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In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 3 November 2023.



FATF: Report on crowdfunding for terrorism financing

The Financial Action Task Force (FATF) has published a report, with Executive Summary, on crowdfunding for terrorism financing. With consideration of the likely evolution of the crowdfunding landscape, due to the introduction of new payment technologies and the proliferation of online platforms, the report analyses how terrorists misuse crowdfunding platforms. The report includes:

  • an examination of the challenges faced in detecting and preventing terrorist financing through the crowdfunding ecosphere, including the complexity of crowdfunding operations, the use of anonymising techniques, and lack of training and terrorist financing expertise within the crowdfunding industry to detect suspicious activity;
  • good practices, starting with the inclusion of crowdfunding in national terrorist financing risk assessments, outreach to the crowdfunding sector, and strong domestic and international information sharing mechanisms; and
  • a list of risk indicators,which aims to help public and private sector entities, and the general public, identify potential attempts at terrorist financing activity using crowdfunding.

The publication of the report is one outcome from the FATF Plenary which took place on 26-27 October 2023. The FATF has published a note on the outcomes from this Plenary, where delegates worked through a full agenda on key money laundering, terrorism financing and proliferation financing issues. [1 Nov 2023]

#Crowdfunding #TerroristFinancing #AML 

CPMI reports on considerations for the use of stablecoin arrangements in cross-border payments

The Committee on Payments and Market Infrastructures (CPMI) has published a report on the use of stablecoin arrangements in cross-border payments. With acknowledgement of jurisdictional differences regarding regulatory frameworks, the report:

  • discusses key features of stablecoin arrangements that are relevant from the perspective of cross-border payments;
  • highlights a range of relevant considerations and challenges;
  • analyses how stablecoin arrangements might interact and coexist with other payment methods; and
  • evaluates the potential impact of stablecoin use on the monetary policy, financial stability and payment functions of central banks. [31 Oct 2023]

#Stablecoins #CrossBorder #Payments

G7 Leaders' statement on the Hiroshima AI process

The Ministry of Foreign Affairs of Japan (MFAJ) has published:

In the statement, the G7 highlights the need to develop inclusive governance for AI in order to manage risks and to protect individuals, society, and the G7's shared principles, including the rule of law and democratic values. The G7 instructs the relevant ministers to accelerate the process toward developing the Hiroshima AI Process Comprehensive Policy Framework, which includes project-based cooperation, by the end of 2023, in cooperation with the Global Partnership for Artificial Intelligence (GPAI) and the Organisation for Economic Co-operation and Development (OECD), and to conduct multi-stakeholder outreach and consultation. Ministers are also asked to develop a work plan by the end of 2023 for further advancing the Hiroshima AI Process. [30 Oct 2023]

#HiroshimaAI #AI #G7 #GPAI #OECD

United Kingdom

FCA publishes guidance on cryptoasset promotions

The FCA has published Final Guidance 23/3: Finalised non-handbook Guidance on cryptoasset financial promotions (FG23/3) which is intended to help cryptoasset firms comply with new rules on marketing cryptoassets to UK customers that came into force on 8 October 2023. The guidance provides information on, and sets out expectations of, the communication and approval of financial promotions relating to 'qualifying cryptoassets'. It also details how authorised firms communicating or approving financial promotions should apply the Consumer Duty to their marketing. The guidance does not create new obligations but relates to firms' existing regulatory obligations.

The FCA previously published examples of good and poor practice in relation to firms’ preparations for the new financial promotions rules. [2 Nov 2023]

#Cryptoassets #FinProms

FCA: SDEG progress update

The FCA has published a progress update on its Synthetic Data Expert Group (SDEG), established in March 2023 to further explore the use of synthetic data in financial markets. The SDEG brings together 21 experts from across financial services, public sector, data and technology vendors, and consumer groups. The SDEG has met four times since its inception, and the FCA explains that the group aims to provide practical and tangible synthetic data insights for practitioners and policymakers. One output of the SDEG's work will be  a report focusing on the following key themes:

  • data augmentation and bias mitigation – the use of synthetic data to artificially increase underrepresented groups or data points to reduce bias in a dataset;
  • system testing and model validation – the use of synthetic data to confirm that a system or model achieves its intended purpose; and
  • data sharing (internal and external) – the process of making synthetic data available to multiple users (eg within an organisation) or organisations (eg third party vendors, research institutions).

