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According to Chinese state media, initial investigations reveal Chinese exchanges are in violation of anti-money laundering norms and found carrying out illegal financing along with other operations.
The People’s Bank of China has been investigating major Bitcoin exchanges in the country including BTCC, Huobi and OKcoin. We have covered the initiation of the investigations and now it has come to light that violations were indeed found by the Chinese Central Bank.
The China News Service citing a Beijing Youth Daily report says that the Shanghai Head Office of the People’s Bank of China has found after an initial investigation that BTCC was engaged in illegal operations and financing activities. The newspaper also reported that funds and capital on the platform were not guaranteed by third-party custody terms.
Not only has BTCC been found in the wrong by the PBOC investigation, Huobi and OKCoin, which were also the subject of the PBOC investigation have also been found to be carrying out illegal financing.
Financing operations may be ended by these Chinese exchanges subsequent to the PBOC action. Reuters has said that OKCoin and Huobi have confirmed that they had stopped offering margin loans, adding that, “Both did not respond to queries on whether they had received official notices from the PBOC.” More worrying is the Chinese Financial Information provider Hexun who stated in a report that the PBOC investigation found these exchanges “not in accordance with the provisions of the establishment of a sound anti-money laundering internal control system.”
There is no clarity so far if margin trading is indeed illegal in China. While Bobby Lee of BTCC told Reuters, “No one has said that margin trading for Bitcoin is illegal.” The Chinese banking regulator refused a comment to Reuters on this issue. Strikingly though the Reuters report did quote the Beijing Youth Daily as saying,
“A PBOC investigation found that China's three largest Bitcoin exchanges were illegally conducting margin trading and such activity stoked abnormal market volatility.”
Further citing the Economic Information Daily, they wrote that the Chinese Central Bank had found “hidden risks” in BTCC.
There has always been some controversy about the trading volumes in China because it is a country where no fee was being charged by exchanges.
Now it’s stirring again that exchanges will introduce fees to make up for lost revenues.
Bobby Lee of BTCC in his interview to Reuters did mention the possibility of fee introduction subsequent to the regulators getting involved. The results of the PBOC investigation are clearly a reason for investors to be more prudent to their exposure to these exchanges in China especially since the PBOC has not been very forthcoming and transparent in their communication to the public on their investigation as of yet.
However, according to the Chinese publication Jiefang Daily, the Shanghai headquarters of the PBOC in its latest communication has “reminded institutions and individual investors that they should attach great importance to platform risks and safeguard their own property and safety.”
At the time of writing of the article, Bitcoin was trading at 6103.65 CNY according to BTCC was up 1.60 percent.
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