Mind Bank får banktillstånd - Entropia it's a bank!

It struck me some time ago that under EU banking regulations MindArk’s Project Entropia looked a lot like a bank, or at the very least an e-money institution.

Well - now it is.

Or to be exact Mind Bank AB a wholly owned subsidiary of MindArk PE AB is has been granted a banking license by Sweden’s Financial Supervision Authority (Finansinspektionen).

This is important on a number of levels. First, I’m not aware that any other virtual word has gained this status – though this may simply be due to my lack of knowledge of virtual worlds in Asia. I’d be interested to know from readers what the legal status of things like QQ coins are. So this may be a genuine first in the virtual world industry for MindArk.

Second, I wonder if this will have an impact on the rest of the industry and how regulators view it.

I’ve argued in the past that virtual world are in a difficult position as while their Terms of Service may state that what goes on within their virtual walls is not commerce, the practices that surround them increasingly work as if in-world currencies were just like any hard currency. What’s more virtual currencies exist in a financial world where we have the Zimbabwean dollar whose inflation level hit may millions of %, and western banks that are in danger of such levels of default they are taken into part state ownership, making virtual worlds a rational option for some money related transactions.

Thus while virtual world operators might not like it, it seems to me that there may come a time when regulators will force a duty of care upon virtual worlds so as to protect the potential losses of citizens. Or a tangential law, and I always use the example of a divorce lawyer, will take a look a practice and go ‘that gold piece just quacked’.

This I’ve suggested will be bad for virtual worlds as under notions of a bank that exist, particularly in the US (where I do not think electronic money institutions exist in law), virtual worlds would become subject to crushing regulation. What’s more this regulation would differ by country thus protecting citizens by destroying the industry that never wanted citizens to be exposed to the supposed harms in the first place.

What may alter this is the simple argument – if MindArk can do it, why can’t you,,, Blizzard, Linden Lab etc etc.

The big difference of course is that MindArk, so I understand, have structured their technology in anticipation of becoming a bank and have based their business model on becoming one.

Leading to my daily nightmare as a virtual world policy wonk that there are so many unique cases and exceptions to any rule that everyone outside the industry can get their head around.

So what can the virtual world industry do to avoid banking regulation?

One part of me things – nothing; and, in fact, if we look at the way practice is going then the potential cumulative harm to individuals caused by scams etc., things may get to the point where virtual worlds should be banks.

A notch down from this, I wonder if the best option is to lobby for a revised version of the EU’s electronic money directive to be adopted as a global standard for virtual worlds of certain types. The revision to the directive would allow flexibility around the nature of and use of e-money tokens making it clear which spaces they did and did not operate in and in what ways.

Lastly, I think if game virtual worlds want to stay out the world of banking the have to be and have to be seen to act against RMT (real money trading) to a much higher degree than they are now. The real action here may be in PR and lobbying rather than technical measure but my feeling is that virtual world operators need to step up their game.

Comments on Mind Bank får banktillstånd - Entropia it's a bank!:

Stephan says:

Hi Ren,
that's exactly what I thought when I read the rumors last week: If some virtual world provider needs to take an active step to fall under banking regulations nowadays, the ones that do not want to be regulated in future, should opt for steps to build more distinctive boundaries around their worlds when it comes to their virtual currencies. Otherwise the regulators just might try to wipe every VW-good under their regulatory (bank and tax) carpet. As long as the "forex trading" market is only existing in black (not even in grey) markets and in no way supported or tolerated by the provider, regulation regardless of that circumstance would seem disproportional to me.
Well, I have to go now, requesting a line of credit for my Entropia account.

Posted Mar 26, 2009 12:12:14 PM | link

Arnold Hendrick says:

I believe it is common in Sweden for major corporations to found their own bank. For example, in Sweden the global furniture chain Ikea has a "Bank of Ikea" that encourages customers to use an Ikea Bank debit card for their purchases, etc.

As in most countries, Swedish banks are required to have a certain percentage of their overall loaned capital in "reserve" at any time (to cover "runs" on the bank). Notice an important corallary: some of the money "out on loan" does NOT need to be covered in reserve.

This is a huge advantage for a company like MindArk, since it means that don't need to maintain capital reserves equal to the amount of virtual wealth existing in Entropia Universe - all they need to do is maintain the appropriate fraction of the virtual dollars currently issued. This is different from normal corporate governance, where "balancing the books" would (presumably) require that you have sufficient capital to cover ALL your debts (including all the virtual dollars and virtual goods currently in existence). In short, by adopting the guise of a bank, MindArk may be giving itself a license to "print more money", virtually of course.

Bear in mind that this is a personal interpretation. I have no specific knowledge of how MindArk is treating virtual currency and virtual goods on its books as a corporation, or how it will treat them should its bank application be approved.

Posted Mar 27, 2009 8:53:41 PM | link

Kevin says:

Interesting view, Arnold.

Posted Apr 7, 2009 5:32:02 AM | link

Free Games says:

Great, your example in the above posts also made things easier...
free games

Posted Jun 11, 2009 11:57:54 AM | link