China Issues Six Measures to Curb NFT-Related Financial Risk

​NIFA (National Internet Finance Association of China), the CBA (China Banking Association) and CSA (China Securities Association) have jointly issued a statement,“Initiative on Financial Risks Related to NFTs", which outlined six measures to curb "NFT financialisation and securitisation" and prevent NFT-related illegal activity, warn about NFT-related risks.

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In China, NFTs are commonly known as "digital collectibles". They are priced and sold in yuan rather than cryptocurrencies, cannot be resold after purchase, and do not use public decentralised blockchains. Instead, they are offered on locally-controlled consortium blockchains by tech companies including Bilibili, Tencent, Alibaba, JD.com, Baidu, Xiaomi and Xiaohongshu.

In the statement, the three industry bodies offer recognition that NFTs have demonstrated their value in "enriching the digital economy model and promoting the development of the cultural and creative industry". However, NFTs also have "hidden risks such as speculation, money laundering, and illegal financial activities," they say.

The statement lists six measures to curb "NFT financialisation and securitisation" and prevent the use of NFTs for illegal financial activities:

• NFTs should not be used in the issuance of financial assets such as securities, insurance, loans or precious metals

• NFTs should not be created with separate ownership rights or in batches, nor should they be used to raise financing via ICOs (initial coin offerings).

• NFTs should not be traded on centralised platforms and firms should not offer such platforms or trading venues in "disguised form"

• NFTs should not be priced or settled using cryptocurrencies such as Bitcoin, Ethereum or Tether. 

• NFTs should only be issued to, sold to, or bought by entities with real-name authentication and where customer identity information and transaction records are preserved

• NFTs should not be directly or indirectly invested in by financial firms, nor should they provide financing support for others to invest in NFTs.

The statement also calls on industry participants to ensure that the values of NFTs are fully supported, guide consumers to consume them rationally, prevent inflated prices, and ensure that disclosures of NFT product information are accurate and complete to protect consumers' right to know, right to choose, and right to fair trade.

The industry bodies also call on consumers to establish "correct consumption concepts", enhance their awareness of self-protection, resist NFT speculation, and be vigilant to NFT-related illegal financial activities – which "should be reported to the relevant departments in a timely manner".

Source: Regulation Asia