Author's note: The latest amendment of the "Securities Law" has been issued, and there are many things to watch. I will not repeat the impact on the traditional securities market. This article intends to explore whether the newly revised Securities Law is related to virtual currencies?
The recently amended Securities Law has recently been implemented. Under this law, have virtual currency-related activities been noticed by lawmakers, and is the Securities Law applicable?
This is hardly a problem, and the law's legislators certainly noticed virtual currency, but the non-applicability of virtual currency to the Securities Law seems to be an obvious answer. Because it is well known that the regulators ’negative attitudes towards virtual currencies in general have hardly changed substantially, especially since October 2019. While the state is holding up the banner of encouraging the development of blockchain technology, it is holding up the blow. A great stick for virtual currency issuance financing and trading platforms. Virtual currency wants to obtain legal status through the legislative part of the securities industry (that is, securities-type virtual currency belongs to the securities part), which is still non-divided at this stage.
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However, from another perspective, the answer may not be so straightforward. According to the contents of the newly amended Securities Law, the author understands that the Securities Law has left legal space (if there is room at all) for the future supervision of the inclusion of securities virtual currencies in the Securities Law, and that the Securities Law 》 Limited jurisdiction over the issuance and trading of offshore securities virtual currencies under certain circumstances. The following is a family statement, for reference only.
Securities-based virtual currencies are not included in the category of "securities"
Except for Bitcoin, Ethereum, and other virtual currencies that have payment functions, most of the virtual currencies currently on the market have more or less dividend rights, income rights, repurchase rights, and interest collection rights. Due to its functions and uses, some countries (such as the United States) recognize these virtual currencies as securities and include them in the regulatory scope of the country's securities law. The issuance and trading of these virtual currencies are subject to the securities laws of that country.
In the definition of "securities" in China's newly revised "Securities Law", the legislative techniques of the original "Securities Law" are used instead of a clear definition of "securities". Instead, an open-ended legislation model is adopted. In addition to the original stocks and corporate bonds, the securities listed in the Securities Law have added depositary receipts, and regard asset-backed securities and asset management products as securities that can be specifically regulated by the State Council in accordance with the principles of the law , But did not list the virtual currency with securities attributes as a kind of securities, nor did it add securities categories such as "investment contracts" under US securities laws.
During the revision of the Securities Law, some people have proposed expanding the scope of securities and including securities-type virtual currencies into the scope of securities. However, the newly revised "Securities Law" does not include virtual currencies with securities attributes such as equity and debt rights. The author understands that there are many reasons, and there may be at least the following aspects to consider:
(1) The characteristics of virtual currencies make it difficult to put them into a regulatory cage. Even though the issuance and trading of securities-based virtual currencies have some positive effects (such as to a certain extent, they can stimulate and activate the business ecology, promote and expand the application scenarios of blockchain technology, increase and broaden the financing channels for start-ups, etc.), but Virtual currencies naturally have characteristics such as anonymity and convenience of cross-border circulation, which have brought many problems and challenges to the country's anti-money laundering, anti-terrorist financing, foreign exchange, taxation, and stability of the financial and monetary system. Illegal and criminal activities such as fraud, fraud, and pyramid schemes have been repeatedly banned, and the current regulatory technology is still immature, and regulatory resources are inadequate. Cross-border supervision requires the cooperation of other countries and is more difficult. In the case of a regulatory mechanism, although "one size fits all" is simple and crude, it can minimize risks.
(2) In the absence of a clear legal basis for the legal nature and classification of virtual currencies, the classification and regulation and regulation of only one of these securities-based virtual currencies also lacks a basis. As of now, the five departments, including the Securities Regulatory Commission and the People's Bank of China, issued a "Notice on Preventing Bitcoin Risk" issued in December 2013, and since then judicial practice has made qualitative (specific In addition, China has not clearly defined and classified virtual currencies at a high level of laws and regulations. The "General Principles of Civil Law" also only has a general and general specification for network virtual property-the law has provisions on the protection of network virtual property, in accordance with its regulations, but there is currently no law specifying that virtual currency is a network virtual property There is also no law that makes clear the protection of virtual currency property.
(3) Blockchain and virtual currency are treated differently, and the chain is suppressed, which is the current regulatory tone. It is impossible for the country to prohibit the operation of virtual currency trading platforms in the country and the issuance of currency by the project party, while providing a code of conduct for the issuance and trading of securities-type virtual currencies through the amendment of the Securities Law, and indirectly recognizing some virtual currency issuance and trading. The legitimacy of the transaction.
