New regulations from 8 departments now in effect, says Web3 lawyer.

The unveiling of “Document No. 42” by eight Chinese government bodies is a significant milestone in the realm of virtual currency, stablecoins, and real-world asset (RWA) tokenization regulations. This comprehensive directive is hailed as the most detailed and refined regulatory document to date in this rapidly evolving sector. What sets this document apart is its broadening of the regulatory scope from merely focusing on virtual currency trading to encompass the entire spectrum of “virtual currency + RWA + stablecoins.” This move represents a pivotal shift in the oversight of digital assets.

One of the key aspects of “Document No. 42” is the inclusion of RWA and stablecoins within the core regulatory framework. It provides a clear delineation of RWA as activities that leverage cryptographic technology to tokenize asset rights for trading purposes. By explicitly acknowledging RWA and stablecoins, the directive lays down a solid foundation for regulating these key components of the digital asset landscape.

Another crucial development introduced by this regulatory directive is the establishment of a dual-track regulatory mechanism. Under this system, virtual currency regulation falls under the purview of the central bank, while RWA regulation is specifically overseen by the China Securities Regulatory Commission (CSRC). This dual-lead regulatory setup aims to streamline coordination and implementation efforts across various government departments, addressing previous challenges in this area.

Moreover, “Document No. 42” clarifies the prohibition on domestic RWA business activities. It stipulates that engaging in RWA activities within China without proper approval from the relevant authorities is deemed as suspected illegal financial conduct and should be prohibited. Such a clear directive serves to enhance regulatory transparency and uphold the integrity of the financial system.

The directive also emphasizes the importance of strengthening cross-border business supervision. To this end, it outlines stringent rules based on the “same business, same risk, same rules” principle to oversee behaviors such as domestic entities issuing tokens overseas or engaging in RWA financing based on domestic assets. These measures aim to safeguard against potential risks arising from cross-border transactions and ensure compliance with regulatory requirements.

Furthermore, “Document No. 42” underscores the responsibilities of financial institutions and intermediaries in conducting RWA business. It mandates overseas branches of domestic financial institutions to prudently engage in RWA activities and integrate them into the overall risk management framework of the parent company. Additionally, intermediaries offering cross-border services are brought under the regulatory ambit, highlighting the importance of regulatory oversight in this space.

In a bid to further fortify regulatory efforts, the directive extends civil liability clauses to cover RWA activities. It explicitly outlines that investments in “real-world asset tokens and related financial products” that contravene public order and good morals are considered invalid legal acts, with investor rights not protected by law. This stipulation underscores the importance of upholding legal and ethical standards in the digital asset realm.

In tandem with “Document No. 42,” the CSRC has issued supporting guidelines for the overseas issuance of asset-backed security tokens backed by domestic assets. These guidelines detail the filing process, negative list, and ongoing supervision requirements, offering clarity and transparency for businesses operating in this domain. This move aims to provide a structured framework for compliant business operations while ensuring regulatory compliance.

Overall, the issuance of “Document No. 42” and the accompanying guidelines represent a significant step forward in enhancing the regulatory oversight of virtual currency, stablecoins, and RWA tokenization in China. By expanding the regulatory scope, establishing a dual-track regulatory mechanism, and clarifying prohibitions and responsibilities, these directives aim to foster a more robust and transparent regulatory environment for digital asset activities.