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NIFA Warning: Risks of Foreign Exchange Speculation and Rampant Futures

On November 10, China’s National Internet Finance Association (hereinafter referred to as NIFA”) issued a risk note, annoucing that there’s a big increase in the illegal trading of foreign exchange, precious metals, futures, index and other products through various network platforms, which put great risk on financial and social sides.

NIFA noted that recently, NIFA and Chinese financial regulatory organs found that a big increase is detected in the illegal financial products leverage transactions through various types of network platforms, and companies participating in such investment are facing mounting risks.

The Association pointed out that it is illegal for domestic institutions engaging in the trading of foreign exchange, precious metals, futures, indexes and other products (including cross-border) through Internet platforms, mobile communication terminals and application software without the approval of the financial regulatory authorities in our country, as well as for overseas institutions providing foreign exchange, precious metals, futures, indices and other products through various internet platforms transactions to domestic customers without the approval of China Financial regulatory authorities, such as Internet sites, mobile communications terminals and application software. At present, the network platforms (including cross-border) engaging in leveraged transactions such as foreign exchange and precious metals are not legally established in our country and the financial regulatory authorities have never approved the establishment of an online platform for the aforesaid trading business. Both parties’ rights and interests in participating in these platform transactions is not protected by law.

NIFA suggests that all kinds of financial institutions and payment institutions engaging in Internet financial business should strictly abide by national financial laws and regulations and may not provide services for such illegal financial transactions. Member units of NIFA should strengthen self-discipline, resist illegal financial transactions, refrain from providing services to them.

The Association also called for the public to recognize the nature of illegal financial transactions, consciously resist the temptation to increase profits, and enhance their awareness of self-protection. They should stay away from illegal trading and be guarded against loss of property due to illegal trading. If clues are found for illegal activities, they should immediately report them to the competent departments or to the public security organs.

lawyer Wang Deyi with Beijing Xun Zhen Law Firm told CBN that at present there are some domestic, Hong Kong and overseas software companies developed some outer trading software. The basic mode of which is remitting funds to a trading platform-designated account or even a personal account first, then injecting virtual currency into the electronic platform for speculation. Main varieties include the United States crude oil, foreign exchange, HSI, rebar, etc. Some have also taken the form of “financing” to enlarge the leverage ratio. Neither the trading patterns nor the trading rules of these transactions have been legally approved domestically, thus they are illegal.

He noted that companies carrying out such operations illegally often do not have any legal permission. And because of domestic restrictions on foreign exchange administration, such operations are neither administratively nor technically possible. In addition, the transacted funds are not directly deposited within a third party bank as advertised by the company, but are collected directly by the company. Investors are faced with the huge risk of misappropriation of funds, taking risks on their own and fraudulent trading of their opponents. This kind of OTC is essentially an online gambling operation using electronic platform and must be resolutely banned. Investors should stay away from this new type of deal.


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