Chinese Central Bank Requiring Extreme Customer Verifications at Exchanges

A leading Chinese bitcoin exchange, Huobi, reportedly sent a letter to some of its customers to inform them of yet another set of new Anti-money laundering (AML) requirements. These customers are now required to provide explicit details and proof of the sources of their funds, destinations of bitcoins or other cryptocurrencies withdrawn, as well as their purposes for withdrawing.

Also read: PBOC Lists New Rules for Chinese Bitcoin Exchanges

New AML Requirements

Huobi confirmed to Bitcoin.com that this letter was sent to some customers whose accounts are potentially vulnerable to money laundering. In its letter, the exchange cites AML regulations imposed by Chinese regulators including the People’s Bank of China (PBOC) and China Banking Regulatory Commission. Customers of Huobi, and potentially of all Chinese bitcoin exchanges, falling into this category must now provide:

1. Account information used to log in at the exchange.

2. Explanations and evidence of the sources of their deposits.

3. Destinations and evidence of the bitcoins or other cryptocurrencies withdrawn.

4. Explanations of the purposes of their withdrawals.

In an unprecedented move against privacy, all documents and proof submitted will be sent to the National Archives, the letter informs customers, adding that they will need to certify that all information and proof provided are authentic.

Required: Proof of Funding Sources

As proof of their funds, Huobi is asking their customers for a detailed list of historical transactions from the customer’s bank account used to deposit funds at the exchange. The burdensome requirements include:

1. The bank transfer records to the exchange’s account.

2. Written explanations of the sources of the funds transferred.

3. Screen captures and other relevant proof that can back up the explanations given above.

The letter suggests providing a historical record of items matching the deposit amount such as monthly salary, money withdrawn from other platforms or money borrowed from friends. For borrowed funds, IOU documents would need to be attached as proof. Wechat screenshots are acceptable evidence as well.

Required: Withdrawal Destinations & Purposes

The destinations of all cryptocurrency withdrawn will also be under the spotlight. Customers need to declare where the coins will be sent to, such as to a personal wallet or another platform. For example, screenshot evidence of the deposit pages of other platforms showing matching customers’ names and addresses are needed. The purposes for withdrawal, such as to use them for financial investment or arbitrage, must also be declared.

The exchange then warned their customers that the funds used to participate in illegal fundraising will not be protected by law and customers will bear the risks and responsibilities by themselves. It is also illegal to participate in money laundering and pyramid schemes, the letter states. Customers were also told that they would be held responsible for engaging in such activities.

Moving the Market Underground

The move is the latest in a long series of new regulations imposed by the PBOC this year on bitcoin exchanges. In mid-February, the Bank applied several new rules, including the end of zero-fee bitcoin trading in the country. This resulted in a large number of customers leaving those exchanges to purchase their bitcoins in underground markets like Localbitcoins.com.

Early this month, the PBOC listed a long set of rules for Chinese bitcoin exchanges to follow, and more guidelines have kept piling up since. Zhou Xuedong, a PBOC director whose department carried out the inspections of Chinese bitcoin exchanges early this year, said that the bank would concentrate on AML regulations of exchanges’ customers. Last week, bitcoin exchanges reportedly added an on-site identity verification requirement, including an in-person visit, to deposit or withdraw 50,000 yuan or more.

What do you think of the new requirements on customers of Chinese bitcoin exchanges? Let us know in the comments section below.

Images courtesy of Shutterstock, Coin.dance, PBOC, and Huobi

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