Crypto, NFT, anti-money laundering, transactions via avatars, markets… Who will regulate the metaverse?

The metaverse is starting to spill a lot of ink. In these virtual universes, the concept of crypto-assets and NFTs is the subject of great interest and has an important role to play. Financial institutions are settling there. But what regulations will they have to comply with? The question then arises as to whether the regulations in force in the real world will also apply in these virtual universes.

MiCA regulations

The European regulation MiCA (Markets in crypto-assets regulation) is a proposed European regulation which aims to regulate certain crypto-assets which are considered to be outside the scope of current traditional regulations. This European regulation aims in particular to give a first real legal definition to crypto-assets.

A crypto-asset can then be defined as a digital representation of a value or rights. This digital representation can be transferred and stored electronically using distributed ledger technology (DLT).

-> Read also: Virtual real estate in the metaverse: fad or real investment interest?

The scope of MiCA targets issuers of certain types of crypto-assets or certain activities related to crypto-assets. Trading platforms are also targeted. We are therefore not going to regulate bitcoins as such, for example, but rather the platforms that make it possible to buy or sell bitcoins. Some existing rules that already govern certain crypto-asset endorsing activities will be adapted to crypto-assets under MiCA. We are thinking here, for example, of the rules of governance, of those applied to payment institutions or of the rules specific to investment services. MiCA will tackle tokens that are not yet subject to any specific regulations.

And in the metaverse?

“It is important to note that at present the metaverse remains a rather vague concept. Although some projects are currently under development it is not certain that these constitute the final form of what will eventually be the metaverse. From a legal point of view, at this stage, therefore, one can only make assumptions as to the possible application of legal rules. In this respect, it can be assumed that, if real financial services were to be made in metaverses and that these services had to target crypto-assets, the MiCA regulation could also apply in these metaverses. This being the case, it should be noted that MiCA does not make a distinction between the real universe and the virtual universe Situations are analyzed on a case-by-case basis to see if the conditions of application of this regulation are met. The fact of carrying them out in a virtual universe does not exclude them, in principle, from the scope of this regulation. mentation”says Jean-Christophe Vercauteren, Lawyer at Simont Braun.

Note that MiCA was not written explicitly for metaverses. And that will, without a doubt, raise a lot of questions! However, this draft regulation is still in the approval process. He could then adapt to the new situation of the metaverses. But this concept of virtual universe is itself in a phase of gestation. What will these universes be tomorrow? The regulations will undoubtedly have to adapt to the evolutions of these metaverses.

Other regulations

Alongside MiCA, activities provided in metaverses could be subject to anti-money laundering laws (AMLD). “If entities providing their services in metaverses were to be considered as entities subject to anti-money laundering obligations, this would raise a number of questions. How to identify customers of financial transactions in the metaverse? Who is behind an avatar?” notes Jean-Christophe Vercauteren.

Currently, the European anti-money laundering legislation known as “AMLD V” involves the actors through which capital of dubious origin passes. All the economic actors through which payment flows pass are thus called upon. The list is constantly being extended and, today, banks but also lawyers or notaries, accountants or tax advisers, for example, are affected by this law. Tomorrow, we could integrate companies offering services in the metaverse.

Other regulations may apply in the metaverse. In Belgium, the Royal Decree of February 8, 2022 taken in application of the anti-money laundering legislation, requires certain service providers linked to cryptocurrencies to be regulated. The FSMA (Financial Markets Supervisory Authority in Belgium) announces that from May 1, 2022, the activities of certain service providers related to virtual currencies will be regulated.

These service providers will have to meet a series of conditions related in particular to their professional integrity and compliance with anti-money laundering legislation. It is prohibited for service providers governed by the law of a State outside the European Economic Area to offer certain services in connection with cryptocurrencies on Belgian territory. [1]. This royal decree notably targets trading platforms between virtual currencies and legal currencies as well as service providers offering services in terms of private cryptographic key storage wallets (“wallet providers”) established in Belgium. If in a metaverse, a company established in Belgium were to offer this type of product or service in Belgium, it would fall under the provisions of this royal decree. It will still be necessary to be able to determine that the services provided in a metaverse are located in Belgium.

Moreover, if more traditional financial services develop and multiply in these virtual universes, other regulations could also apply. “If a financial institution moved into the metaverse and provided the same type of services as in the real world, it is possible that some traditional regulations would apply. For example, if a bank comes to hold virtual meetings with clients in a metaverse and give investment advice there, it could be subject to regulation in certain circumstances such as MiFID (Markets in Financial Instruments Directive)”adds this lawyer.

Solutions and services to support virtual worlds are accessible worldwide. However, they will be required to adhere to local jurisdictions requirements and rules regarding commerce and payments.

What constable?

The question then also arises of the governance of these virtual communities: who will set the rules in virtual worlds? Who will rule them? Who will enforce them? After having defined what the rules will be in force in these universes, we will have to answer the question of who will ensure compliance with these financial regulations in the metaverse. In financial matters, it is in principle the regulators of the financial markets who will have to keep an eye on things. These are the FSMA and the National Bank of Belgium in Belgium and the AMF and the ACPR in France. “Today, the concept is still vague. The metaverse project is in the making. Regulations and regulators will also eventually adapt to this new “reality”. But right now, the application of existing regulations to practices in metaverses is sure to be the subject of a lot of discussion. It should also be noted that the delicate question of the management and protection of personal data will also arise. Everything will be done digitally in these universes. Data will be exchanged, behaviors will be visible and potentially analyzed. Care must be taken to protect this data.“, warns Jean-Christophe Vercauteren.

Indeed, user identification and privacy protection measures will be essential to interact and perform financial transactions. By extension, if these were to take place in a metaverse, we would certainly have to think about how the identity of the users should be guaranteed.

It will also be necessary to agree on a regulatory, tax and accounting treatment relating to real estate transactions and digital property in this virtual world.

-> Consult on MoneyStore the complete file “Metavers: challenges, risks and opportunities of a reality in the making”, by Brigitte Doucet, Manager of the Regional IT site and Isabelle de Laminne, Manager of the blog

See also on MoneyStore

[1] Finally a regulation for cryptocurrency providers in Belgium!

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Crypto, NFT, anti-money laundering, transactions via avatars, markets… Who will regulate the metaverse?

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