China bans initial coin offerings over concern about financial and social stability

China has banned the practice of initial coin offerings (ICOs) – fundraising by the issue of digital currencies outside the regulatory framework – and has stepped up its policing of the trading of digital coins to ward off financial risks and potential social disunity.

In a circular published on its website on Monday, the People’s Bank of China said fundraising schemes of this kind had been defined as illegal, and that 90 per cent of the ICOs launched on the mainland were found to have been fraudulent.

“Any form of fundraising through digital currency issuance should be halted immediately,” the central bank said. “Those schemes which are already launched should repatriate funds to investors,” it said in the circular, which also carried the endorsement of the securities and banking regulators and the task force under the State Council that is responsible for internet finance security.

The announcement came just a week after the National Internet Finance Association of China, a government-backed industry consortium, warned investors of fraud and illegal behaviour in such fundraising schemes.

Mainland financial regulators have been taking a harsh stance on internet currencies since the beginning of this year, concerned also about their impact on the yuan and as part of the Communist Party’s anti-corruption drive.

Bitcoin, the cryptocurrency, has proved particularly popular among mainland investors over the past year, resulting in capital outflows while ratcheting up pressure on Beijing to keep the local currency stable.