The SDEG will also create a framework to enable organisations to collaborate on synthetic data use cases, for example via the Digital Sandbox.  The framework is in the early stages of development; the SDEG will share more information on it in due course, but welcomes input and industry views on the design of the framework.

The SDEG plans to run until November 2024. [1 Nov 2023]

#SyntheticData #DigitalSandbox

FCA joins forces with global regulators to foster digital innovation with Project Guardian

The FCA has announced that it is collaborating with regulators, central banks and industry from across the world as part of the Monetary Authority of Singapore’s (MAS) Project Guardian. Project Guardian is an initiative which will explore fund and asset tokenisation use cases, and decentralised finance. The FCA joins the policymaker group of Project Guardian; this group aims to:

    • advance discussions on legal, policy and accounting treatment of digital assets;
    • identify potential risks and possible gaps in existing policies and legislation relevant to tokenised solutions;
    • explore the development of common standards for the design of digital asset networks and market best practices across various jurisdictions;
    • promote high standards of interoperability to support cross-border digital assets development;
    • facilitate industry pilots for digital assets through regulatory sandboxes, where applicable; and
    • promote knowledge sharing among regulators and industry. [31 Oct 2023]

#DigitalAssets #ProjectGuardian #CrossBorder

PSR publishes APP fraud performance report

The Payment Systems Regulator (PSR) has published its first report on authorised push payment (APP) fraud. The report details the performance of banks and other payment firms in tackling APP scams and how they treated victims of such fraud in 2022, it covers 95% of payments made via the faster payments scheme (FPS). The report focuses on the following:

  • reimbursement to victims;
  • the amount of money sent from each payment firm as a result of APP; and
  • the amount of money received by each payment firm as a result of APP fraud. [31 Oct 2023]


Online Safety Act 2023 

The text of the Online Safety Act 2023 as enacted has been published. The Act provides for a new regulatory framework for internet services. It imposes duties on providers regulated by the Act to 'identify, mitigate and manage the risks of harm' and confers new functions and powers on the regulator, the Office of Communications (OFCOM).  For more on the Act, please see our recent article, Online Safety Act Becomes Law: What can organisations do now to prepare?. [31 Oct 2023]


HMT publishes consultation outcome regarding future regulatory regime for cryptoassets

HM Treasury (HMT) has published the following consultation outcomes and policy paper relating to the future financial services regulation of cryptoassets and stablecoins:

  • Consultation outcome to the February 2023 consultation and Call for Evidence (CfE) Future financial services regulatory regime for cryptoassets – sets out HM Government's (HMG's) final proposals for cryptoasset regulation in the UK, including its intention to bring a number of cryptoasset activities into the regulatory perimeter for financial services for the first time. It also summarises the feedback received by HMT in response to the consultation, and details how this has influenced further development of HMG's approach.
  • Consultation outcome to the consultation Managing the failure of systemic Digital Settlement Asset (including stablecoin) firms – HMG intends to lay regulations to implement the policy intent described in the consultation in due course and will provide further clarity on the operation of the modified Financial Market Infrastructure Special Administration Regime (FMI SAR) by making insolvency rules.
  • Policy paper with an update on plans for the regulation of fiat-backed stablecoins – the update will inform development of the FCA's and Bank of England’s (BoE's) approaches for regulating stablecoin issuers and custodians, and systemic digital settlement asset payments systems and service providers respectively. [30 Oct 2023]

#Cryptoassets #Stablecoin

Hong Kong

SFC issues circular on tokenised securities-related activities by intermediaries

The SFC has issued a circular on tokenised securities-related activities to provide guidance to intermediaries in addressing and managing the new risks arising from the use of the new tokenisation technology.  For SFC-authorised investment products, the circular should be read in conjunction with the other circular issued on the same day (see "SFC issues circular on tokenisation of SFC-authorised investment products" below).

