On April 19, 2026, the public consultation period for the "Draft Financial Law of the People's Republic of China" came to an end after one month. This draft, the first comprehensive financial law in China, has taken shape and has been referred to by some media as “the world's first overarching law named 'financial'.” In this draft, Article 55 grants financial regulatory authorities a bundle of quasi-judicial powers including the authority to review property information, freeze assets, and restrict exit, making it the most sensitive focal point in the market. In contrast to the increasingly clear outlines of stringent regulation, there is still a noticeable lack of institutional designs surrounding AI financial decision-making and the regulation of crypto assets and other emerging industries, triggering discussions on the tension between “regulatory expansion” and the “vacuum of new industry regulations”: as traditional finance is placed in tighter regulatory cages, new forms such as crypto linger in the gray areas of law.

First Financial Law Debuts: From Institutional Regulation to Functional Regulation

This draft financial law is generally regarded as the "fundamental law" of China's financial sector, intended to govern the arrangements of banks, securities, insurance, payments, and wealth management that are scattered across multiple laws and departmental regulations, forming a unified framework from top to bottom. Its legislative background is the increasingly intertwined realities of shadow banking, internet platform finance, and cross-market, cross-industry operations, which challenge the existing regulatory model that has “institutional licenses” as its boundaries, making it difficult to comprehensively cover the risk transmission chain.

A key signal released by the draft is the shift of the financial regulatory system from institutional regulation to functional regulation. Regulatory boundaries are no longer drawn merely by “what license you have and which institutional category you belong to,” but rather emphasize rules around “what functions are being performed and what financial behaviors are being engaged in.” This means that whether it is traditional banks' off-balance sheet business or various financial services wrapped in technology, as long as they actually bear the function of financial intermediation or risk transfer, they have a basis for being included in the unified regulatory framework.

It is against this backdrop that PANews, Planet Daily, and others have evaluated it as “the world's first overarching law named 'financial'”, highlighting its symbolic significance: in the context of the fragmented global financial regulatory system, China attempts to lock all financial activities with a fundamental law. For the crypto market, what is more noteworthy is not the direct provisions that have appeared in the text, but rather how this overarching legislation reserves institutional interfaces for the future inclusion of new industries such as digital currency and crypto assets— once regulation chooses to classify a certain type of on-chain activity as a “financial function,” matching rules can be supplemented under this fundamental law framework.

Article 55 Takes Precedence: Quasi-Judicial Power Changes the Game

Among the various provisions, the quasi-judicial powers granted by Article 55 have become the most sensitive aspect of the market. According to the draft, financial regulatory authorities, in the performance of their duties and handling major financial violations, can lawfully review the property information of relevant entities, freeze related assets, and restrict the exit of relevant responsible persons, thereby crossing over the traditional role of “only responsible for regulatory coordination, not directly involving property and personal boundaries.”

These powers will significantly enhance the investigation efficiency and deterrent effect of regulatory agencies. On one hand, in the complex structures of shadow banking, cross-platform funding channels, and mixed on-chain and off-chain operations, the rapid retrieval and freezing of assets can prevent risks from continuing to spill over, and also reduce the enforcement difficulties of “people leaving while funds disappear”; on the other hand, imposing exit restrictions on involved responsible persons will change the paths for case collaboration and accountability, making regulatory investigations closer to the rigor of criminal justice procedures. The cost expectations for financial violations will be re-evaluated under this logic.

At the same time, the tension between regulatory expansion and procedural justice, as well as boundaries of power is gradually surfacing. The market feels the arrival of the “strong regulatory era,” worrying about how to balance the enforcement dimensions and relief channels, but also has to acknowledge that, in the reality of frequent complex financial innovations and cross-border arbitrage, the traditional toolbox has shown clear limits. The draft intentionally places relevant measures at a legal level, setting necessary conditions and procedural requirements, trying to find a new balance between efficiency and rights protection.

