Difference between revisions of "Linden Lab Official:Policy regarding inworld banks"

Latest revision as of 15:05, 10 May 2011

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Official Policies

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Account and tax documentation FAQs:

Other:

Suggesting a policy change

Policy

The Second Life Terms of Service prohibit offering interest or any direct return on 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. This applies to inworld investment funds, stock offerings, and banking services and the like.

Linden Lab will remove any virtual ATMs or other objects that facilitate inworld "banking," that is, that offer interest or a rate of return on Linden dollars invested or deposited. Those who continue to offer these services may be sanctioned with suspension, termination of accounts, and loss of land.

Usually, Linden Lab lets Residents decide how to act, live, or play in Second Life, but unregulated inworld "banks" brought substantial ecomonic risks to Second Life. Offering unsustainably high interest rates, they are in most cases doomed to collapse, leaving depositors with nothing to show for their investment.

This prohibition does not apply to companies that submit a registration statement, charter, or other applicable license from a governing regulatory authority; or those merely conducting marketing or education, but not accepting payments.

To report a violation of this policy:

Choose Help > Report Abuse in the Second Life Viewer.
Select Fraud > L$.
Follow the instructions. IMPORTANT: Be sure to include the word "bank" in your description.

FAQs

What is the reason for this policy?

There are several reasons that an inworld banking policy is necessary:

Legal risks raised by such activity.
Before this policy was enacted, several of these "banks" defaulted on their obligations.
Unsustainably high interest rates offered by many of these banks make it likely that others will default as well, which will have a negative effect on Second Life's virtual economy.

By "legal risks," do you mean virtual "banks" may be illegal?

There's no known guiding law or precedent that tells us whether these practices are legal. Depending on what statements each "bank" makes, and what depositors' expectations are, banking or securities laws may apply. If so, they would need to be chartered or registered with applicable real world regulators.

Are any of these "banks" really banks? Who runs them?

We're aware of no chartered banks doing banking business in Second Life at this time. Most of the ATMs into which L$ are transferred are merely run by other Residents. This is usually apparent to Residents when they conduct a L$ transfer, usually to the owner of the ATM at issue. A bank "deposit" thus operates no differently from other transfers of L$ inworld - it's just a transfer of L$ from one Resident to another. And as in the real world, if you do not know or trust another person, you should not ask that person to safeguard your L$.

Why not "virtually regulate" these "banks," instead of banning them?

Linden Lab can't and won't become a virtual banking regulator. Banking regulation, whether in the real or virtual world, is complex and intensive, and is a government activity. Linden Lab is not empowered to regulate the businesses of banking or securities. We can and will take steps, however, to ensure the stability of the Second Life economy, and that is what we are doing.

Are any other inworld businesses, such as stock exchanges, covered by this policy?

This policy is focused on objects and schemes that involve real-time transfers of L$ and payment of interest or rates of return. Exchanges may or may not do this, so they may or may not be covered. In addition, we reserve the right to remove any objects and take action against any Residents who are violating U.S. or other laws. If you are unsure whether a business you're operating abides by applicable laws (for example banking or securities laws), you should get a formal legal opinion, from a lawyer acting on your behalf.

