a comprehensive restriction on cryptocurrency use, prohibiting offshore exchanges from providing services and banning all types of cryptocurrency mining.
Despite these measures, technological advancements and the decentralized nature of cryptocurrencies have enabled mainland users to find alternative means to access the cryptocurrency market, giving rise to potential money laundering risks. The updated regulations are designed to introduce more rigorous guidelines to address and mitigate these activities.
China’s Regulatory Stance for Crypto
Last year, Asia’s cryptocurrency regulatory framework witnessed substantial transformations. Hong Kong has taken a proactive stance, positioning itself as a center for cryptocurrency and Web3 innovation. The city initiated a cryptocurrency licensing system for virtual asset trading platforms, enhanced guidelines on virtual asset-related activities for intermediaries, announced intentions to regulate digital asset tokenization endeavours and started to accept applications for spot cryptocurrency exchange-traded funds (ETFs).
However, mainland China maintained a stringent stance. Chinese leadership continues to prioritize the development of blockchain technology infrastructure while distancing itself from cryptocurrency speculation, committed to combating cryptocurrency-related crimes.
According to Justin Sun, a prominent figure in the cryptocurrency space, the establishment of Hong Kong as an “experiment” can influence Beijing to reconsider its longstanding restrictions on the sector. However, achieving this goal may not be easy.
Recently, the People’s Bank of China (PBoC) published a financial stability report, dedicating a section to cryptocurrencies and decentralized finance (DeFi), expressing regulatory concerns and emphasizing the necessity of its global collaborative regulation. The central bank advocated for the application of the “same business, same risks, same supervision” approach to prevent regulatory arbitrage in the sector.
China’s evolving regulatory landscape, exemplified by recent amendments to AML regulations, highlights the country’s proactive approach to addressing challenges related to cryptocurrencies, with a particular emphasis on comprehensive oversight and regulation.
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