For the purpose of this circular, tokenised securities are traditional financial instruments (such as bonds or funds) that are “securities” as defined under the Securities and Futures Ordinance (SFO) which utilise distributed ledger technology (DLT) (such as blockchain technology) or similar technology in their security lifecycle (Tokenised Securities).

Tokenised Securities are a subset of a broader set of digital securities, the latter of which in this circular are “securities” as defined under the SFO that utilise DLT or similar technology in their security lifecycle (Digital Securities).  Digital Securities which are not Tokenised Securities may be structured in more bespoke, novel or complicated forms, with some existing exclusively on a DLT-based network with no links to extrinsic rights or underlying assets and with no controls to mitigate the risks that ownership rights may not be accurately recorded.  Some of them may fall under the definition of an interest in a collective investment scheme under the SFO.

The circular address the following areas:

  • Nature of tokenised securities;
  • New risks arising from tokenisation;
  • Considerations for engaging in Tokenised Securities-related activities, including issuing, dealing in, advising on, or managing portfolios investing in Tokenised Securities (see appendix to the circular);
  • Information for clients;
  • Clarifications regarding the SFC's previous statement of 29 March 2019 on security token offerings (see our previous update), which will be superseded by this circular (clarifications include those on complex product categorisation and the professional investors-only restriction);
  • Clarification of other requirements (including those on fund managers managing portfolios which may invest in Tokenised Securities, and on virtual asset trading platform operators licensed by the SFC and the applicable insurance/compensation arrangements);
  • Digital Securities-related activities; and
  • Notification and provision of information to the SFC.  [2 Nov 2023]

#TokenisedSecurities #DLT

SFC issues circular on tokenisation of SFC-authorised investment products

The SFC has issued a circular setting out the requirements under which it will consider allowing tokenisation of SFC-authorised investment products for offering to the public in Hong Kong.

Tokenisation of investment products refers to the creation of blockchain-based tokens that represent or aim to represent ownership in an investment product.  The tokenised product can then be recorded digitally on the blockchain, offered directly to end-investors, distributed by SFC-licensed intermediaries, or traded among the blockchain participants where allowed.

The SFC considers that it is appropriate to allow primary dealing of tokenised SFC-authorised investment products, as long as the underlying product can meet all the applicable product authorisation requirements and the additional safeguards set out in this circular to address the new risks associated with the tokenisation arrangement.

However, secondary trading of tokenised SFC-authorised investment products would warrant more caution and careful consideration in order to provide a substantially similar level of investor protection to those investing in a non-tokenised product.  The considerations include (among others) maintaining proper and instant token ownership record, readiness of the trading infrastructure and market participants to support liquidity, and fair pricing of the tokenised products.  The SFC will therefore keep in view and continue to engage with market participants on proper measures to address the risks relating to secondary trading of tokenised SFC-authorised investment products.

With respect to primary dealing, product providers should ensure that the underlying products meet the applicable requirements in the relevant rules and regulations and product codes (including eligibility of product providers, product structure, investment and operational requirements, disclosure and ongoing compliance obligations).  This circular sets out additional requirements, including on the tokenisation arrangement, offering documents, distributors, and staff competence.  These additional requirements, as well as relevant requirements in the other circular issued on the same day (with appendix) (see "SFC issues circular on tokenised securities-related activities by intermediaries" above) should be complied with.

Prior consultation with the SFC is required for new investment products that have tokenisation features intending to seek the SFC’s authorisation, as well as tokenisation of existing SFC-authorised investment products.