@@ Line 1: / Line 1: @@
-<noinclude>{{KBmaster}}</noinclude>
+{{KBmaster}}
-'''Please read this''' if you operate, or have transferred L$ to, an inworld "bank" or financial company.
+{{Policy Nav}}
+== Policy ==
+The Second Life [http://secondlife.com/corporate/tos.php Terms of Service] prohibit offering interest or any direct return on 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.  This applies to inworld investment funds, stock offerings, and banking services and the like.
-As of January 22, 2008, it is 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.
+Linden Lab will remove any virtual ATMs or other objects that facilitate inworld "banking," that is, that offer interest or a rate of return on Linden dollars invested or deposited.  Those who continue to offer these services may be sanctioned with suspension, termination of accounts, and loss of land.
-Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several inworld "banks" defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized.
+Usually, Linden Lab lets Residents decide how to act, live, or play in Second Life, but unregulated inworld "banks" brought  substantial ecomonic risks to Second Life. Offering unsustainably high interest rates, they are in most cases doomed to collapse, leaving depositors with nothing to show for their investment.
-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."
+This prohibition does not apply to companies that submit a registration statement, charter, or other applicable license from a governing regulatory authority; or those merely conducting marketing or education, but not accepting payments.
-There is no workable alternative. The so-called banks are not operated, overseen or insured by Linden Lab, nor can we predict which will fail or when. Linden Lab isn't, and can't start acting as, a banking regulator.
+To report a violation of this policy:
+# Choose '''Help > Report Abuse''' in the Second Life Viewer.
+# Select '''Fraud > L$'''.
+# Follow the instructions.  '''IMPORTANT''': Be sure to include the word "bank" in your description.
-Some may argue that Residents who deposit L$ with these "banks" must know they're assuming a big risk — the high interest rates promised aren't guaranteed, and the banks aren't overseen by Linden Lab or anyone else. That may be true, but for all of the other reasons we've set out above, we can't let this activity continue.
+== FAQs ==
-Thus, as we did in the past with gambling, as of January 22, 2008 '''we will begin removing''' any virtual ATMs or other objects that facilitate the operation or facilitation of inworld "banking," i.e., the offering of interest or a rate of return on L$ invested or deposited.  We may sanction those who continue to offer these services with suspension, termination of accounts, and loss of land.
+===What is the reason for this policy?===
-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.
+There are several reasons that an inworld banking policy is necessary:
+* Legal risks raised by such activity.
+* Before this policy was enacted, several of these "banks" defaulted on their obligations.
+* Unsustainably high interest rates offered by many of these banks make it likely that others will default as well, which will have a negative effect on Second Life's virtual economy.
-You may report a violation of this policy through the Help/Report Abuse feature in your Second Life viewer, and follow the instructions given.
+===By "legal risks," do you mean virtual "banks" may be illegal?===
+There's no known guiding law or precedent that tells us whether these practices are legal. Depending on what statements each "bank" makes, and what depositors' expectations are, banking or securities laws may apply. If so, they would need to be chartered or registered with applicable real world regulators.
+===Are any of these "banks" really banks? Who runs them?===
+We're aware of no chartered banks doing banking business in Second Life at this time. Most of the ATMs into which L$ are transferred are merely run by other Residents. This is usually apparent to Residents when they conduct a L$ transfer, usually to the owner of the ATM at issue. A bank "deposit" thus operates no differently from other transfers of L$ inworld - it's just a transfer of L$ from one Resident to another. And as in the real world, if you do not know or trust another person, you should not ask that person to safeguard your L$.
+===Why not "virtually regulate" these "banks," instead of banning them?===
+Linden Lab can't and won't become a virtual banking regulator. Banking regulation, whether in the real or virtual world, is complex and intensive, and is a government activity. Linden Lab is not empowered to regulate the businesses of banking or securities. We can and will take steps, however, to ensure the stability of the Second Life economy, and that is what we are doing.
+===Are any other inworld businesses, such as stock exchanges, covered by this policy?===
+This policy is focused on objects and schemes that involve real-time transfers of L$ and payment of interest or rates of return. Exchanges may or may not do this, so they may or may not be covered. In addition, we reserve the right to remove any objects and take action against any Residents who are violating U.S. or other laws. If you are unsure whether a business you're operating abides by applicable laws (for example banking or securities laws), you should get a formal legal opinion, from a lawyer acting on your behalf.
-[[Category:Disputes Between Residents]]
 [[Category:Policies]]
-[[Category:L$ Transactions Between Residents]]
-[[Category:Business Owners]]
-[[Category:Knowledge Base]]