The Financial Industry Regulatory Authority has released a new report on the potential risks and challenges of the metaverse for the securities industry.
According to InvestmentNews, FINRA analyzed potential applications, use cases and challenges for member firms as well as regulatory considerations.
The report, titled The Metaverse and the Implications for the Securities Industry, is aimed at raising awareness among FINRA member firms and the broader securities industry by providing an overview of how developments related to the metaverse may impact business models and processes.
It notes that while the gaming industry has long been active in the metaverse, financial institutions have increasingly been exploring it as well as a way to engage with the next generation of customers and to enhance their operations.
“A segment of financial institutions, including broker-dealers, are actively experimenting with incorporating the metaverse and its immersive technologies,” the report said. In response to the trend, FINRA’s Office of Financial Innovation launched the research leading to the report.
“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 at FINRA. “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 report focuses on the following areas involving potential metaverse-related use cases:
-Data visualization
-Virtual trading
-Digital twins and industrial metaverse
-Payments
-Training and collaboration
-Investor education
-Customer solicitation and service
-Potential Challenges
In addition the report looks at other challenges, including resource needs, data privacy and protection, and cybersecurity, for firms exploring applications of the metaverse.
The report is not meant to provide an exhaustive list of regulatory issues or factors and does not create new rules or requirements, and does not exempt firms from their obligations under federal securities laws and regulations.
Member firms are advised to be aware of the potential implications to their regulatory obligations when considering whether the incorporate the metaverse into their internal systems or use it in their products.
FINRA’ said its rules, which are intended to be technology neutral, continue to apply if member firms use the metaverse in the course of their businesses, just as they apply when member firms use any other technology or tool.
As part of its research, FINRA staff engaged with more than two dozen stakeholders, including securities firms and other financial institutions, hardware and software providers, academics, industry observers, and government entities.
FINRA is seeking comments by March 14, 2025, from firms, market participants and others currently exploring the metaverse.
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