NEW YORK (Reuters) - The U.S. Treasury Department on Wednesday said regulators should weigh new guidance or rules aimed at curbing financial risks from nonfungible tokens, or NFTs, a type of digital asset it deemed highly prone to fraud.

WHY IT'S IMPORTANT

NFTs, blockchain-based images, videos, music or text, surged in popularity during the coronavirus pandemic. The assets are highly susceptible to scammers and can be used to launder illicit funds, the Treasury Department said in a report published on Wednesday.

Still, other sectors - including other digital assets - pose greater risks for illicit finance, so regulating NFTs should not supersede other priorities, it said.

THE CONTEXT

U.S. regulators have been looking to better police markets for digital assets.

KEY QUOTE

"The NFT market is particularly vulnerable to fraud and scams," the Treasury Department said.