Category Archives: Legal Issues and Regulation

Your guide to cryptocurrency regulations around the world and where they are headed

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CNBC | | Mar 27, 2018

As demand for cryptocurrency grows, global regulators are divided on how to keep up. Most digital currencies are not backed by any central government, meaning each country has different standards.

Every seemingly small regulation announcement has driven the price of bitcoin and other cryptocurrencies in 2018.

Here's your guide to where digital currencies stand with governments and regulators around the globe.


Global regulators

View on bitcoin: Legal tender, depending on the country.

Policy on exchanges: No global regulator exists at the moment.

At a G-20 meeting this month, Argentina's central bank governor outlined a summer deadline for members to have "specific recommendations on what to do" and said task forces are working to submit proposals by July. Italy's central bank leader told reporters after the meeting in Buenos Aires, Argentina, that cryptocurrencies pose risks but should not be banned, according to Reuters.

The Financial Stability Board, a global watchdog that runs financial regulation for G-20 economies, took a cautious tone in responding to calls from some countries to crack down on digital currencies.

"The FSB's initial assessment is that crypto-assets do not pose risks to global financial stability at this time," board Chairman Mark Carney said in a letter on March 18.

Carney, who is also governor of the Bank of England, pointed to the small size relative of the asset class compared with the entire financial syste. "Even at their recent peak, their combined global market value was less than 1 percent of global GDP," he said.

The International Monetary Fund has also called for more cooperation.

IMF Managing Director Christine Lagarde highlighted cryptocurrency's potential as a vehicle for money laundering and the financing of terrorism. In a March blog post, Lagarde called for policies that protect consumers in the same way as the traditional financial sector.

Japan

View on bitcoin: Legal tender as of last April.

Policy on exchanges: Exchanges are legal if they are registered with the Japanese Financial Services Agency.

Japan is the biggest market for bitcoin. Almost half of the digital currency's daily volume is traded in the country's currency, according to data from Cryptocompare.

Last week, the agency issued a warning to Hong Kong-based Binance for operating in the country without a license.

Hacks have been an issue in Japan and elsewhere. It was the first country to adopt a national system to regulate cryptocurrency trading after its exchanges were subject to some well-known breaches including Mt.Gox.

In March, Japanese regulators issued punishment notices to multiple exchanges and forced some to stop business altogether after the $530 million theft of digital currency from exchange Coincheck.

See:  How Asia Is Adopting Crowdfunding From The West


United States

View on bitcoin: Not legal tender, according to Financial Crimes Enforcement Network.

FinCen, a bureau of the Treasury Department, said in 2013 that "virtual currency does not have legal tender status in any jurisdiction."

Policy on exchanges: Legal, depending on the state.

The U.S. handles the second largest volume of bitcoin, roughly 26 percent, according to Cryptocompare.

U.S. regulators differ in their definitions of bitcoin and other cryptocurrencies.

The Securities and Exchange Commission has indicated it views digital currency as a security. Earlier in March, the agency expanded its scrutiny and said it is looking to apply securities laws to everything from cryptocurrency exchanges to digital asset storage companies known as wallets. The agency has focused on initial coin offerings, or digital coins released through fundraisers known as token sales, and has stepped up efforts to police them through recent subpoenas.

The Commodity Futures Trading Commission says bitcoin is a commodity. CFTC Comissioner J. Christopher Giancarlo, pictured above, has gained a reputation as a more cryptofriendly regulator. In written testimony before the Senate Banking Committee in February, he advocated a "do-no-harm" approach to ledger technologies. He also briefly changed his Twitter bio to list "#CryptoDad" among the accolades.

The IRS says cryptocurrency is not actually a currency. It defined it in 2014 as property and issued guidance on how it should be taxed.

Treasury Secretary Steven Mnuchin has been vocal about bitcoin's ability to aid criminals, telling CNBC in Davos in January his main focus on cryptocurrencies is "to make sure that they're not used for illicit activities."

