On 13 April 2022, three organizations – the National Internet Finance Association of China, the China Banking Association and the Securities Association of China – jointly issued the Initiative to Prevent relevant Financial Risks of Non-fungible Tokens (“Initiative”). This is the first Non-Fungible Token (NFT) themed official document involving NFT compliance since the rapid development of NFT in China. Although the Initiative is only a self-regulatory statement and not mandatory regulatory rules, considering the special status of the three associations as official industry self-regulatory organizations, to a great extent it still represents the regulatory attitude and trend of supervision.
Here are some key takeaways from the Initiative:
- It affirms the positive role of NFT and points out related risks. Aside from giving an official Chinese translation for NFT, it also affirms the application of an NFT concept in China and explicitly distinguishes it from cryptocurrencies – which are strictly banned in the country.
- It encourages innovation and uses NFT to motivate the real economy. The initiative proposes that the value of NFT products should have sufficient pricing basis, and a false high price deviating from the basic law of value should be prevented.
- It resolutely seeks to stop any financialization and securitization tendency of NFTs, strictly prevent the risks of illegal financial activities, and proposes specific codes of conduct with which to comply.
- It warns consumers to establish a correct consumption concept and enhance self-protection, and consciously resist and stay away from illegal financial activities, It also reminds consumers to report illegal activities proactively and on time.
The China Mobile Communication Metaverse Consensus Circle (CMCA-MCC) and the China Communications Industry Association Blockchain Specialized Committee (CCIAPC) jointly issued The Self-Regulatory Requirements on Regulating the Healthy Development of Digital Collection Industry – a response to the suggestions of the Initiative.
Both the CMCA-MCC and CCIAPC are social organizations under the guidance of the Ministry of Industry and Information Technology of the PRC and registered with the Ministry of Civil Affairs of the PRC. As digital collections are based on NFTs and the development is still at an early stage with unclear value standards, the Self-Regulatory Requirements mainly reiterate relevant requirements in the Initiative and propose reasonable expectations.
The Initiative then confirms the concept and development of NFT in China, not only puts forward the code of conduct, but also defines the regulatory red line, which is of great significance. The Initiative also demonstrates the current general attitude of regulators on NFTs, which is to prevent financialization and securitization, rather than prohibit NFTs themselves.