UPDATED | December 10, 2018:
A week after Xuewen Huo, chief of the Beijing municipal finance bureau, warned aspiring cryptocurrency businesses off of introducing security token offerings (STOs) in Beijing, the deputy governor of the People's Bank of China officially denounced STOs, according to The South China Morning Post. On Saturday, Pan Gongsheng declared: "The STO business that has surfaced recently is still essentially an illegal financial activity in China. Virtual money has become an accomplice to all kinds of illegal and criminal activities."
ORIGINAL | December 3, 2018:
Speaking at the "2019 Global Wealth Management Forum" on December 1, 2018, the head of the Beijing Municipal Bureau of Finance, Xuewen Huo, said:
"I will make a risk warning to those who are propagating in Beijing and want to issue [security token offerings]. Don't do it in Beijing."
Huo noted that STOs had not yet been given "authority."
In his speech, the director spoke broadly about the need for diversification and quality in wealth management, and the need to manage the wealth of both the super-rich and "ordinary people." But he went on to warn companies against seeking to make a profit in the city without having the required licences to do so, as well as affirm the importance of "investor education."
The Chinese capital is also its financial center, housing the headquarters of many of its regulators and financial institutions – as well as the equivalent of more than $20 trillion in assets under management. The proximity of the regulators to many of the country's professional investors means Beijing's regulatory stance likely sets a precedent for the rest of the country.
ICOs were banned in China in September 2017. In August 2018, China's government ramped up action against other cryptocurrency-related activities, going so far as to block 124 foreign cryptocurrency exchanges from trading in the entire region. Cryptocurrency news outlets have also been banned from the messaging application WeChat, and many businesses have been banned from promoting cryptocurrencies in Beijing itself.
STOs are beginning to replace ICOs as a source of fundraising and capital investment. They have emerged as a way for companies to overcome regulatory hurdles in many countries. If tokens are immediately classed as securities and developed and regulated as such, it removes any doubt as to what regulations apply. By being both proactive and compliant, STO-operating companies can circumvent sudden regulatory action while appearing more credible.
It seems, however, that China views STOs in a similar way as ICOs, and a broader ban on this new fundraising model from the Chinese government and central bank appears possible.
Translations by Google.