 

See:  Crypto Industry Should Self Regulate, Says CFTC Commissioner


European Union

View on bitcoin: No EU member state can introduce its own currency, according to European Central Bank President Mario Draghi.

Policy on exchanges: Legal, depending on the country.

About 4 percent of cryptocurrency's daily volume is done in euros, according to Cryptocompare.

EU leaders have voiced concern about money laundering. European Commission Vice President Valdis Dombrovskis, pictured above, said at a February roundtable in Brussels that digital assets "present risks relating to money laundering and the financing of illicit activities."

The virtual exchanges and wallet providers should be under the "Anti-Money Laundering Directive," Dombrovski said. "The commission will continue to monitor these markets together with other stakeholders, at EU and international level, including in the G-20."

Draghi rejected Estonia's attempt to create a state-backed cryptocurrency called "estcoin."

"No member state can introduce its own currency," Draghi said in September. "The currency of the euro zone is the euro."

Regulations differ within the bloc.

France's financial regulator Autorite des Marches Financiers released a list of 15 exchanges it would blacklist in March. The country said it will make a joint proposal with Germany to regulate the bitcoin cryptocurrency market, Reuters reported.


United Kingdom

View on bitcoin: Not legal tender. "Only sterling is legal tender in the UK," according to Carney (pictured above).

Policy on exchanges: Legal, and need to register with the Financial Conduct Authority. They are required to meet the same anti-money-laundering counter-terrorism standards as other financial institutions, according to the BOE.

The exponential price gains in cryptocurrencies are "speculative mania," Carney said in early March.

"The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system," Carney said in a speech. "Being part of the financial system brings enormous privileges, but with them great responsibilities."

Carney said the digital currency "has pretty much failed thus far on" traditional aspects of money.

"It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange," Carney said.

Many virtual currencies are trying to dislodge the British pound but "only sterling is legal tender in the UK," Carney said in another March speech.

The Financial Conduct Authority called crypto assets "high-risk, speculative products," in a warning to consumers in November.

South Korea

View on bitcoin: Not legal tender.

Policy on exchanges: Legal but use of anonymous bank accounts for virtual coin trading is prohibited. Need to register with South Korea's Financial Services Commission.

Trading in South Korea makes up about 4 percent of daily volume of bitcoin. For other cryptocurrency such as XRP, trading in the Korean won commands a premium to U.S. dollars. Asia's fourth largest economy has become a hub for trading but regulators have given mixed signals.

Financial authorities said in 2013 that bitcoin and other digital currencies are not legitimate currencies, according to the Korea Herald.

South Korea's justice minister said in January that the government was considering a shutdown of cryptocurrency exchanges. A petition asking the government to hold back on "unreasonable" regulation got 280,000 signatures following the announcement. The government responded by saying it will take firm action against illegal and unfair acts in cryptocurrency trading.

Last year, the Financial Services Commission banned local finance firms from trading bitcoin futures, according to local publication Business Korea. The commission also banned the use of anonymous bank accounts for virtual coin trading in January but said it doesn't intend to completely shut down domestic exchanges.

The government has said that while it will not ban bitcoin exchanges, initial coin offerings and futures will remain under scrutiny.

In late February, a government official said South Korea had still not decided how to regulate.

"The government hasn't made any conclusion yet. Sufficient consultations should come first," Hong Nam-ki, minister of office for government policy coordination, told parliament.


China

View on bitcoin: Not legal tender.

Policy on exchanges: Illegal.

Trading bitcoin in China is technically illegal.

In 2017, the government bannedICOs — a way for start-ups to raise funds by selling off new digital currencies — and shut down domestic cryptocurrency exchanges.

In January, a senior Chinese central banker said authorities should ban trading of virtual currencies as well as individuals and businesses that provide related services.

But activity in crypto has carried on through alternative channels like mining. Chinese authorities are looking to end the practice, according to Reuters, which cited an internal memo from a government meeting in January.

Singapore 

View on bitcoin: Not legal tender.

Policy on exchanges: Legal, may fall under regulatory purview of the Monetary Authority of Singapore.