Given the rapidly evolving nature of the subject, the SFC may provide further guidance or impose additional requirements for tokenised SFC-authorised investment products where appropriate.  [2 Nov 2023]

#Tokenisation #Investments

HKMA announces various initiatives at Hong Kong Fintech Week 2023 to strengthen Hong Kong's fintech capabilities

The HKMA has announced a number of initiatives at the Hong Kong Fintech Week 2023 to strengthen Hong Kong's fintech capabilities, including the following (among others):

  • FPS x PromptPay QR payment – The HKMA is working closely with the Bank of Thailand to link Hong Kong’s Faster Payment System (FPS) and Thailand’s PromptPay, in a new service called “FPS x PromptPay QR Payment”, scheduled for launch on 4 December.
  • Tokenisation in the bond market – The HKMA is in discussions with market participants to explore further use cases for distributed ledger technology (DLT) in capital markets, including a second tokenised government green bond.
  • e-HKD Pilot Programme – The HKMA has completed Phase 1 of the e-HKD Pilot Programme and published an overall assessment of the pilots and the way forward (see "HKMA publishes e-HKD Pilot Programme Phase 1 Report" below).

There has also been some positive progress in the initiatives under the "Fintech 2025" strategy announced by the HKMA in June 2021 (see our previous update):

  • All banks go fintech – The HKMA has implemented a number of initiatives to proactively encourage fintech adoption in the banking industry, including in relation to Wealthtech, Insurtech, Greentech, Artificial Intelligence and DLT.
  • Central Bank Digital Currencies (CBDC) – The HKMA has achieved a number of milestones in the phased development of wholesale CBDCs.  Project mBridge is now at the minimum viable product (MVP) development phase and the HKMA aims to launch the MVP next year to pave the way for a production-ready system.
  • Commercial Data Interchange (CDI) – This was launched in October 2022 and the utilisation rate has increased significantly.  The HKMA is exploring how it can be used to further digitalise and streamline various banking processes such as 'know your customer' and is working closely with the Insurance Authority to enable cross-sectoral data sharing.  By the end of 2023, the Companies Registry will become the first government data source to be connected to CDI via the government’s Consented Data Exchange Gateway.
  • Expanding the fintech-savvy workforce – The HKMA is working to foster fintech talent in Hong Kong through initiatives including the Fintech Career Accelerator Scheme and the Industry Project Masters Network.
  • Nurturing the fintech ecosystem with funding and policies – This includes the Fintech Supervisory Sandbox (FSS) 3.0 and FSS 3.1 Pilot to provide funding support to fintech projects, as well as ongoing reforms relating to virtual assets and stablecoins.

In his keynote speech at the Hong Kong Fintech Week, Mr Eddie Yue (Chief Executive of the HKMA) offered his thoughts on what the HKMA has learnt in its fintech journey over the past seven years.  [2 Nov 2023]

#FinTech #Tokenisation #FPS #eHKD #CBDC #CDI #PromptPay

FSTB announces initiatives at Hong Kong Fintech Week 2023

The Financial Services and the Treasury Bureau (FSTB) has announced a series of initiatives at the Hong Kong Fintech Week 2023 to foster co-development of fintech and the real economy.

The initiatives include (among others):

  • Launch of a new integrated fund platform to be developed and operated by the HKEX – This platform targets the retail fund sector, covering the front-to-back distribution life cycle and value chain, and is proposed to better serve investors, fund managers, distributors and other stakeholders within the ecosystem. The integrated platform will serve comprise a communication hub, a business platform, and an information portal (see "HKEX plans to establish integrated platform for distribution of Hong Kong retail funds" below).
  • Cross-boundary e-CNY applications to benefit inbound and outbound visitors between the Mainland and Hong Kong – Subject to regulatory approval and technical readiness, Octopus Cards Limited will provide an inbound solution facilitating Mainland tourists' use of e-CNY in Hong Kong through topping up Octopus Cards in a tourist mobile application.
  • Promoting real economy related applications and innovations by the virtual assets (VA) and Web3.0 sector and further development of the regulatory framework – Market participants are encouraged to explore the potential of the underlying technologies of Web3.0 to empower and enable real economy related applications and innovations.  The government intends to expand the regulatory remit to cover the buying and selling of VAs beyond trades taking place on VA trading platforms.  In addition, the FSTB and the HKMA will issue a joint consultation on the legislative proposal for implementing a regulatory regime for stablecoin issuers in due course.  With regard to banks' provision of digital asset custodial services, the industry is being consulted on HKMA's guidance to ensure client assets are adequately safeguarded and that the risks involved are properly managed.