Although the newly amended "Securities Law" does not give securities virtual currency a status that belongs to securities, in order to cope with the development of the securities market and product innovation, the "Securities Law" retains the flexibility of legislation and continues to authorize the State Council to comply with the law Identify other securities. Therefore, in theory, the "Securities Law" has left room for securities-type virtual currencies to be incorporated into the "Supervision of Securities Law" in the future (if there is room to speak at all), and when the time is ripe, the State Council will issue special regulations for identification. Just fine.
As securities-based virtual currencies are not included in the securities listed in the newly amended Securities Law, the Announcement on Preventing Token Issuance Financing Risks issued by the seven departments including the Securities Regulatory Commission on September 4, 2017 The qualitative issue of the token issuance financing will most likely still be dealt with according to the existing crimes (such as the crime of fraud, the crime of illegally absorbing public deposits, the crime of illegal business, etc.), and will not basically be subject to the "Issuance of shares without authorization, "Company and corporate bond crimes" and other crimes related to securities crimes.
Issuing or trading overseas securities virtual currency
In response to the globalization of the securities market, in order to prevent cross-border securities fraud and protect China's market order and investors' rights and interests, the newly revised "Securities Law" has added extraterritorial jurisdiction clauses for the first time, making China's "Securities Law" the same as the "Criminal Law", " The Anti-Monopoly Law also has the effect of extraterritorial jurisdiction. The "Securities Law" stipulates that securities issuance and trading activities outside China that disrupt the domestic market order in China and damage the legal rights and interests of domestic investors shall be handled and investigated for legal liabilities in accordance with the "Securities Law."
From the expression of the above clauses and the discussion of academic circles, the author understands that the extraterritorial jurisdiction established by the Securities Law mainly refers to and borrows from the test standard of extraterritorial jurisdiction developed by the United States Federal Court-the "effect standard." That is, even if an act occurs outside China and the actor does not have Chinese nationality or is not an entity registered in China, if the act harms China ’s market order or the legitimate rights and interests of investors, China ’s “Securities Law” Has jurisdiction.
In the context of securities-type virtual currencies, for example, under the US securities law, most of the virtual currencies issued by the project party are investment contracts and therefore belong to a type of securities. If an overseas entity issues these securities-based virtual currencies overseas, or is a securities issuance activity outside China. According to the newly revised Securities Law, if these overseas securities issuance activities involving securities-type virtual currencies (such as fraudulent issuance) have the effect of disrupting the domestic market order and damaging the legitimate rights and interests of domestic investors, China's securities regulatory agency Or have the right to pursue the legal liabilities of the relevant overseas issuers.
For another example, the issuance and trading of stable coins such as Libra, if they constitute securities in accordance with applicable laws abroad, and their issuance and trading behavior eventually disrupts China's domestic market order (some countries' concerns about Libra's erosion of its currency sovereignty indicate that Libra's issuance and Circulation has the possibility of disrupting the order of the country's financial market), and the effect of damaging the legitimate rights and interests of domestic investors. In theory, the China Securities Regulatory Commission may pursue the administrative liability of stable currency issuers such as Libra in accordance with the provisions of the Securities Law.
However, it should be noted that China's regulators generally take a risk-taking attitude towards Chinese residents' participation in various types of virtual currency investment, especially in relevant departments prompting the risk three times and five times, prohibiting overseas virtual currency trading platforms and overseas project parties from targeting Chinese residents. In the case of providing transaction services or issuing funds to raise funds, if domestic investors still insist on participating in the overseas issuance or trading of virtual currencies, if the overseas securities issuance and trading behavior is not serious enough to disrupt the market order of our country, even if the investors are damaged, The SFC may not exercise extraterritorial jurisdiction as a result. For investors participating in the issuance and trading of overseas virtual currencies, it is only possible that the issuance and trading of offshore securities-based virtual currencies has harmed China's market order, and Chinese law clearly recognizes and provides legal protection for Chinese residents' participation in overseas virtual currency investments. In this case, this article may have a chance of real application.
In addition, although the newly amended Securities Law has given China Securities Regulatory Commission overseas jurisdiction, the Securities Law also retains the provisions of overseas regulatory cooperation under the original Securities Law, but the exercise of these administrative powers involves overseas investigations Issues such as evidence collection and cross-border enforcement depend on the support and cooperation of regulatory authorities in other countries. The effective realization of these powers of the Securities and Futures Commission mainly depends on China's national strength. Extraterritorial jurisdiction is not only a matter of securities but more of a political issue. .
Author: Zhang Ling, a partner at law firm Han
Disclaimer: This article only represents the personal opinions of the author, and does not represent the opinions of the institution. The content of this article does not constitute legal advice and investment advice. If you need to reproduce or cite any content from this article, please state the author's name.