The Singapore dollar makes up 0.02 percent of daily global bitcoin trading volume but the country has emerged as a hub for ICOs. Two of the 15 largest coin offerings happened in Singapore, according to a PwC report.

Singapore is positioning itself as more friendly to cryptocurrencies than other regions. There is no strong case to ban digital currency in the city-state, Singapore's central bank said in February, noting "it is too early to say if they will succeed."

In January, the Monetary Authority of Singapore urged the public "to act with extreme caution and understand the significant risks they take on if they choose to invest in cryptocurrencies."

The agency also said cryptocurrencies are not legal tender and highlighted the risk posed by bitcoin's anonymity.

Continue to the full article --> here


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

 

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OSC outlines key areas of focus for 2018-2019

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OSC Release | March 29, 2018

TORONTO – The Ontario Securities Commission (OSC) today published for comment its 2018-2019 Draft Statement of Priorities. The draft includes 14 priority areas the OSC plans to focus on next fiscal year.

Fintech Highlights

Work with fintech businesses to support innovation and capital formation through regulatory compliance The pace of fintech innovation continues to escalate and is a key disruptive force in the financial services industry. Since October 2016, OSC LaunchPad, has actively engaged with the fintech community to provide support in navigating regulatory requirements. LaunchPad provides a forum to discuss proposed approaches, raise questions and educate fintech businesses about the regulatory requirements for which registration and/or
exemptive relief may be needed. As part of the OSC’s goal to keep regulation in step with digital innovation, the OSC created a Fintech Advisory Committee, which advises the OSC LaunchPad team on developments in the fintech space as well as the unique challenges faced by fintech businesses in the securities industry.

The OSC will undertake the following initiatives to support the evolution of fintech businesses in Ontario:
Support fintech innovation through OSC  LaunchPad by: 

  • Offering direct support to innovative businesses in navigating the regulatory requirements and potentially providing flexibility in how they meet their obligations including participating in the CSA regulatory sandbox
  • Working with FSRA to develop eligibility criteria and success measures for the Ministry of Finance (MOF) SuperSandbox
  • Fostering the use of cooperation agreements with other regulators to support Ontario firms seeking to expand into other jurisdictions

Integrate learnings from working with innovative businesses and identify opportunities to modernize regulation for the benefit of similar businesses by:

  • Engaging the fintech community to better understand their needs and help them understand the regulatory requirements that apply to their businesses
  • Liaising with other international regulators that have similar innovation hub initiatives to better understand international trends and developments
  • Working with the OSC Fintech Advisory Committee to further understand the unique issues faced by start-ups

Continue to identify issues and potential regulatory gaps arising from cryptocurrency, initial coin and similar offerings, and blockchain developments by:

  • Conducting ongoing monitoring and reviews of reporting issuers with cryptocurrency and blockchain businesses including those seeking to become reporting issuers through reverse takeovers or initial public offerings and existing reporting issuers that are involved in change of
    businesses transactions
  • Completing issue-oriented reviews of the cryptocurrency and initial coin and similar issuers and the blockchain industry as appropriate and publishing reviews
  • Liaising with listing venues and the CSA to identify and discuss industry developments and consider the impact on disclosures
  • Enhancing the guidance as to when initial coin and similar offerings involve securities

See:  NCFA Canada’s response to BCSC Notice 2018/1 ‘Consulting on the Securities Law Framework for Fintech Regulation’

“We are pursuing an ambitious regulatory agenda that is responsive to our evolving capital markets,” said Maureen Jensen, Chair and CEO of the OSC. “We will continue to support fintech innovation, advance measures to better protect investors, and initiate projects to lighten the regulatory load for businesses.”

The OSC will continue to foster new ways to raise capital and invest, while focusing on potential investor protection issues arising from cryptocurrency and blockchain-related developments. The OSC also intends to advance key investor protection measures, including publishing reforms that address the best interests of the client, and defining actions on embedded commissions. Additionally, the OSC will pursue initiatives to address regulatory burden for public companies and investment funds.

