Voice of the Industry

RegTech in the metaverse

Wednesday 3 August 2022 09:30 CET | Editor: Raluca Ochiana | Voice of the industry

The increasing usage and adoption of NFTs pose a substantial risk for financial crime. Deloitte experts share how regulators can keep up with the fast-paced technological advances of the metaverse.

NFTs - a need for RegTech?

‘There are always two sides to a coin’ – The media hype surrounding the topics of NFT and the Metaverse has never been greater and almost no day goes by without these trends hitting the headlines. In addition to the opportunities that arise from the technologies, the risks associated with the use cases from a financial crime perspective increase. Digitisation advances at a rapid pace and probably no one will have missed the name change from Facebook to Meta last year and the associated entry into the metaverse. But even before that, it was possible to connect with others in a virtual space, such as Fortnite or Minecraft. As in real life, it is part of the process that various assets can be traded via the digital world. One possibility is the trading of NFTs, which allow for the exchange of digital assets combined with an authentic certificate based on blockchain technology. Even well-known companies have taken advantage of the hype and released their own NFT for trading. But are people and companies aware of the risks as well as the opportunities? From a compliance perspective, there are still some unanswered questions to be clarified. 

Rapidly growing technologies also cast their shadows from a compliance perspective

According to the 2022 Crypto Crime Report by Chainalysis, two main forms of illicit activity were observed in the past year: Wash trading to artificially increase the value of NFTs and money laundering through the purchase of NFTs. In principle, these scams are not new, however, the fast pace of technological applications poses a serious threat due to the still inadequate regulations. 

Wash trading is the practice of purchasing and selling assets in a manner that is intent on manipulating or misleading the market supply and demand. In this case, the seller is on both sides of the executed transaction with the goal to make one’s NFT appear more valuable than it really is. Many NFT trading platforms allow their users to trade by simply connecting their wallets to the platform without any identification process. Therefore, there is no special effort needed to operate wash trading with NFTs. In particular, from a compliance perspective there is enormous potential for improvement in the identification and verification of market participants in order to eliminate initial fraud risks. Customized KYC processes can help to detect and reduce transaction risks between multiple addresses and identify the actors behind them. This need is also underscored by the report from blockchain platform Chainalysis, which states that 262 users were identified as having sold an NFT more than 25 times to a self-financed address, making a collective profit of nearly USD 8.9 million from wash trading activities. 

Future outlook – in risk lies opportunity

The increasing usage and adoption of NFTs pose a substantial risk for financial crime, making tighter KYC/AML protocols a necessity. But what does the current regulatory landscape regarding NFTs look like?

The latest Financial Action Task Force (FATF) guidelines have outlined that NFTs are not directly affected by AML restrictions as they are not seen as ‘Virtual Assets’. However, the FATF stresses that already existing AML regulations should apply to NFTs if the usage falls into particular categories, such as usage for payment, storing of value, or other investment purposes. Beyond that, NFTs are interlinked with the crypto ecosystem that is facing an increase in regulations. Based on this dependency, regulations are about to spill over to the NFT space.

All this uncertainty revolving around NFTs bear risks, but also huge potential for the compliance industry. As mentioned, NFTs are still in their infancy, creating substantial KYC and AML risks. Additionally, regulators are struggling to meet the fast-paced technological advances, which creates uncertainty in the market. 

Since the industry expects future regulations to be implemented, it is advisable that players in the crypto and NFT space pre-emptively adopt internal fraud and AML programmes. Especially now is the chance to proactively address underlying risks of NFTs and to establish a sustainable business by pre-emptively adopting risk mitigation measures. 

This opens up the potential for RegTech use cases and solutions to shine. Agile RegTech solutions enable companies to tackle the challenges of a rapidly changing regulatory landscape and stay ahead with technological advances. 

Especially in the fast advanced fields of technology and regulation, continuous networking and sharing of best practices are key. 

For further expertise or insights on the NFT ecosystem and Metaverse don´t hesitate to contact the RegTech Lab


This editorial was first published in our Financial Crime and Fraud Report 2022, which showcases the innovation and development of the best practices and instruments used by financial institutions in their fraud prevention activities, to improve the digital onboarding process of their customers while fighting against financial crime. 

About Anna Werner  

Anna works as a Manager at Deloitte and is one of the initiators of Deloitte´s RegTech Lab. Through the utilisation of RegTech solutions, she tackles Compliance pain points by combining regulatory and technological expertise.




About Jan Bartenstein 

Jan is a Consultant at Deloitte and elaborates on innovative processes and approaches. He deals with the topic of strategic trends that occupy our work and how we can unleash our creative potential.

About Nicolai Kuhn 

Nicolai works as a Junior staff at Deloitte in the Financial Crime area with a focus on trend scouting and trend screening in the RegTech environment. As part of the trend scouting team in the RegTech Lab, he has experience with innovative solutions for upcoming compliance topics.

About Deloitte

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax, and related services; legal advisory services in Germany are provided by Deloitte Legal. Our global network of member firms and related entities in more than 150 countries and territories (collectively, the ‘Deloitte organisation’) serves four out of five Fortune Global 500® companies. 

Learn how Deloitte’s approximately 330,000 people make an impact that matters at www.deloitte.com/de.

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Keywords: digital identity, regtech, fraud prevention, financial crime, fraud management, NFT, KYC
Categories: Fraud & Financial Crime
Companies: Deloitte
Countries: World
This article is part of category

Fraud & Financial Crime


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