Mr John Lee (Chief Executive of Hong Kong) and Mr Paul Chan (Financial Secretary of Hong Kong) have also provided their insights at the Hong Kong Fintech Week.  [2 Nov 2023]

#FinTech #eCNY #VirtualAssets

HKEX plans to establish integrated platform for distribution of Hong Kong retail funds

The HKEX has announced its plan to develop an integrated platform for the distribution of SFC-authorised retail funds, covering the full distribution cycle and value chain for retail funds in Hong Kong.  This will help lower the barriers of entry to the industry, allow market participants to better distribute fund products to their clients, and in turn provide investors access to a broader range of products.

The fund platform will initially be a business-to-business service model, and will consist of three main components:

  • Communication Hub – a centralised network that connects different parties in the fund distribution ecosystem, such as fund managers and distributors, to facilitate transactions;
  • Business Platform – covering functionalities such as fund order routing, subscriptions and redemptions, payments and settlements, and various optional nominee services; and
  • Information Portal – helping the investing public with access to more information and greater transparency on fund investment options.

The HKEX is currently evaluating the operating model and structure of the platform, and is working closely with the government, the SFC and other stakeholders on its development to finalise the platform design and development framework in the coming months.  [2 Nov 2023]

#RetailFunds #Platforms

HKMA imposes new enhancement measures to strengthen security of e-banking services, to be implemented by 31 March 2024

The HKMA has issued a circular to require authorised institutions (AIs) to implement a set of new enhancement measures that it has formulated in consultation with the Hong Kong Association of Banks and the Hong Kong Police Force to further strengthen the security of electronic banking (e-banking) services.

These new measures follow the HKMA's circulars of 25 April 2023 and 20 June 2023 in relation to payment card protection (see our previous updates here and here).

AIs are required to implement the new enhancement measures as soon as practicable, and in any case no later than 31 March 2024.  Given that they are currently implementing other enhancement measures to counter digital fraud, including those relating to payment card protection, the HKMA is prepared to exercise flexibility where an AI has genuine practical difficulties in observing this implementation timeline.

The HKMA intends to revise Supervisory Policy Manual module TM-E-1 to incorporate the new enhancement measures and the measures relating to payment card protection into its e-banking guidelines.  It will conduct an industry consultation on the amendments in the next few months.

The new enhancement measures cover the following areas:

  • Enhanced monitoring for suspicious transactions and additional customer authentication to counter frauds, including dynamic fraud monitoring mechanisms, ambush authentication, additional confirmation for suspicious high-risk transactions, and multiple authentication methods;
  • Empowering customers to safeguard bank accounts, including providing customers with tools to review and monitor account activities, notifying customers of unusual e-banking activities, lowering default cross-border fund transfer limits, and restricting concurrent login sessions; and
  • Containing damage to customers in case of serious breaches, including suspension of bank accounts and maintaining a 24/7 customer reporting channel.  [31 Oct 2023]


HKSCC amends rules and procedures for implementation of FINI on 22 November 2023

The Hong Kong Securities Clearing Company Limited (HKSCC) has made amendments to the following rules and procedures for the implementation of Fast Interface for New Issuance (FINI), a mandatory platform for modernising the IPO settlement process, including the introduction of a stock admission fee and a processing fee cap for new listings handled through FINI, and introducing FINI terms and conditions.  The amendments will take effect on 22 November 2023, when FINI is launched (see our previous update):


HKMA publishes e-HKD Pilot Programme Phase 1 Report

The HKMA has published the e-HKD Pilot Programme Phase 1 Report to discuss its key findings, learnings, and assessment of 14 pilots conducted by 16 participating firms under Phase 1 of the e-HKD Pilot Programme.