The draft includes thirteen priorities from the OSC’s 2017-2018 Statement of Priorities, which are moving into the next phase of work, as well as a new priority related to workforce strategy. The priorities align with the OSC’s five regulatory goals to deliver strong investor protection, deliver effective compliance, supervision and enforcement, deliver responsive regulation, promote financial stability through effective oversight, and be an innovative, accountable and efficient organization.

The Draft Statement of Priorities is available on the OSC’s website. Stakeholders are invited to provide written comments on the draft by May 28, 2018.

“We look forward to receiving comments on this draft and will publish our final Statement of Priorities in June,” said Leslie Byberg, Executive Director and CAO of the OSC.

The OSC is working to deliver on initiatives in its current 2017-2018 Statement of Priorities, and a progress report on this will also be released in June 2018.

Continue to the full article --> here

 

The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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NCFA Canada’s response to BCSC Notice 2018/1 ‘Consulting on the Securities Law Framework for Fintech Regulation’

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NCFA Canada - Join Today | Robin Ford | April 3, 2018

The NCFA is a national non-profit organization engaged with both social and investment crowdfunding and fintech stakeholders across the country. It provides education, research, leadership, support, networking opportunities and services to over 1600 members and works with the private sector, government, academia, and community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada. The NCFA supports ‘innovation finance’ - aiming to make the financial ecosystem more accessible and inclusive and to enhance the use of technology for smarter, faster, and more secure decisions and services.

Thank you for the opportunity to comment. We appreciate the active steps that BCSC is taking to better understand a fast moving ecosystem and to adapt accordingly.  The NCFA provided both oral and written input on many of the issues below to the BCSC in 2017. Except in response to the questions posed by the BCSC, the NCFA does not repeat those submissions here.

Consultation questions and responses

1 (a) Although we are limited by a serious absence of data in Canada, the limited data we do have, supplemented by anecdotal evidence from our members, supports our assertion that moving to a lifetime raise of $1 million would increase the effectiveness of the start-up crowdfunding exemption. The $250k cap per 6 month subscription is unduly limiting for most types of businesses that could rely on the exemption.

However, we have argued previously for no caps (or at least a higher limit of $5 million over the fund-raising lifetime but ideally possible in one financing). This would be more in line with other (successful) jurisdictions. In the UK, for example, there is no cap on the total amount an issuer can raise in any given year and no limit on the amount an in- vestor can invest - https://www.wealthforge.com/insights/crowdfunding-gaining-traction- in-the-uk-but-what-about-the-us. Assuming other appropriate requirements (such as for disclosure and KYC), there is no significant risk to consumer protection of which we are aware that should prevent this.

We wonder how the higher cap is working in Alberta?

(b) The BCSC will know from our earlier submissions that the NCFA is strongly in favour of removing the requirement for “eligible securities” or expanding the definition to allow for eg convertible securities.

(c) We continue to propose other changes to the crowdfunding exemptions across Canada. We argue that many restrictions are not justified by the risks. Their only effect is to restrict or prevent start-ups in Canada. (To the extent that the BCSC continues to be of the view that those prescriptive requirements are justified by the risks, we ask that the analysis be made public so that we can more effectively respond.)

Our main recommendations for regulatory change across Canada remain:

  • harmonize crowdfunding/start-up requirements across Canada
  • permit advertising and general solicitation (or make it easier)
  • increase the threshold for required review or audited financial statements
  • allow accredited investors to fully participate (without caps)
  • eliminate retail investor caps (or at least increase them)
  • provide a reasonable sunset clause for audited financial statements
  • increase the period for filing of the distribution reports.

 

Online lending

Although the staff of securities regulators in Canada, including the BCSC, have supported the development of peer to peer (P2P) lending platforms such as Lending Loop, there are fundamental aspects of the securities regime that are not well suited to regulating what is in substance a loan brokerage activity linking lenders (investors) with small and medium sized business (SME) borrowers under a simple loan agreement.

