On January 10, 2019, the Cyberspace Administration of China (CAC) released Administrative Provisions on Blockchain Information Services (Blockchain Provisions), which went into effect beginning February 15, 2019. This update outlines key points of which to be aware in relation to the Blockchain Provisions.
How have the Blockchain Provisions come about? In 2018, the Ministry of Industry and Information Technology of China released the China Blockchain Industry White Paper, which provided policy guidance for the Blockchain industry in China. However, until now, there have been no laws or regulations to address regulatory supervision over Blockchain in China. The Blockchain Provisions address this gap.
After implementation, they will
- Become the first official rules to regulate the Blockchain industry in ChinaImpose new regulatory requirements on Blockchain service providers.
There are some key points to note
Application and scope
The Blockchain Provisions apply to Blockchain information services in China, which are defined as information services delivered to the public by way of internet or application programs based on Blockchain technology or systems.
Under the Blockchain Provisions, the central and local CAC authorities will take charge of supervision and management of blockchain services in China.
Encouraging self-regulation in the industry
The Blockchain industry in China has been active over the past 1-2 years, and a number of Blockchain industry associations and organisations, such as the Shanghai Blockchain Industry Association and the Guangzhou Blockchain Industry Association, have been set up in China for the purpose of promoting R&D and deployment of Blockchain technology.
The Blockchain Provisions are intended to encourage organisations in the Blockchain industry to strengthen industry self-regulation in order to promote the growth and proper development of the industry. Accordingly after their implementation, we expect that industry self-regulation will be further improved.
Security requirements for Blockchain service providers
The Blockchain Provisions set out certain requirements for Blockchain service providers in order to ensure compliance with applicable laws and regulations in China. For example, the Blockchain Provisions require that Blockchain service providers shall certify the real identity of Blockchain service users by checking relevant organisation codes, identity card numbers and mobile phone numbers and keeping the login records of the users for at least six months.
In addition, where a Blockchain service provider intends to launch any new products, new application programs or new functions, it is now required to report to the CAC and go through a security assessment. However, no details are given in the Blockchain Provisions with respect to the criteria or procedure to be followed in relation to such security assessments.
The Blockchain Provisions impose liabilities on service providers if they violate such requirements. Chinese authorities have the power to penalise those violating providers according to relevant Chinese laws and regulations (including the China Cybersecurity Law), and those violating providers can be subject to criminal liabilities in the case of severe violations.
No new permit requirement, but Blockchain services now subject to filing
The Blockchain Provisions do not contain any express requirement for operating permits for Blockchain services. This means that Blockchain services will continue to be regulated as a technical business which does not require service providers to obtain special operating permits from the regulators.
However, given that Blockchain services are normally delivered via the internet or application programs, if the applicable Blockchain services also fall within the application scope of other Chinese rules (such as the Administrative Regulations on Internet Information Services or the Categorisation Catalogue of Telecom Business), such Blockchain services will still be subject to the operating permits under those rules.
The Blockchain Provisions lay down a filing requirement in relation to service providers, who are now required to file a recordal with the CAC within ten working days from the commencement of the Blockchain services. A follow-up filing should be made in case of changes to, or termination of, Blockchain services. Non-compliance may give rise to warnings or punishments by the CAC centrally or by its local counterparts.
To track filings made in relation to the Blockchain Provisions, a Blockchain Information Service Record-filing Administration System (https://bcbeian.ifcert.cn/) was launched by the CAC on January 28, 2019.
Blockchain has become an integral part of Chinese national technology strategies. For example, it is featured in the 13th Five-Year Plan for National Informatisation, released in December 2016. Moreover, businesses in various industry sectors can benefit from Blockchain because of the technical and business functionality it can provide, such as greater transparency, enhanced security, improved traceability, increased efficiency and speed of transactions.
Well-known Chinese internet giants have participated in research on Blockchain and are expanding the application of Blockchain into an array of industries, ranging from finance, healthcare, eCommerce, logistics, and even in court practice. For example, the Internet Courts of Beijing and Hangzhou in China have both used Blockchain technology to establish platforms to store their judicial evidence, and China’s Supreme Court has released a judicial interpretation recognising the authenticity of evidence stored on Blockchain.
While the Blockchain Provisions lay down some fundamental provisions in relation to the regulation of the Blockchain industry, further clarification is needed – particularly in relation to practical implementation. For example, the Blockchain Provisions provide that Blockchain service providers shall meet the technical conditions suitable for their services, but there is no definition or standard to determine whether such “technical conditions” have been satisfied. In addition, the Blockchain Provisions require that Blockchain service providers comply with national Blockchain industry standards, which are still not provided for at present.
The Blockchain Provisions are intended to strike a balance between promoting and developing Blockchain technology, and regulating Blockchain in order to mitigate potential financial risks. They will no doubt have significant implications for the Blockchain industry in China.
In the light of the new requirements
- International and Chinese businesses engaging in Blockchain business in China should review their business models and strategies in order to ensure compliance with the new legal requirements under the Blockchain Provisions.
- Chinese regulators and self-regulatory organisations are likely to release detailed implementation rules. We will track and provide updates on progress and developments in this regard.