China's ban on Initial Coin Offerings (ICOs), a digital coin fundraising scheme, was only part of a broader campaign to curb the country's financial risks.
In an announcement Monday, China's central bank ordered a complete halt on new ICO offerings, in which technology start-ups issue their own digital coins, or "tokens," to investors to access funds.
"ICOs, in essence, are a type of unauthorized and illegal public fundraising that is suspected of being related to criminal activities such as financial fraud and pyramid schemes," the People's Bank of China (PBOC) said.
It was "normal" for the rapid development of ICOs to draw the attention of regulators, and when retail investors, many of whom are amateurs, have become investors, it's time for regulators to step in, Sheng Songcheng, an advisor to the PBOC, told financial magazine Yicai.
China's regulators have been responding in a timely manner to address risks arising from technology-based finance while maintaining a delicate balance to encourage real innovation.
While the boom of ICOs has helped tech companies access much-needed funds for development, it has also created fertile ground for scammers.
"Deceitful projects will not only bring many risks to investors, but lead to complaints by serious startups in the blockchain business. As a result, bad money drives out good," Sheng said.
To keep the "good money" on the table, China launched what analysts called a "regulatory windstorm" starting from the end of last year, with major financial regulatory bodies rolling out policies to identify and punish all kinds of illegal activities.
In April, amid complaints about reckless speculations on financial markets, the China Banking Regulatory Commission (CBRC) outlined 10 detailed fields for strengthened risk control, including traditional sectors such as credit, liquidity, real estate and local government debt as well as non-traditional areas such as Internet finance.
Similar to ICOs, peer-to-peer (P2P) lending served as an Internet-based alternative for companies and individuals to borrow money. As the P2P industry took off in recent years, it also made room for high-profile fraud, which prompted regulators to act fast.
In a report released in August, the PBOC said it will explore methods to include "relatively large Internet finance businesses of systemic importance" in its macro prudential assessment (MPA), a risk review framework covering checks of loans and other assets.
Other regulatory upgrades included the introduction of a new committee on financial stability and development, announced during a two-day National Financial Work Conference in July.
With responsibilities such as coordinating financial policies and drafting rules to fill regulatory gaps, the committee is expected to address the regulation challenges brought by increasingly complicated financial services, analysts said.
There seems to be no sign that regulators will loosen their stance on financial violations. Recent data compiled by news site The Paper showed that the CBRC had handed out more fines in terms of value in August compared with July, mainly targeting unauthorized loan issues.
The China Insurance Regulatory Commission recently asked insurance firms to report typical cases and data on new types of fraud in order to further contain risks.
In terms of digital currency, the regulators should implement stricter rules punishing those that conduct illegal activities using virtual currencies, Sheng said.
Even if financial innovations finally lead to a world with digital currencies or even a "cashless society," the central bank should dominate the change, Sheng said.