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Three Chinese government associations have come forward with a proposal to tighten regulation of non-fungible tokens to prevent the risks of illegal financial activities.
The National Internet Finance Association of China (NIFA), the China Banking Association (CBA), and the China Securities Association (SAC) have launched a joint initiative to tighten controls on NFTs. They noted that in recent years, the Chinese NFT market has begun to develop very rapidly.
On the one hand, collectible tokens function using blockchain, and this demonstrates their potential value for enriching the digital economy and the development of the cultural sector, the associations recognized. On the other hand, there are potential risks, such as advertising fraudulent projects, using NFTs for money laundering and other illegal financial transactions.
Associations call for organizations and individuals to wisely choose scenarios for the use of unique tokens. For them to play a positive role in the development of digitalization, they must be fully regulated. Earlier this month, the Chinese Communist Party (CCP) made a similar proposal. She believes that NFTs should be regulated in the same way as traditional financial products.
According to the NIFA, CBA and SAC proposal, NFT issuers should not include financial assets such as securities, insurance products, loans and precious metals. Sharing ownership or creating NFTs in “batch” weakens the characteristics of unique tokens, the associations say. The organization of the ICO must not violate the provisions of local laws, and transactions with NFTs must not be carried out by analogy with standard contracts. Bitcoin, Ethereum and other cryptocurrencies should not be used as NFT pricing and settlement tools.
NIFA, CBA and SAC propose to introduce mandatory authentication of the identity of NFT issuers, as well as their sellers and buyers. Creators of collectible tokens should actively cooperate with regulators and law enforcement agencies, helping them fight money laundering. In addition, the associations are proposing to ban businesses from directly or indirectly investing in NFTs.
Recall that in February, the China Banking and Insurance Regulatory Committee (CBIRC) warned users about the dangers of investing in metaverses and blockchain-based projects operating on the Play-to-Earn (P2E) principle.
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