Joint Financial Association in China Launch Initiative to Regulate NFT
China Internet Finance Association, China Banking Association, and China Securities Association on April 13, 2022, launched an initiative that is aimed at regulating the non-fungible token (NFT) industry. The regulatory initiative aims to curtail the financial risks that users of the innovation might be exposed to.
NFT has become a hot topic in China, especially since the latter part of 2021. Several tech companies, including the giants among them, have in one way or the other initiated projects that are related to NFTs. This has called for concern, attracting the attention of the Chinese government and regulatory agencies. The overall impression is that the government intends to avoid a similar situation as was experienced with cryptocurrencies.
In line with this, the joint financial association has called for its members to take steps that will prevent financial risks. This would include taking measures that will protect the legitimate rights and interests of consumers and maintain the healthy ecology of the industry. Hence, certain obligations have been proposed by members of this association to achieve a regulated ecosystem.
Six different points have been proposed by the joint financial association as follows;
First, participants are advised to adhere to integrity and focus on innovation that will empower the real economy. They are expected to practice the concept of science and technology for good, choosing application scenarios reasonably and standardizing the application of blockchain technology. They are also expected to apply NFTs for positive causes that promote industrial digitization and digital industrialization.
Part of the responsibilities required is to ensure that NFT products are fully supported and that consumers are treated rationally. Inflated prices and deviation from basic laws of value are discouraged and intellectual property rights of underlying commodities must be protected. Total and accurate disclosure of product information must be implemented to protect consumers’ right to know, right to choose, and right to fair trade.
The second point is aimed at the prevention of financial risks. Participants are expected to curb the tendency of NFT financialization and securitization. To strictly prevent the risk of illegal financial activities, and consciously abide by a stipulated code of conduct.
The code of conduct includes the non-inclusion of securities, insurance, credit, precious metals, and other financial assets in the underlying commodities of NFT, and not to issue and trade financial products in a disguised form. Also, the non-weakening of the non-homogeneous properties of NFT by splitting ownership, the creation of batches, and the conducting of ICO in disguise.
The third point prohibits participants from providing centralized transactions such as centralized bidding, electronic matching, anonymous transactions, market makers, etc. They are also not allowed to provide a continuous listing of transactions, standardized contract transactions, and other services for NFT transactions, and to set up trading venues in disguised form.
The fourth condition does not allow the use of cryptocurrencies like Bitcoin, Ethereum, and Tether in the pricing of NFTs. They cannot also be used as settlement tools for NFT issuance transactions.
The fifth condition requires that real-name authentication must be carried out when issuing, selling, and purchasing NFT products. In doing so, the identity, information, and transaction records of users must be properly preserved and used in active cooperation with anti-money laundering agencies.
The sixth condition demands participating bodies not directly or indirectly invest in NFTs. They are also not allowed to provide financial support for investing in NFTs.
The initiative also called on consumers to heed the warnings of the government by establishing correct consumption concepts. They are advised to enhance their awareness and self-protection while desisting from speculation and any illegal activity that is related to NFT.