The pilots under Phase 1 showed that an e-HKD could add unique value to the current payment ecosystem in Hong Kong in three main areas – programmability, tokenisation, and atomic settlement.

An e-HKD has the potential to facilitate faster, more cost-efficient, and more inclusive transactions, as well as enable new types of economic transactions. However, the HKMA recognises that these pilots are conducted on a small scale under a controlled environment.  Further investigation and evaluation are required to determine if these benefits can be realised at a larger scale in real-life applications.

The HKMA has not yet made a decision on whether and when to introduce an e-HKD.  The outcomes and insights gained from Phase 1 will help enrich the HKMA’s perspective and refine its approach to the possible implementation of e-HKD.

The next phase of the programme will seek to explore new use cases for e-HKD and delve deeper into select pilots from Phase 1.  Further details are set out in section 5 (Way Forward) of the report.

As part of its outreach, the HKMA will continue to actively engage the industry, academia and other stakeholders, and participate in international fora, and monitor international developments on retail central bank digital currencies.  The HKMA will also continue its work in laying the legal and technical foundations for an e-HKD in parallel.  [30 Oct 2023]



MAS and SFA: Global FinTech Awards

The Monetary Authority of Singapore (MAS) and the Singapore FinTech Association (SFA) have announced the finalists of the 2023 Singapore FinTech Festival (SFF) Global FinTech Awards. The awards seek to recognise innovative FinTech solutions by corporates and individuals that have been instrumental in transforming FinTech industry practices, and spearheading the use of new technologies in creating new growth opportunities, promoting financial inclusion and enhancing the delivery of financial services. In the artificial intelligence (AI) category, shortlisted solutions demonstrated the use of alternative data sources such as telecommunication data for credit risk profiling for the training of AI models. Shortlisted solutions under the environment, social and governance (ESG) FinTech category heavily focused on solving fragmentation of data sources so that effective ESG models can be developed to monitor a firm’s pathway to net zero.  [1 Nov 2023]


MAS launches POC for SGQR+

MAS has announced that it will launch a proof of concept (POC) for an interoperable Singapore Quick Response Code Scheme (SGQR+). The POC, which will run from 1 to 30 November 2023, will explore the feasibility of enabling merchants in Singapore to accept QR payments from a variety of payment schemes through a single financial institution. By aggregating multiple payment providers using SGQR+, merchants will no longer need to maintain commercial relationships with several financial institutions to accept different payment schemes.

white paper on interoperable QR payments in Singapore has also been published. This paper presents proposals from a comprehensive feasibility study on the potential for the introduction of SGQR+ as Singapore’s future interoperable payments infrastructure. The study’s key areas of focus were to determine the readiness of merchants and payment providers to adopt interoperable QR payments, and the benefits of enabling seamless and secure cross-platform QR payment transactions. [31 Oct 2023]

#PPOC #SGQR+ #Payments

MAS partners with policymakers in Japan, Switzerland and the UK to foster responsible digital asset innovation

MAS has announced that it is partnering with the Financial Services Agency of Japan (JFSA), the Swiss Financial Market Supervisory Authority (FINMA) and the UK's Financial Conduct Authority (FCA) to advance digital asset pilots in fixed income, foreign exchange and asset management products. These agencies comprise a policymaker group for Project Guardian, which sees MAS collaborate with 15 financial institutions to carry out industry pilots on asset tokenisation in fixed income, foreign exchange, and asset management products. The policymaker group aims to:

  • advance discussions on legal, policy and accounting treatment of digital assets;
  • identify potential risks and possible gaps in existing policies and legislation relevant to tokenised solutions;
  • explore the development of common standards for the design of digital asset networks and market best practices across various jurisdictions;
  • promote high standards of interoperability to support cross-border digital assets development;
  • facilitate industry pilots for digital assets through regulatory sandboxes, where applicable; and
  • promote knowledge sharing among regulators and industry. [30 Oct 2023]

#DigitalAssets #Tokenisation #ProjectGuardian

MAS’ Cyber Security Advisory Panel discusses mobile malware scams and Generative AI Risks

MAS’ seventh annual Cyber Security Advisory Panel meeting discussed global cybersecurity trends and their impact on the financial sector, securing mobile banking and payments amidst the rise of online banking scams, as well as financial institutions’ growing adoption of AI. [30 Oct 2023]

#GenAI #Cybersecurity


RBI Deputy Governor discusses technology, principles-based regulations

The Reserve Bank of India (RBI) has published a speech delivered by Shri M. Rajeshwar Rao, Deputy Governor, at the Gatekeepers of Governance Summit. The speech focused on the importance of regulation in addressing structural shifts that are transforming the shape of the financial sector, including technology, digital intermediation, and social media. He also noted the RBI's movement towards principle-based regulations, the importance of the customer remaining at the centre, and the need to balance maintaining a level playing field with ensuring that regulations are proportionate to the risks posed by the firm to the financial system. [2 Nov 2023]

#DigitalIntermediation #SocialMedia

RBI issues circular on Regulation of Payment Aggregator – Cross Border (PA - Cross Border)

The RBI has issued a circular with redrafted guidelines, taking into consideration the feedback received on the April 07, 2022 draft circular on processing and settlement of small value export and import related payments facilitated by Online Export-Import Facilitators (OEIFs). As the activities of OEIFs / Online Payment Gateway Service Providers (OPGSPs) are more aligned with payments, and from the perspective of payment systems, the circular proposes to regulate entities facilitating payment and settlement for online cross border export / import transactions as Payment Aggregators – Cross Border (PA-CB) under the Payment and Settlement Systems Act, 2007. [31 Oct 2023]

#Paymenrts #OEIFs #OPGSP

United States

SEC charges crypto company and its executive team for fraud and unregistered offering of crypto securities

The SEC has charged a crypto company and members of its executive team with perpetrating a fraudulent scheme through the unregistered sale of a crypto asset security. According to the SEC’s complaint, the Defendants promised to take the price of the token "Safely to the moon," but instead of delivering profits, they wiped out billions in market capitalization, withdrew crypto assets worth more than $200 million from the project, and misappropriated investor funds for personal use.

“Decentralized finance claims to deliver transparency and predictable outcomes, but unregistered offerings lack the disclosures and accountability that the law demands, and they attract scammers […], who use these vulnerabilities to enrich themselves at the expense of others,” said David Hirsch, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU).

The SEC’s complaint alleges that the crypto asset security skyrocketed in price by more than 55,000 percent from March 12 to April 20, 2021, and reached a market capitalization exceeding $5.7 billion before its price plummeted by nearly 50 percent when the public learned, on April 20, 2021, that the liquidity pool was not locked as claimed. After this plunge, the CEO and Chief Technology Officer (CTO) allegedly used misappropriated assets to make large purchases to prop up the crypto asset security's price and manipulate the market. The CEO also allegedly used an account he opened on a trading platform to undertake wash trading.

The SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, charges Defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934.  [1 Nov 2023]

#Crypto #CryptoSecurity 

White House publishes joint statement following 3rd meeting of the International CRI

The White House has released the joint statement following the 1 November 2023 meeting of the International Counter Ransomware Initiative (CRI).  During the third CRI gathering, members reaffirmed their joint commitment to building collective resilience to ransomware, cooperating to undercut the viability of ransomware and pursue the actors responsible, countering illicit finance that underpins the ransomware ecosystem, working with the private sector to defend against ransomware attacks, and continuing to cooperate internationally across all elements of the ransomware threat.  This year’s CRI gathering focused on developing capabilities to disrupt attackers and the infrastructure they use to conduct their attacks, improving cybersecurity through sharing information, and fighting back against ransomware actors.  [1 Nov 2023]

