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PBoC Deputy Governor: STOs Are Essentially an Illegal Financial Activity in China

The People’s Bank of China(PBoC), the central bank, has officially banned security token offerings(STO), another blow to those who are hoping STOs can fuel a comeback for the hard-hit crypto industry.


Pan Gongsheng, a deputy governor of the People’s Bank of China, told an internet finance forum in Beijing on Saturday the STO business that has emerged recently is still essentially an illegal financial activity in China. This is the first time a top financial official acknowledging the ban on STOs.

An STO is similar to an initial coin offering(ICO), where a company is able to raise funds by selling digital tokens to the public. However, what makes the STO different is that it is backed by real assets such as shares, bonds or real estate, and allows token holders to share in the profits of the company. The STO is seen by some crypto industry players as a safer and more legitimate way to secure funding than the ICO.

Illegal fundraising activities through ICOs and STOs are still rampant, despite vigorous attempts to crack down on cryptocurreny issuance and trading in the country. According to Pan, most of financing operations conducted via ICOs in China are suspected of being illegal fundraising, pyramid schemes, and other financial fraud.

“ Virtual currencies have also become an accomplice to all kinds of illegal and criminal activities. Criminals use virtual money to launder money and evade taxes.” Pan added.

The PBoC banned ICOs outright and shut down domestic crypto exchanges in September,2017. Before the crackdown, 80 percent of the world’s bitcoin transactions and ICO fundraising took place in China. The deputy governor said had the Chinese government not taken measures to eradicate such illegal activities from digital currency transactions last year, a chaotic cryptocurrency market could have hurt the country’s financial industry.

He also reiterated the government’s stance towards growing scrutiny over the financial technology sector.  “ Internet finance and the fintech industry see the same financial risk as the traditional finance industry, and bear even more risks, which are brought by the internet, technology, data and information security,” Pan said. “In this sense, the fintech sector should fall under even stricter regulations.”

This comes about a week since Huo Xuewen, head of the Beijing Financial Supervision Authority,declared STOs illegal and told STO issuers not to do it in Beijing. His advise is to only engage in such activities when the government has authorized them.

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