China Hints at Licensed Bitcoin Exchanges with ‘Zero Tolerance’ on Cryptocurrency Crime

China’s official press agency issued a statement condemning virtual currency as a tool used by the criminal underworld to evade government prosecution. The agency stated that regulators must take a hardline stance against cryptocurrency usage to prevent crime, although some of the regulations it proposed seemed to hint at potential future licensure for bitcoin exchanges.

As first reported by regional cryptocurrency news service cnLedger, the Xinhua News Agency published a statement calling for regulators to take a “zero tolerance” approach to cryptocurrency-related crime. Xinhua, an official government press agency whose president sits on the Chinese Communist Party’s Central Committee, added that officials must act with “iron fist governance,” according to a rough translation.

Indeed, regulators have already issued a comprehensive prohibition on initial coin offerings (ICOs), making it illegal for Chinese startups to raise money using this fundraising model and investors to contribute to foreign ICOs. As an extension of this ban, regulators forced domestic bitcoin trading platforms to “voluntarily” shut down. Some, including BTCC — formerly the world’s longest-running bitcoin exchange — have already shut down, while select exchanges are allowed to continue to operate until the end of October.

However, noting that many Chinese cryptocurrency users will attempt to bypass the regulations by using foreign trading platforms located in Japan, South Korea, and elsewhere, Xinhua says that “regulatory vacuums” remain and deserve attention from the government:

[T]here are still many regulatory vacuums in the field of virtual currency, which require governments and central banks to give enough attention to the regulation as soon as possible.

Xinhua goes on to call for targeted, hardline regulatory measures including licensure, record-keeping, strict AML/KYC policies, and transaction limits. These policies would appear to leave the door open to a potential future roll-out of a cryptocurrency exchange licensing program that would allow trading to resume in a heavily-regulated environment. However, cnLedger commented that licensure should not be expected in the short-term.