Securities Industry Faces Challenges in Navigating the Metaverse

According to the report, while virtual worlds have long been the territory of the online gaming industry, financial firms have started exploring them as a way to engage with investors and possibly to enhance their services.

Potential uses for the securities industry range from providing a medium for investor education to offering client service, facilitating payments and virtual trading.

“A segment of financial institutions, including broker-dealers, are actively experimenting with incorporating the metaverse and its immersive technologies,” the report said.

In response, FINRA’s Office of Financial Innovation (OFI) undertook an effort to research the industry’s use of the metaverse and to understand the novel risks and challenges that this may present for firms, including privacy, cybersecurity and resource challenges.

For instance, the creation of increasingly accurate digital representations of investors may enable firms to collect far more detailed personal information.

“Extensive data collection could mean that users have the potential to reveal far more behavioural data, including body language cues, retina tracking and other biometrics,” the report said.

This, in turn, may raise expectations for firms to protect their clients’ privacy “and to shield them from bad actors acquiring their personal data.”

“As the metaverse continues to develop, protecting personal information and ensuring ethical use of data may be a significant concern, particularly when virtual environments intersect with real-world personal data,” it said.

It also noted that the industry’s forays into virtual worlds may have regulatory implications.

“Using any given technology does not absolve firms of their regulatory obligations,” the report said. “The specific rules applicable to member firms’ use of the metaverse will vary — and could implicate many areas of member firms’ regulatory obligations — but will ultimately depend on how member firms deploy the technology.”

FINRA is seeking feedback on the report, particularly from industry firms and others that are active in the metaverse.

“While we are already seeing the metaverse being used and experimented with in a number of ways by financial institutions, it is an evolving technology with both potential benefits and risks that need to be better understood,” said Haimera Workie, vice-president and head of OFI with FINRA, in a release. “We look forward to continuing to have an open dialogue with industry stakeholders to better understand the impact the metaverse could have on FINRA members and investors.”

The deadline for comments on the SRO’s report is March 14.