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Chinese financial institutions' NFT guidelines prevent them from any major role in digital collectibles

·3 min read

Chinese financial institutions have been asked to stay clear of non-fungible tokens (NFTs) following guidelines issued by major industry associations to curb risks associated with digital assets, pre-empting any backlash from the government given its cautious approach to the technology.

The use of NFTs in the issuance of financial assets such as securities, insurance, loans and precious metals will be prohibited, according to a statement jointly issued by the National Internet Finance Association of China, China Banking Association and the Securities Association of China on Wednesday.

Financial institutions have also been urged not to illegally facilitate the trading of NFTs or illegally establish a trading platform, according to the statement from the government-managed industry associations.

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The guidelines come as companies wait for a clearer picture from regulators on blockchain-backed digital assets, which are becoming increasingly popular in China.

While Chinese tech giants including Alibaba Group Holding, the owner of this newspaper, Tencent Holdings and Bilibili were deepening their footprint in NFTs, issuing their own digital collectibles, others like sportswear maker Anta Sports Products, electric-car maker Xpeng and liquor distiller Kweichow Moutai have also jumped on the NFT bandwagon.

The hype around NFTs revolves around linking digital artwork and other assets to unique blockchain-based tokens, allowing them to be collected and traded like physical assets. The technology is not explicitly banned in China, with authorities embracing some uses of blockchain, such as protecting intellectual property.

"The guidelines may not have too much of impact on NFTs of an art nature for now," said Charles He, a China-based NFT art professional. "As long as they are not divided into shares, art NFTs are generally non-homogeneous and they are far from [being considered as] financial products."

Chinese authorities are wary of the decentralised nature of open blockchains and NFTs over concerns about possible systemic financial risks. NFTs are often referred to as digital collectibles in China and must be purchased using yuan instead of cryptocurrencies, as is typical on open blockchains like Ethereum and Solana.

"Cryptocurrencies such as bitcoin, ether and tether should not be used for the pricing and settlement of NFTs," the notice said.

The guidelines also require anti-money-laundering measures, such as verifying the identify of clients and maintaining records of related materials and transactions. Financial institutions have also been urged not to invest in NFTs and to take steps to curb unreasonable price surges to prevent consumers from indulging in speculation.

Chinese Big Tech companies have recently ramped up efforts to rein in NFT-related content amid concerns from the government about speculation.

Last month, WeChat, China's largest social media network owned by Tencent, has suspended at least a dozen NFT public accounts that marketed digital collectibles.

Finance is not the only industry that has been affected by developments in China's NFT space. The National Administration of Cultural Heritage held a seminar on Wednesday, urging museums to not sell NFTs of cultural relics, according to CCTV.

However, it is unclear how this could affect the private art sector.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.