#Ransomware #CyberSecurity 

White House: Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence

The President has issued an Executive Order on new standards for AI safety and security in order to protect privacy, advance equity and civil rights, promote innovation and competition, and more.  Following on from the Executive Order and in advance of her attendance at the United Kingdom AI Summit, Vice President Kamala Harris announced a number of initiatives, including the establishment of the United States AI Safety Institute (US AISI) inside NIST. The US AISI will operationalize NIST’s AI Risk Management Framework by creating guidelines, tools, benchmarks, and best practices for evaluating and mitigating dangerous capabilities and conducting evaluations including red-teaming to identify and mitigate AI risk. The Institute will develop technical guidance that will be used by regulators considering rulemaking and enforcement on issues such as authenticating content created by humans, watermarking AI-generated content, identifying and mitigating against harmful algorithmic discrimination, ensuring transparency, and enabling adoption of privacy-preserving AI, and would serve as a driver of the future workforce for safe and trusted AI. It will also enable information-sharing and research collaboration with peer institutions internationally, including the UK’s planned AI Safety Institute (UK AISI).  [30 Oct 2023 & 1 Nov 2023]

#AI #Algos

NYDFS amends cybersecurity regulations

The New York State Department of Financial Services (NYDFS) has amended its cybersecurity regulations to enhance cyber governance, mitigate risks, and protect New York businesses and consumers from cyber threats. The new rules strengthen the NYDFS' risk-based approach to ensure that cybersecurity is integrated into regulated entities’ business planning, decision-making, and ongoing risk management. Key changes in the regulations include:

  • enhanced governance requirements;
  • additional controls to prevent initial unauthorized access to information systems and to prevent or mitigate the spread of an attack;
  • requirements for more regular risk and vulnerability assessments, as well as more robust incident response, business continuity, and disaster recovery planning;
  • updated notification requirements including a new requirement to report ransomware payments; and
  • updated direction for companies to invest in at least annual training and cybersecurity awareness programs that anticipate social engineering attacks and that are otherwise relevant to their business model and personnel.  [1 Nov 2023]


SEC charges Texas company and CISO with fraud, internal control failings

The SEC has announced charges against a Texas-based software company and its chief information security officer (CISO) for fraud and internal control failures relating to allegedly known cybersecurity risks and vulnerabilities. The complaint alleges that, from at least its October 2018 initial public offering (IPO) through at least its December 2020 announcement that it was the target of a massive, nearly two-year long cyberattack, the company and the CISO defrauded investors by overstating cybersecurity practices and understating or failing to disclose known risks. In its filings with the SEC during this period, the company allegedly misled investors by disclosing only generic and hypothetical risks at a time when the specific deficiencies in cybersecurity practices as well as the increasingly elevated risks were known.

The SEC’s complaint, filed in the Southern District of New York, alleges that the company and CISO violated the antifraud provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934; the company violated reporting and internal controls provisions of the Exchange Act; and the CISO aided and abetted the company’s violations. The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and an officer and director bar against the CISO.  [30 Oct 2023]


Fed Vice Chair for Supervision discusses payments innovation – FedNow®, stablecoins, CBDCs, financial inclusion

The Federal Reserve (Fed) has published the remarks of Vice Chair for Supervision Michael S. Barr at the Economics of Payments XII Conference in Washington, D.C.  Mr Barr noted that introduction of the FedNow Service® in July; the service was developed to meet the demand for instant payments from both households and businesses. As the Fed has made the new service available, banks are able to build on the infrastructure to provide better services.  Moving on to discuss stablecoins and central bank digital currencies (CBDCs), the Vice-Chair observed that it is necessary to "carefully weigh the benefits and risks of different uses of these new technologies."  He reiterated this view that stablecoins need to be regulated. On CBDCs, Mr Barr set outlined the Fed's research and efforts to develop its own knowledge, but also commented that the Fed has made no decision on issuing a CBDC.  Vice Chair Barr also covered the proposed revisions to the interchange fee cap for debit card issuers, before concluding with observations on the importance that payments innovation support and promote broad access and financial inclusion.  [27 Oct 2023]

#FedNow #Stablecoins #CBDC



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Cat Dankos

Regulatory Consultant, London

Cat Dankos

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Cat Dankos

Regulatory Consultant, London

Cat Dankos
Cat Dankos