Chinese banking regulators issue warning against NFTs

Three Chinese banking supervisors have issued a warning against non-fungible tokens (NFTs) at a time when the industry is booming worldwide. 

Recognizing that NFTs are an innovative application of blockchain technology that can enrich the digital economy, three observers warned that they could potentially be used for money laundering, speculation and illegal financial activities.

Regulators have indicated that Chinese banks should strongly curb the trend of NFT securitization. They issued six guidelines for banks to follow when dealing with NFTs, the first of which is that they must not use securities, precious metals, and other financial assets in NFT underlying commodities. This prohibits the use of NFTs to represent ownership of physical assets such as real estate, one of the proposed long-term use cases for digital collectibles.

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China has banned digital asset trading, ICOs, and even block reward mining. However, he has yet to ban NFTs. This presents a potential loophole as NFTs are almost always bought with digital currencies. 

The three regulators warned against this practice, saying that Chinese investors should not use “virtual currencies such as bitcoin, ethereum and tether as pricing and settlement tools for NFT issuance transactions.”

Banks must conduct real name authentication for issuing, selling and acquiring entities, properly maintain customer identity information and issuing transaction records, and actively conduct anti-money laundering checks.

Banks also must not directly or indirectly invest in NFTs and provide funding to those who invest in digital collectibles.

These three regulators are not the first to criticize NFTs in China. Through various means, such as government agencies and state-controlled media, the Chinese government has been discouraging investors from using NFTs for months. Last week, the Economic Daily, the mouthpiece of the ruling Chinese Communist Party, called for stricter regulation of NFTs. He also opposed viewing them as creative products and urged the government to give them the status of currency, commodity, or security. 

Two weeks ago, China’s largest messaging service, WeChat, suspended a large number of NFT-related accounts. While he acknowledged that NFTs are not completely banned, he reminded users that he does not allow the resale of these digital collectibles.