Hong Kong: "Chaining" It Up: New PRC Blockchain Regulations

Last Updated: 4 April 2019
Article by Gabriela Kennedy and Karen H.F. Lee
Most Read Contributor in Hong Kong, July 2019

Whilst there is ongoing debate over cryptocurrency (the risks and rewards), blockchain has generally been heralded as the golden nugget when it comes to new ways of doing business. Blockchain in its simplest form is a decentralised digital ledger that cannot be altered. Many governments in the Asia Pacific region have publicly encouraged the development of blockchain. Blockchain development was identified as one of the core aims in the PRC government's 13th Five Year Plan in 2016, the Singapore Infocomm Media Development Authority recently announced that it will be offering seed funding to blockchain companies in the media and ICT sector, and the Hong Kong Monetary Authority commissioned the Hong Kong Applied Science and Technology Research Institute ("ASTRI") to investigate the potential deployment of blockchain.

The application of blockchain is on the rise in all sectors, with the potential adoption and use of such technology by all sectors of activity being limitless. But with increased growth comes great responsibility. Government authorities across the region have started considering the need to regulate blockchain, without stifling innovation. So far, most new regulations or legislation in the area have been focused on cryptocurrency and initial coin offerings.

Now the attention is shifting towards whether or not blockchain (outside the context of digital currencies) requires a regulatory framework.

One of the countries leading the charge is China. On 10 January 2019, the Cyberspace Administration of China ("CAC") announced the release of the new Regulations on the Management of Blockchain Information Services ("Blockchain Regulations"), which came into effect on 15 February 2019. The CAC is the top-level governing body for the internet in China. In addition to being the main government authority responsible for ensuring compliance with and enforcement of the Cybersecurity Law, it has also issued a series of measures and regulations that are intent on monitoring internet users and controlling user content. It is not surprising, given all this, that the Blockchain Regulations should fall under the remit of the same regulatory authority.

Blockchain Regulations

The Blockchain Regulations apply to blockchain information service providers in China (i.e. information services provided to the public via the internet or application programs, through the use of blockchain technology or systems) ("Providers"). This includes foreign companies that have a presence in China, or third party service providers that operate the blockchain business in China on behalf of a foreign entity. The main requirements include the following:

  • Providers must record their blockchain services with the CAC, within 10 working days from the launch of their blockchain services. For Providers that are already in operation from the date that the Blockchain Regulations came into effect, they will have 20 working days to file with the CAC. Such recordals must include information regarding the Provider's name, service categories, forms of service, fields of application, server addresses, and so on. The CAC will inform the Provider within 20 working days if its application for recordal has been approved, and will provide a filing number that must be displayed by the Provider on its website or app. Further filings must be made to update the recordal if the blockchain services are amended or terminated.
  • Any new products, applications or functions that Providers wish to develop or launch must be notified to the CAC and must undergo a security assessment.
  • Providers must verify the real identity of their users through their national identity numbers or mobile numbers.
  • Providers must keep content and login records of all users for at least 6 months, which should be made available the relevant authorities upon request.
  • Certain operational and technical measures must be implemented by the Providers to ensure compliance with the local laws, including prohibiting and taking down any content that is prohibited under PRC law.
  • Providers are required to notify the relevant authorities if a user infringes any local laws, e.g. disseminates illegal content, and must issue warnings or restrictions to the user or shut down their account.
  • Providers must establish mechanisms for users or the public to submit any complaints, which must be dealt with in a timely manner.
  • Providers must implement technical measures relevant for their services.
  • Providers must cooperate with the relevant authorities in relation to any supervision or inspection conducted in accordance with the law (e.g. the Cybersecurity Law), including providing any necessary information and technical support.

Many of the requirements under the Blockchain Regulations are not necessarily new, as similar ones are imposed under existing laws that may already apply to the Providers. For example, the Regulation on the Administration of Internet Information Service already imposes an obligation to retain user logs and content.

The Blockchain Regulations provide a general framework for Providers. Further implementation measures, interpretations and guidance are needed in order to provide clarification on how the Blockchain Regulations will be implemented and/or enforced. In particular, the circumstances in which the CAC will reject an application for recordal and the security assessment criteria will benefit from further clarification.

As with the Cybersecurity Law, further clarity is also required regarding the level of access that Providers must grant to government authorities. The Blockchain Regulations may potentially allow government authorities to obtain back door access to confidential and sensitive information of Providers, including any data stored in China concerning their foreign operations. Such risk already arises in the context of the Cybersecurity Law and the Regulation on Internet Security Supervision and Inspection by Public Security Bureaus.1 To date, the question regarding the level of access that needs to be provided remains unanswered.

Takeaways

As with any new laws that are introduced in relation to technological developments, the inevitable question arises as to whether or not they will stifle innovation. Will these new regulations help or hinder the adoption of blockchain solutions in China? Will they strike a balance between protecting users and encouraging development?

While cryptocurrency and initial coin offerings have pretty much been banned in China, it is unlikely that the Chinese government will use the Blockchain Regulations to prohibit or stifle blockchain businesses – the Chinese government has been pushing for the development and adoption of blockchain solutions across all sectors. Instead, the Blockchain Regulations will likely be used to maintain oversight over Providers to ensure compliance with existing requirements (e.g. prohibition on dissemination of illegal content) and prevent any businesses that are seen as contrary to public policy.

Footnotes

1 See our article entitled Close Encounters of the Government-kind: China's New Regulation on Internet Supervision and Inspection: https://www.mayerbrown.com/Asia-IP--TMT-Quarterly-Review-12-12-2018/

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions