China has implemented new rules that require banks to flag risky transactions, including those involving cryptocurrencies, in an effort to tighten control over digital assets. The State Administration of Foreign Exchange, China’s foreign exchange regulator, has rolled out these new regulations, which mandate local banks in mainland China to keep a closer eye on transactions involving digital assets.

According to a report by the South China Morning Post, the rules focus on identifying “risky foreign exchange trading behaviors,” such as underground banking, cross-border transactions involving cryptocurrencies, and illegal financial activities. Banks are now required to track transactions by checking the parties involved, the source of the funds, and the frequency of the trades. Additionally, Chinese banks must establish risk-control measures for these entities and restrict their access to certain services.

These new rules are part of China’s broader efforts to crack down on cryptocurrency trading and mining, which officials view as a threat to financial stability. The country has a history of taking a tough stance on cryptocurrencies, with Beijing banning initial coin offerings and shutting down domestic crypto exchanges in 2017. By 2021, China had imposed a complete ban on crypto trading and mining.

Despite these restrictions, individuals in China are technically still allowed to hold digital assets. However, the lack of clear regulations has created uncertainty in the market. The gray areas in the regulatory framework make it challenging for investors to navigate the cryptocurrency landscape in China.

The implementation of these new rules underscores China’s commitment to maintaining strict control over the cryptocurrency market. By requiring banks to flag risky transactions involving digital assets, the government aims to prevent financial risks and ensure the stability of the financial system. As the cryptocurrency industry continues to evolve, it remains to be seen how these regulations will impact the market and the behavior of investors in China.