As the metaverse emerges as a byword for innovation, a number of issues are cropping up, in particular how the regulation and accounting treatment of virtual assets will evolve.
The metaverse is a 3D virtual network where people can connect through technologies such as augmented reality (AR), virtual reality (VR) and non-fungible tokens (NFTs). A key goal of the metaverse is to build up real-time peer-to-peer communication, and its infrastructure is based on technologies including blockchain, machine vision and cybersecurity.
‘The metaverse is the next phase of the internet where instead of being on it, you will be in it,’ says Kirck Allen, CEO of Dubai-based metaverse start-up Kaloscope.
Unique features
Different metaverse platforms have unique features. Kaloscope is a social media metaverse, ‘a platform that allows its users to project, collect and interact with their digital assets in a virtual space the user can own’, says Allen. ‘Think of this as a three-dimensional version of social media where instead of visiting people’s profile pages, you can enter people’s metaverse spaces.’
‘Companies are buying plots on the metaverse to build up their brands and publicity as a way of marketing’
Another metaverse-linked application is the NFT-based AiR Metaverse, produced by Hong Kong’s Air World. Co-founder and CEO Terence Chow says that businesses are tapping into the metaverse for diverse purposes.
‘Companies are buying plots on the metaverse to build up their brands and publicity as a way of marketing,’ Chow says. ‘They want to enter the new territory as soon as possible so that customers feel that they are staying ahead of the times. Companies will buy metaverse assets to create new customer experiences and communication platforms.’
In Hong Kong, some of the largest companies – including banks, financial institutions and accounting firms – are jumping into the metaverse.
In March, HSBC Hong Kong purchased a plot on metaverse The Sandbox to build up its brand. According to the bank, ’Our initiative aims to create innovative and immersive brand experiences for new and existing customers to engage and connect with sports, e-sports and gaming enthusiasts through the Sandbox metaverse.’
Create value
PwC Hong Kong also acquired virtual land in The Sandbox last December. Partner William Gee said in a press release that the ‘metaverse offers new possibilities for organisations to create value through innovative business models, as well as introducing new ways to engage with their customers and communities’.
Some forward-looking accountancy firms are not only investing in the metaverse but also offering services through it.
Prager Metis International, a New York-based accounting and advisory firm, opened a virtual three-store property on the Decentraland metaverse platform in January, offering real-world financial services.
‘There are many parts that need to be connected to reality, such as audit and taxation of the current crypto asset’
Metaverse for beginners
‘In the simplest terms, the metaverse is the internet, but in 3D,’ writes Ed Grieg, Deloitte’s chief disruptor, in ‘What is the metaverse? There, he describes how the metaverse can be a tool for good, connecting humans to each other and the planet. He cites the case of a woman who, as part of her post-stroke physiotherapy, played a game of virtual reality tennis. Meanwhile, in the business world, the metaverse can, says Grieg, enable greater collaboration as we move to hybrid working.
The office will, says the company, ‘serve as a resource for individuals and businesses in the metaverse looking for accounting and financial advisory services, and will provide potential clients with the expertise needed to navigate the metaverse from a financial perspective’.
Still evolving
Still, not everyone has bought into the benefits of the metaverse, at least not as it exists today as a collection of different platforms and products. The technology is still evolving, consolidation is likely and the cost of space in one metaverse or another is certain to fall going forward, said Unai Extremo, the CEO of Spain-based industrial virtual reality solutions provider Virtualware.
‘I don’t believe there are any companies in the space that use these metaverses to offer value-added services or products that they cannot offer through more traditional channels,’ Extremo says. ‘It is very likely that none of the metaverses that we know today will be like the global one we aspire to have for the future. That is why I believe it is a high-risk investment.’
PwC was one of the first accountancy firms to have purchased a metaverse plot but, in a recent report, the firm warned that companies should also consider issues such as regulation, risk, legal and compliance considerations, finance, tax and accounting, IT security and marketing.
Many issues arise because platforms often rely on cryptocurrencies to complete transactions in which accounting professionals could play a role.
‘Current policies and laws are unclear in Hong Kong, and appropriate guidelines need to be formulated more quickly’
In particular, PwC’s report notes that, before entering the metaverse, companies need to know how they would account for the asset. Questions such as what the tax implications of holding these assets are should be asked in advance.
‘There are still many possibilities in the metaverse, and there are many parts that need to be connected to reality, such as audit and taxation of the current crypto asset, which require the participation of accounting firms,’ Chow says.
Uneven regulation
One challenge is that regulations are at different levels of development.
‘The current policies and laws are relatively unclear in Hong Kong, and appropriate guidelines need to be formulated more quickly,’ Chow says.
A few places are a bit further down the line. Dubai, for example, seems to have stayed ahead of the pack, with its Virtual Assets Regulatory Authority (VARA) becoming the world’s first regulator to enter the metaverse. While VARA is in charge of regulating, supervising and overseeing the virtual asset services in Dubai, metaverse-related tax regulations remain uncertain.
‘Digital assets are still not considered as an asset class that’s taxable simply because it is not tied to something solid like real estate or a physical product,’ Allen says. However, new regulations are around the corner, which will help understand how to operate in this new industry.
‘For now, the safest way is to do your research and be flexible with your business model.’
More information
Read AB‘s article, ‘Welcome to the metaverse‘