If in the future, regulatory authorities extend this type of power to business scenarios related to crypto, its impact will be particularly direct: parties involved in on-chain asset transactions, custody, OTC channels, and even technical services, once identified as participating in illegal financial activities, will not only face rapid freezing of funds and accounts but may also encounter stricter restrictions on personal movement domestically and arrangements across borders. The costs of violations and compliance thresholds are likely to rise significantly under such circumstances, imposing pressure on the operational models and risk control designs of practitioners.

AI Risk Control and Crypto Assets: New Issues Understated by the Draft

In sharp contrast to the strong presence of Article 55 is the “understated” nature of the draft's treatment of AI financial decision-making and crypto assets. Views as noted by Caixin point out that the draft's attention to AI-driven investment decisions, automated risk control systems, and crypto asset-related businesses is limited, lacking a dedicated institutional response. At a time when technology is increasingly embedded within financial business processes, this gap has been marked by many observers as a potential concern.

From market practice, multi-level applications of AI and on-chain services have already emerged within the Chinese financial system: large institutions' AI quantitative strategies, algorithm-driven credit and risk control models, automated risk control in internet platforms for consumer credit and microfinance, and various on-chain asset services and compliance consulting arising around offshore transactions and cross-border asset allocation, although differing in scale and maturity, collectively form the "initial shape of new financial infrastructure" in reality.

In a comprehensive financial fundamental law, the lack of clear definitions, boundaries of responsibility, and rules for risk attribution in these areas could lead to a fragmented regulatory practice in the future: different regulatory departments may interpret the same type of business independently based on existing divisions of labor and technological understanding, with some treating it under traditional financial product regulation and others as general technical services, leading to clear inconsistencies in enforcement standards and compliance requirements.

This "blank space" has been endowed with dual interpretations in the market. On one hand, some argue that it is a prudent choice in a phase characterized by greater overall uncertainty, avoiding prematurely “nailing” AI and crypto businesses to a certain legal framework in a period of rapid technological evolution, reserving space for future responses through dedicated legislation or secondary regulations. On the other hand, some market participants regard it as a source of short-term uncertain risks: without explicit regulations, it is difficult to obtain a clear compliance path while facing potential tightening of regulatory expectations at any moment, leading to conservative technological layouts and capital investments.

Legal Gaps and Gray Areas: Institutional Suspension in the Crypto Industry

In the field of crypto assets, this institutional “blank space” is particularly typical. Research briefs clearly point out that the legal status of digital currency is still unclear at this stage, relying more on notifications, risk warnings, and departmental regulations to delineate red lines and control ranges in practice. In contrast to the overarching status of the financial law draft, activities related to on-chain assets are still mainly placed within a “policy stance + regulatory tone” combination, rather than woven systematically into a fundamental law.

The draft has not yet detailed regulatory rules specifically for crypto assets, meaning that trading platforms, custodians, and relevant technical service providers remain in a compliance environment dominated by “previous documents + regulatory practices.” For entities operating offshore platforms serving Chinese users, providing on-chain data analysis and strategy tools, and participating in cross-border asset allocation, the challenge lies in: on one hand, there are no clear legal texts defining their business nature and licensing requirements; on the other hand, the high-pressure regulatory environment has been evidenced by multiple recent special rectifications.

From the practitioner's perspective, this creates a typical business dilemma: “no clear definition of illegality, but high-pressure regulation has become the norm”. In the absence of clear legislative guidance, many institutions can only refer to traditional financial and internet compliance experiences, setting their own bottom lines, enhancing KYC/AML (Know Your Customer/Anti-Money Laundering), and reducing leverage and trading frequency to “cross the river by feeling the stones,” while remaining highly sensitive to changes in regulatory scales. The pace of business expansion is constrained by policy uncertainties, making long-term planning difficult to implement.

In comparison to the international environment, some overseas jurisdictions have already provided relatively clear paths through dedicated legislation or incorporating crypto assets into the securities, commodities, or payment tool systems, in terms of licensing systems, information disclosure, and investor protection. In contrast, China's current model leans towards the ambiguity and caution of principle-based provisions combined with departmental regulatory tones, maintaining high-pressure enforcement space to prevent risks, yet delaying the direct “classification” of this asset category at the fundamental law level. This difference further complicates the compliance paths for cross-border institutions seeking to operate in the Chinese market.

