LL's Banking Decision

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Salzie Sachertorte
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LL's Banking Decision

Post by Salzie Sachertorte »

Does this effect the CDS's method of financing new sims?
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Re: LL's Banking Decision

Post by Justice Soothsayer »

I've been following this a bit, and I think the answer is no, at least not for now.

The Linden FAQs say:
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.

Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several in-world “banks” defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized.

Usually, we don’t step in the middle of Resident-to-Resident conduct – letting Residents decide how to act, live, or play in Second Life.

But these “banks” have brought unique and substantial risks to Second Life, and we feel it’s our duty to step in. Offering unsustainably high interest rates, they are in most cases doomed to collapse – leaving upset “depositors” with nothing to show for their investments. As these activities grow, they become more likely to lead to destabilization of the virtual economy. At least as important, the legal and regulatory framework of these non-chartered, unregistered banks is unclear, i.e., what their duties are when they offer “interest” or “investments.”
We don't offer CDS "ATMs" or use objects to collect funds loaned for our expansion, so at the moment I don't think this policy affects us. We should keep a close watch on this issue.
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Master Word Wielder
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Re: LL's Banking Decision

Post by Sleazy_Writer »

I agree with Justice,
According to what LL wrote:we will begin removing any virtual ATMs or other objects that facilitate the operation or facilitation of in-world “banking,” (...) After that date, we may sanction those who continue to offer these services with suspension, termination of accounts, and loss of land.
The emphasis seems to be on objects that facilitate (and automate) banking activities. But yes we need to watch this ...

The CDS also has a bank:
CDS law NL 4-15 wrote:This bill establishes the Neualtenburger Bank, the bank is overseen by the treasurer of the city. The bank is authorized to make payments on behalf of the city and to hold escrow deposits from citizens and Neualtenburg registered companies and corporations. It will issue notarised certificates to this effect for which a nominal administrative fee will be charged at a tariff set by the treasurer.
I don't see a problem with that, as long as it functions as a storage/account and stays away from in-world investment-like activities.
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Aliasi Stonebender
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Re: LL's Banking Decision

Post by Aliasi Stonebender »

The closest thing would be the 'bonds' / loans we've had in the past. However, as these aren't automated, offer a reasonable RL rate of interest, and are strictly for urgent fundraising purposes, I don't think they'd apply.
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Pelanor Eldrich
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Re: LL's Banking Decision

Post by Pelanor Eldrich »

I'm not so sure about that. Here's what LL sent me...

Hello there, thanks for your contact.

In respect of your specific questions, please find below a response from my legal colleagues:

1)Direct return on investment is prohibited. I understand that one cannot guarantee an interest rate, but it seems that this also prohibits dividend payments. Are dividends (stock and/or bank) prohibited?

Simply calling a "return" a "dividend" will not exempt it from the policy. For residents who believe they are not/should not be covered under the policy, or who are offering services they believe are substantially different from those addressed in the policy, we would invite them to submit a legal opinion setting out why their conduct is legal in the relevant jurisdictions, which we will consider.

2)What banking regulators are acceptable to LL? Can they be effective in-world gov't regulators (such as the Confederation of Democratic Simulators Finance Committee). If they must be real life gov'ts, does Nigeria etc. qualify?

The US Securities and Exchange Commission is of primary importance, given the possibility that some Residents or third parties may view "interest" paid by banks (particularly if it is not secured or insured) as an "investment" or "security" which needs to be registered under SEC law (or other nations' applicable securities laws).

3)There seems to be a loophole around banking with objects. In theory, wildcat banking could be performed if $L was transferred directly from one avatar account to another without a (ATM type) object. Is that permitted? As an example, the CDS finances new sims by issuing fixed interest rate bonds (5%/yr) paid directly to avatar accounts (no objects). Is this against the policy?

Thanks you for this information. If you have additional information about where this is occurring we'd like to know about it. I am unfamiliar with what you are describing.

4)Does the banking ban extend just to fractional reserve banking, or also to 100% reserve banking and Islamic banking? Can an institution lend and offer mortgages without taking demand deposits? (Moneylending)

It applies to the payment of an interest rate or rate of return. We are unfamiliar with the terms "100 % reserve banking and Islamic banking".

5)Do you foresee a ban on particular stock exchanges in the future?
We don't predict the future. This will depend on our analysis of the law, what third parties and government agencies direct, what our users say and/or complain about, what risks are encountered, and what genuine services, entertainment, and security a wide range of virtual products offer.

Pelanor Eldrich
Principal - Eldrich Financial
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