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second life banking announcement January 8, 2008

Posted by Bradley in : Uncategorized , trackback

Linden announced today:

As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy.

Some of the language in the announcement suggests that the policy has a broader application than activities which are described as banks. For example, the new policy applies to the “offering of … a rate of return on L$ invested” and Linden says:

We will not apply this policy to companies who submit a registration statement, charter, or other applicable license from a governing regulatory authority, or who are merely conducting marketing or education, but not accepting payments.

The change in policy seems to arise out of the collapse of Ginko Financial this summer and claims to be about banking law, but it also seems to relate to securities law. I argued in a recent paper that real world securities laws apply to offerings of “securities” in virtual worlds. I would have preferred a solution that would have allowed virtual world securities activity (i.e. exempted it from real world securities regulation) subject to conditions. Linden’s FAQ on this issue suggests that stock exchanges may or may not be subject to the policy (and see Robert Bloomfield’s comments at Terranova). Comments posted to the Linden announcement include those which approve of the new policy (some say it came a bit late) and those which regret the intrusion of real world law into the virtual worldspace.

I saw this story first via Virtually Blind.


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