Written by: Liu Zhengyao

Introduction

The public consultation period for the "Financial Law (Draft)" has ended, and its official release is merely a matter of time. Many people feel that this law has nothing to do with them, after all, the country has long "banned virtual currencies." However, if you look closely at this draft, you will find that for those still active in the domestic crypto space, the pressure brought by this law is much greater than you imagine.

What does the Financial Law regulate?

According to the draft's description: any currency and credit activities involving "deposits, loans, insurance, securities, futures and derivatives, funds, trusts, payment and settlement" fall under "financial activities," all subject to regulatory oversight. Furthermore, the draft clearly states: "The state will bring all financial activities under supervision, and will legally combat illegal financial activities."

This sentence already encompasses all activities related to virtual currencies—trading, exchanging, issuing, and promoting. The essence of cryptocurrency is a payment, settlement, and investment financing tool, inherently possessing "financial attributes." Engaging in such activities without a license and without regulatory filing is considered "illegal financial activity."

Additionally, based on a notification published on February 6, 2026, by eight national ministries, including the People's Bank of China, the China Securities Regulatory Commission, the Financial Regulatory Bureau, and the State Administration of Foreign Exchange, titled "Notice on Further Preventing and Handling Risks Related to Virtual Currencies," it directly defines business activities related to virtual currencies as: illegal financial activities.

Hence, we conclude: once the "Financial Law" is enacted, most businesses in the crypto space will come under regulation.

Impact on Crypto KOLs: Promotion Activities May Cross the Line

Many crypto KOLs think they are merely sharing information, educating the public, or leading trading, and do not consider themselves "financial practitioners." However, Article 33 of the Financial Law draft states:

The marketing entities for financial products and services must meet the conditions set by financial regulatory authorities, and they must not market in a fraudulent manner or promote financial products whose risk levels exceed the customer's risk tolerance.

When KOLs promote a specific coin, project, or exchange on social media platforms, it is fundamentally "marketing financial products." Once the "Financial Law" is implemented, such behavior will be explicitly recognized as "engaging in financial marketing without a license," which is illegal.

More seriously, Article 87 of the draft stipulates that those who organize or instruct others to engage in illegal financial activities, or assist others in committing such activities, will also be penalized. If a KOL promotes a project, they might as well be considered "providing assistance," and escape won't be possible.

Penalties include not only fines but also a ban for a certain period, or even for life, from entering the financial industry. For KOLs who rely on "monetizing traffic" for a living, this cut-off is akin to directly sealing all their exits.

Impact on OTC Merchants: Increased Risk of Fund Freezing

OTC (Over-the-Counter) trading has always been a gray area in the domestic crypto space—using bank cards, Alipay, or WeChat to receive RMB in exchange for USDT, or vice versa. This industry chain has long been under suppression, but due to its "peer-to-peer" nature, it has been challenging to eliminate, and there are still individuals involved.

After the enactment of the Financial Law, OTC merchants will face more direct legal pressure. Article 55 of the draft grants financial regulatory authorities a key power:

"If there is evidence that illegal funds, securities, or other involved properties have already been or may be transferred or hidden, they can be frozen or sealed."

Note the wording here—"have already or may be," the threshold is very low. As long as there is "evidence proving possible," accounts can be frozen. The large volume of bank card transactions and high-frequency fund movements in OTC trading have already been key targets for anti-money laundering mechanisms, and the likelihood of triggering a freeze in the future is only expected to rise.

More importantly, this time the Financial Law directly legalizes this power, removing the reliance on traditional criminal cases to trigger freezing measures. Administrative regulatory bodies can initiate freezing procedures themselves without waiting for police involvement.

Impact on Mainland Crypto Projects: Issuing Coins is Illegal, More Stringent Regulatory Penetration

Article 31 of the Financial Law draft clearly states: Providing financial products and services must be approved, registered, recorded, or filed; without approval, no organization or individual may provide or imply provision.

