China’s central bank proposes to monitor metaverse and NFTs

China’s crackdown on crypto is expanding into the metaverse and nonfungible tokens (NFT), an executive at the People’s Bank of China (PBoC) recently implied.

Speaking at a national financial security summit, Gou Wenjun, director of the Anti-Money Laundering (AML) unit at the PBoC, pointed to the risks associated with leaving the new trends of the crypto ecosystem, such as NFTs and the metaverse, unregulated. He claimed that, while people would use said digital assets for privacy and wealth appreciation, they are also prone to be used for illicit purposes such as money laundering and tax evasion.

The fast-paced innovation of the crypto world requires higher requirements in terms of risk supervision and governance, said the AML head, adding that the isolated nature of crypto, NFTs and metaverse-based items from the real world can be used as a money-laundering tool.

Suggesting an objective look at the evolution of virtual assets and the development of underlying technologies, Gou proposed to “clarify the division of supervisory responsibilities, improve the transparency of virtual assets, and explore the use of supervisory sandboxes to study and judge the essence and nature of virtual assets.”

As the second step, Gou said China should strengthen the monitoring and analysis of digital asset transactions. Banks and payment services that provide fiat-to-crypto gateways should authenticate senders and receivers with real names while improving the ability to identify suspicious transactions, he proposed.

Related: Crypto’s impact on sanctions: Are regulators’ concerns justified?

The PBoC official suggested improving the application of new technologies and establishing a digital asset transaction traceability and scene tracking system. Such a system would apply artificial intelligence, machine learning and other technologies to label accounts that transact with probed addresses.

Lastly, Gou is open to improving cooperation among financial intelligence agencies worldwide to form an international coalition to fight crypto-related crimes. “The Anti-Money Laundering Center will continue to deepen information sharing and co-investigation cooperation with 60 overseas financial intelligence agencies,” he added.