The Internet watchdog issues the first measures to regulate blockchain services – Newsletter

Blockchain technology is becoming increasingly important in Chinese judicial proceedings and legislative developments are starting to reflect this trend. However, the growing concerns of the government on some aspects of the blockchain have triggered a series of recent regulatory responses. For example, in June 2018 the government learned of a vaccine scandal in which an improper formulation (a type of blockchain) was allegedly charged on Ethereum. In this context, on October 19, 2018, the Chinese Observatory of China, the Chinese Cybernetics Administration (CAC), published the draft provisions on the administration of the Blockchain information services for a public comment . The provisions include 23 articles, which aim to govern all entities that provide blockchain-based information services in China and are the first step towards regulating blockchain-related technology at the government level. Based on the current draft, it appears that the CAC is not making radical strides, but rather is testing the waters. However, some of the issues addressed by the project will bring important ramifications for the operations of various companies in China.

Article 2 of the Blockchain Information Service Management provisions states that the provisions apply to blockchain-based information services provided to the public in Mainland China. The term "blockchain-based information services" can be confusing where it is incorrectly interpreted as referring to IT services. However, the second paragraph of Article 2 further clarifies that "blockchain-based information services" will be defined as services that provide information to the public developed on the basis of blockchain technology and presented in the form of a website or a & # 39; app.

The third paragraph of article 2 further clarifies that:

• "Blockchain service providers" are "entities or nodes that provide blockchain-based information services to the public as well as organizations or institutions that provide technical support to these entities"; is
• "Blockchain service users" are organizations or individuals who use these services.

Therefore, the draft provisions could be aimed at regulating not only information service providers based in China, but also blockchain technology providers abroad who support China-based information service providers. This would mean that draft provisions include extraterritorial elements to a certain extent.

Filing requirement

The draft requires blockchain service providers to fill out a blockchain information service registration form through the CAC online system within 10 working days of providing the service. If a service provider changes or cancels its service items or website address, it must complete the change or cancellation process within five business days.

Annual verification

Service providers must perform annual verification procedures by accessing the CAC system as specified by the CAC and its provincial branches.

Pre-approval for special industries

When service providers provide information related, among other things, to newspapers, publications, education, healthcare, medicines and medical devices, they must obtain prior approval from the competent competent authorities before registering with the CAC.

Identity authentication

Service providers can not provide services to users who can not identify with the user identification number or mobile number.

In the last two years, the Chinese authorities have subsequently advanced mandatory requirements for media, telecommunication and social communication platforms related to the authentication of personal users. Service providers must also perform this authentication based on regulatory measures.

Requirements for internal technology control

As mentioned above, the CAC has taken a cautious approach to the technology issues addressed by the draft provisions and has therefore proposed only basic principles for regulating service providers from a technology point of view:

• Service providers must be able to deal with illegal content immediately.
• The management rules for blockchain service platforms must be transparent.
• To deal with users who illegally use blockchain information services or violate service contracts, service providers may take measures such as issuing notices, restricting usage and deleting user accounts. Furthermore, service providers must eliminate and prevent the dissemination of illegal information and report such cases to the authorities. However, this clause is subject to some confusion regarding the obligation to remove illegal information. This is because blockchain technology is based on its ability to maintain an incorruptible permanent record whereby data can not be changed, modified or deleted, which means that the above regulatory requirement contradicts the logic for the adoption of this technology first. It remains to be seen whether this clause will be amended before the final version of the provisions is released.
• Service providers must record users' messages and logs for at least six months and must provide them to the agencies responsible for observation.
• Any new products, applications or functions must be reported to the CAC and its provincial branches to conduct an early safety assessment.

According to the draft provisions on the administration of Blockchain Information Services, violations of the provision will be subject to a maximum fine of 30,000 Rmb, provided that no crime has been committed. However, the possible penalty for the order to cease the provision of a service should be more than a deterrent.

In general, the draft provision symbolizes the government's first step towards regulating the blockchain and demonstrates China's positive attitude towards standardizing and promoting the development of blockchain technology. Regulators could make further improvements to their policies in the future in order to keep up with the development of blockchain industry and technology.

Although draft regulations do not address all blockchain issues, they send a noticeable message to companies operating in China or provide foreign technology support to Chinese companies. Therefore, companies should review or update their internal compliance programs in order to address compliance risks arising from increased monitoring of relevant content and CAC regulations.