GARP: Metaverse - A Brave New World For Risk Managers

Metaverse is one of the hottest buzzwords in technology. Jason Ekberg, a Shanghai-based Oliver Wyman partner, believes the metaverse is ready to move beyond the gaming world. Global banks have begun metaverse projects, and there are NFT financing platforms.

According to Ekberg, interest in the metaverse has exploded due to the discussion around web 3.0, the next generation of Internet, that focuses on decentralized applications. Banks that make the transition to web 3.0, he notes, will be able to “grow more seamlessly” and more dynamically operate in virtual worlds. “The ability to scale and integrate is fundamentally different,” says Ekberg. “Web 3.0 in the metaverse with a decentralized identity gives individuals more control over their data and gives businesses confidence in who they’re dealing with.”

The metaverse contains both familiar and new risks. Ekberg sees virtual property rights and jurisdictional considerations as obvious ones. There are also risks surrounding financial market regulation like anti-money laundering (AML) and know-your-customer (KYC), and market risk for anyone trading NFTs.

Ekberg questions how firms will measure credit risk in the metaverse. Instead of traditional credit reports, for example, will they base decisions on how many friends a potential obligor has in the metaverse, or perhaps on the sophistication of his or her avatar? In short, even familiar risks might require new data approaches.

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