We call for the establishment of a regulatory regime that recognizes and accepts that the activities of P2P lenders (and simple loan agreements) are inherently different from equity investments and should be regulated differently.

We ask that CSA examine and adopt the regulatory models in other jurisdictions such as the UK and New Zealand where frameworks were developed specifically for P2P lending (see https://fma.govt.nz/compliance/role/peer-to-peer-lending-providers/). Secu- rities regulators should exempt P2P lenders from securities legislation on the condition that they comply with provisions designed for P2P lenders.

A new regulatory paradigm should improve a lower rate of adoption in Canada than seen in other jurisdictions where P2P and B2B have provided significant economic stimulus by supporting the growth of the SME sector.

 

2. The BCSC asks whether it should make changes to the regime that would increase differences with other jurisdictions.

Since the changes would (presumably) reduce burden, the answer has to be, in principle, yes. The benefit should outweigh the cost (if any).

 

3. What is the likely impact of ICOs on existing crowdfunding opportunities?

There are similarities and differences between traditional crowdfunding and ICOs in terms of mod- els, regulations, ownership, usage, and liquidity to name but a few. However, they both seek to use technology to raise early stage capital for new products/services and ven- tures while allowing a wider pool of investors to participate.

We view ICOs and tokens as the next generation of crowdfunding using DLT and de- centralized models that improve liquidity and contract reliability in ways that traditional crowdfunding platforms cannot achieve. For example, ICOs can reduce or eliminate the need for transactions to be verified by third parties via decentralized networks that are in a way self-regulating. Blockchain allows smart contracts/tokenization that can automate and execute pre-agreed conditions once they are met.

All stakeholders are assessing ICOs and the risks associated with them in a rapidly evolving market that has unfortunately also attracted the interest of many speculators whose primary concern is not necessarily compliance or honest behaviour. This has not been a major concern with traditional crowdfunding. Nevertheless we are seeing the emergence of best practices from KYC and AML processes to governance and trans- parency standards. We expect this trend to continue. See the recent ICO best practice document from the Hong Kong FinTech Association.

On the one hand we urge regulators not to over-react to risks of financial crime and poor operating behaviour by ICOs (but to deal firmly and expeditiously with either under existing laws). It would be a mistake to substitute over-regulation for (for example) inad- equate criminal enforcement. On the other hand, we urge ICOs to improve their self- regulation so regulators can be less concerned about the risks. We recognize that if ICOs do not themselves improve, then they can expect regulators to tighten up.

Meanwhile, regulators should strive not to unduly delay applications for exemption by existing dealer licensees who have built up appropriate operating practices and who would like to manage the distribution of ICOs across all jurisdictions.

If ICOs are regulated appropriately and a vibrant market develops, then they will likely supersede many of the investment crowdfunding models in the market today.

As with traditional crowdfunding, if ICO regulation is too costly, then companies, in- vestors, and infrastructure providers will move to foreign markets and jurisdictions that offer more facilitative and supportive capital raising. Lack of certainty is also driving ICOs to other markets. Canadian issuers and investors both need more guidance, soon, on the regulatory approach(es) in Canada.

 

4. What kind of educational/awareness outreach opportunities or mechanisms should BCSC be considering?

The Financial Consumer Agency of Canada has taken the lead on financial literacy with good results. They may be best placed to take the lead on education and awareness of crowdfunding and innovation finance. One body should be working with regulators, the private sector, and others for consistent online/offline educational programs, developing and tracking key metrics, benchmarking, and participating in research initiatives. We should be working together to do more and not wasting resources by re-inventing the wheel.

 

Part 4 - Online advisers

We leave this section for response by our members.

 

Part 5 - Cryptocurrency funds

Given the present uncertainties, we advocate a wait and see approach (as in the UK - https://www.coindesk.com/uks-fca-chief-warns-bitcoin-investors-be-prepared-to-lose- your-money/. Regulators should not hastily impose more requirements where they quite possibly are not needed. We commend BCSC for its more open attitude to cryptocurrencies.