Although since September 4, 2017, the use of virtual currencies for financing activities has been prohibited (the "9.4 Announcement" banned ICOs in the crypto space), even today, some mainland teams still openly engage in coin issuance and financing activities in places like Shenzhen. The issuance of Tokens, regardless of how they are packaged—"points," "equity certificates," "community governance tokens"—as long as they possess financing or payment attributes, falls under unapproved financial products and thus is illegal.

Moreover, Article 8 of the draft introduces the concept of "penetrating supervision," which means that regulatory authorities will penetrate various structures, shell companies, and compliant packaging to directly determine substance. Projects registered in the Cayman Islands or BVI with actual controllers in the domestic realm won't escape this scrutiny.

Article 92 further states: Engaging in financial activities outside of China but harming China's financial security or disrupting domestic financial order will also bear legal responsibility. This means that projects issuing coins overseas but soliciting funds from domestic users are also within reach.

Need to Pay Special Attention to Exit Restrictions

Exit restrictions—this may be the most lethal clause for crypto practitioners in the draft, but many have not yet noticed. Item (7) of Article 55 of the draft clearly states:

"Those suspected of illegal activities that may harm national security and interests, and the persons in charge and other directly responsible personnel of suspected illegal units, will be prohibited from exiting the country, and immigration management authorities will be notified to enforce this lawfully."

In the past, exit restrictions were primarily a means used by criminal judicial authorities in criminal cases (to investigate and combat criminal activity). However, under the framework of the Financial Law, financial regulatory bodies themselves can initiate "exit prohibition" procedures without needing to first go through criminal case initiation.

This means that a crypto practitioner, OTC merchant, or project founder who has not yet been criminally prosecuted, as long as they are identified as "suspected of financial illegal activities," may be stopped at exit—only to discover on their way to the airport that they cannot use their passport.

This poses a significant real threat for those "with one foot in the domestic market and one foot abroad" in the crypto space.

Impact on Mainland Crypto Projects: Issuing Coins is Illegal, More Stringent Regulatory Penetration

In the past, illegal activities related to crypto primarily followed criminal pathways, relying on charges like "assisting information network criminal activities," "concealing or disguising criminal gains," gambling crimes, illegal business operations, and others frequently occurring crimes in the crypto space, or being prosecuted under traditional crimes like fraud, and sometimes the legal basis was not so precise.

After the enactment of the Financial Law, the connection will be smoother: Article 90 explicitly states: Violations of this law constituting a crime will be prosecuted according to law.

The last paragraph of Article 56 states: Those suspected of crimes will be transferred to the public security organs according to law; Article 59: Financial regulatory bodies will strengthen the work related to transferring clues and information sharing with public security, national security, and judicial authorities.

This means the entire process in the future will be: regulatory agencies discover violations → administrative processing → determination of suspected crimes → transfer to public security → criminal case initiation. The entire chain is streamlined, led by financial regulatory bodies at the front, and public security at the back, significantly improving efficiency.

KOLs, OTC merchants, and project parties, originally faced only vague criminal risks; after the implementation of the Financial Law, there will first be a clear determination of administrative violations, which will then smoothly transition into criminal proceedings.

Conclusion

Many people believe that the domestic crackdown on the crypto space has always been ongoing, and the "Financial Law" is just "more stringent." However, in reality, the significance of this law lies in: taking past reliance on temporary policies, verbal prohibitions, and campaign-style crackdowns, and formalizing them all through law.

In the future, investigations into crypto practitioners will no longer be about "policy prohibitions," but clearly about "you have violated the law."

For those still in the domestic crypto space, several practical risk points deserve close attention:

KOLs: Promotional activities may be classified as unlicensed financial marketing, facing penalties and industry bans; OTC merchants: The threshold for account freezing is lowered, and the legal basis for fund seizure is more substantial; project parties: Offshore structures are no longer a shield, penetrating supervision directly identifies the responsibilities of actual controllers; for everyone: exit restrictions no longer require waiting for criminal case initiation, regulatory bodies can initiate directly.

In a word: After the enactment of the "Financial Law," the legal risks in the crypto space are not merely an additional red line but rather the entire area has turned into a minefield, with the mines buried deeper and denser than before.

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