Strong Regulation and the Game of Financial Innovation: Who Defines the Boundaries

From the regulator's perspective, the empowering logic behind the financial law draft is not difficult to understand. In the reality of the interweaving of shadow banking, platform finance, and on-chain assets, systemic risk prevention is still placed at the highest priority. The characteristics of financial activities spanning markets, institutions, and even borders make the traditional model of “license-based regulation” prone to regulatory vacuums and ambiguous responsibilities. Through a unified fundamental law and reinforcement of investigative and disposal powers, regulators aim to first grasp the “total gate” of systemic risk and then gradually implement tiered management regarding different industries.

However, from the perspectives of innovators and investors, this logic also raises considerable concerns: when uncertain but strong regulatory expectations weigh overhead, technological innovations and capital often opt to stay on the sidelines or even withdraw. Particularly in tracks requiring long-term investment, such as AI-driven strategies and on-chain financial infrastructure, if there is a lack of stable institutional expectations and clear compliance paths, it becomes challenging to attract genuinely long-term capital participation, leaving only small-scale experiments and short-term arbitrage maneuvering in gray areas.

For ordinary investors, the financial law draft releases a dual effect. On one hand, strengthening regulatory powers and increasing the costs of violations help to compress the high leverage, Ponzi-type products, and severely asymmetric information in the gray space, objectively enhancing “safety” and reducing the probability of being scammed by various pseudo-financial innovations. On the other hand, many high-risk, high-return opportunities inherently exist on the fringes of regulation; when the regulatory cage tightens, such opportunities will significantly decrease, raising the new question of whether it will be possible to share technological dividends through compliant channels.

The core contradiction behind this is: regulators want to “establish the cage before discussing innovation,” while technology and capital often run ahead of rules. In cutting-edge fields like crypto assets, the innovative process naturally embodies the characteristics of “trial and error first.” If the law consistently lags behind, regulation can only “mend the net” afterward; but if the system attempts to comprehensively shape it at an early stage of technology, it may over-constrain and miss the window of global competition. The financial law draft merely provides an answer for strengthening the regulatory foundation; how to form a dynamic balance with innovation on this basis remains unresolved.

After the Consultation Period Ends: What’s Next for Crypto Regulations

It is important to emphasize that the current financial law is still in the draft review stage. Although the consultation period ended on April 19, 2026, how specific provisions will be modified and the final legislative timetable has not yet been made public, making any reliable predictions about details impossible. Given the limited information, the only certainty is: this fundamental law will become the institutional foundation for all future financial legislation and regulatory practices.

On this basis, a relatively sound path of inference is: first establish a unified financial regulatory framework, then touch upon the crypto sector through supporting regulations or special legislation. In other words, the current draft not immediately working to “define” crypto assets does not mean this sector will be shelved for a long time; it is more likely that regulators are intentionally placing it at a stage where it will be responded to by the central bank, securities regulatory authority, and other departments through detailed rules or dedicated regulations in the future. In this process, the general provisions on functional regulation, investigative powers, and risk disposal within the financial law may all become the higher-level basis for crypto-related rules in the future.

For institutions and individuals in the crypto industry, the more realistic task at this stage is not to predict the details of provisions, but to keep a close eye on the results of the consultation and the trends in subsequent supporting systems, and accordingly build risk control and compliance plans in advance: reassessing whether business touches the boundaries of “financial functions,” evaluating the potential licensing, information disclosure, and capital requirements once included in the unified regulatory system, and how to optimize governance structures and compliance documentation under the quasi-judicial framework of Article 55.

From a longer-term perspective, the financial law draft appears more like the starting point of the era of strong regulation rather than the endpoint of regulatory games. It establishes the boundaries of state power and toolkits in the financial field rather than passing a final attitude toward a certain technology or asset form. The fate of crypto assets will ultimately not be decided by a single draft, but by the institutional negotiations that will unfold over the next several years, weighing macro risks, prevention bottom lines, technological evolution, and global competitive pressures.

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