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Xiao Sa: ICO is Unapproved Illegal Financing Conduct

On a guest post for Sina Fiancial, Xiao Sa, senior lawyer that practice in internet finance and ICO, introduces the general laws and regulations in China when entering into internet financial business.


Xiao Sa, partner of Beijing Dacheng Law Firm(source: Sohu)

Regarding Internet finance, Xiao believes that the “Guidance on the promoting healthy development of Internet finance” (referred to as “20 rules of Internet Finance “) released in 2015 is a milestone. This regulation establishes the regulatory responsibility for Internet finance, defines the business boundaries, and establishes specific regulatory rules. She summarizes “20 rules of Internet Finance” into eight points:

1. The Internet industry regulation;
2. Third party custody system;
3. Information disclosure / risk tips and qualified investor system;
4. Consumer rights protection;
5. Network and information security;
6. Anti – money laundering and prevention of financial crime;
7. Strengthen the Internet financial industry self – discipline;
8. Regulatory coordination and data statistics monitoring.

ICO is unapproved illegal financing conduct in its nature
Regarding the “ICO ban” in China, Xiao Sha shares her insights of the regulatory notice on risks of token issuance. The document defines ICO as: ICO is essentially an unapproved illegal public financing behavior. ICO is suspected of illegal issuance and sales of tokens, illegal issuance of securities and illegal fund-raising, financial fraud, pyramid schemes and other criminal activities.
Xiao Sa points out 6 key elements in the document:

1: Accurate understanding of the nature of funding through token issuance
2:Any organization and individuals shall not illegally engaged in financing activities through token issuance;
3: Strengthen management of trading platform of token assets;
4: Financial institutions and non-bank payment agencies shall not conduct business related with tokens issue financing transactions;
5: The general public should be highly alert to the risk of token-based financing and trading;
6: Give full play to the self-discipline of industrial associations.


China Internet Finance Association in the “on the prevention of Bitcoin and other so-called” virtual currency “risk tips” called: the member units should fulfill the industry self-discipline commitments, strict compliance with national laws and regulatory requirements, do not participate in any of the so-called “virtual currency “Related to the concentration of transactions or services for such transactions, take the initiative to resist any illegal financial activities.

Xiao Sa believes that ICO has a great legal risk and is suspected of committing six legal offenses.

1. ICO offers fixed return without break-even preservation and is suspected of illegal fund-raising from the public
2. Other illegal operational behavior that seriously disturb market order
3. Without authorization from relevant regulator, ICO is suspected of unauthorized issuance of shares, companies, corporate bonds;
4. Scamming investors through financing of virtual digital currency and is suspected of fraud;
5. Other settlement method of ICO is suspected of money laundry;
6. ICO is suspected of organizing and leading pyramid schemes.

The summary sets the tone of ICO  from the regulator’s perspective.


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