NCFA also supports the creation of a Canadian crypto task force - https://cointele- graph.com/news/britain-introduces-crypto-task-force-to-foster-fintech-innovation. It is extremely important that stakeholders collaborate, that Canada remain in synch with important jurisdictions, and that regulation is essentially global.

 

Part 6 - ICOs and cryptocurrencies

  1. At this point in the evolution of the ICO markets, we think that the exemption power is sufficient, along with general warnings to investors about the risks of both regulated and unregulated ICOs. It is not obvious to us that new regulatory requirements are needed. What is obvious is the need for close collaboration among regulators and the industry across Canada and globally, and firm enforcement of existing laws.
  2. We do not comment on the variables listed. The main point here that Canada must remain broadly in synch with important jurisdictions such as the USA , Australia, New Zealand, Singapore, and the UK.

 

Part 7 - Fintech regulation in the future

34/35. The NCFA supports a 12-month exemption similar to the ASIC exemption, with similar safeguards.

36.  The NCFA has already provided its views to the BCSC on regulatory requirements or approaches that stifle innovation and how they should be removed or changed.

39 to 42. We support the risk-based approach of the UK Financial Conduct Authority where data collection and analysis are also a priority.

Regulators, governments, and other stakeholders in Canada should be closely following what more advanced regulators (and markets such as the UK, Australia, New Zealand, China, and Singapore are doing). These jurisdictions are well ahead of us.

Most studies of fintech around the world assert that collaboration among regulators, governments, and with the private sector needs to improve. Without improved collabora- tion, and without an over-arching strategy for innovation, both regulation and the mar- kets in Canada (overall) will remain sub-standard.

 

Other points

The BCSC Notice states that BC’s start-up ecosystem has been ranked among the strongest in the world. Although we agree that the regime is more supportive of start-ups than in other Canadian jurisdictions, it would be helpful to know who has provided this ranking (and to see the data that supports it).

It is a constant struggle in the start-up ecosystems in Canada to gain access to data and analysis about what is going on the markets of the provinces and across Canada as a whole. Smart regulation and meaningful cost/benefit analysis is impossible without it.

We lag far behind the UK and others in data collection and analysis. To provide one ex- ample of how this is problematic, the BCSC Notice states that “respondents noted the limited risk appetite among BC investors and pool of available capital in BC as signifi- cant non-regulatory barriers to growth and development”. We wonder whether better data would support that conclusion. Our members do not perceive that BC investors are inherently risk averse. Rather they may lack education or awareness about investing in innovation and fintech, but are keen once they learn and feel more comfortable with the ecosystem. (We have explained in earlier submissions that certain regulatory changes would actually help investors to manage/spread their risks.)

At Globe Forum 2018 in March, Canadian capital providers noted that their Canadian investments in innovation were limited less by the lack of capital and more by the lack of good projects coming up through the system. This suggests to us that start-ups are blocked by the costs of start-up in Canada, rather than lack of capital as such. But we do not have the hard data to back this up.

We very much support the creation of the BCSC Tech Team and have been impressed by the team’s willingness to learn, to talk openly with our members, and to provide guid- ance to entrepreneurs where appropriate. The BCSC has become an increasingly valuable sponsor and participant at NCFA conferences such as VanFunding.

We are encouraged by BCSC and OSC collaboration with other regulators to improve the sandbox in a way that is consistent with other jurisdictions such as the UK and Aus- tralia, and by efforts to harmonize regulatory approaches to licensing and guidance across CSA. However, we repeat the NCFA’s recent submission to Finance Canada where we said -

The NCFA urges the federal and provincial governments, as well as the provincial and territorial securities regulators, to work together with the private sector on a strategy:

  • to reduce regulatory burden,
  • to champion innovation,
  • to make good use of proven tax and other incentives, and
  • to ensure adequate data collection and analysis, as well as education and awareness.

April 2018

Download the PDF submission --> here

 

The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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Australia and UK set up FinTech Bridge to deepen collaboration between governments, regulators, and industry bodies

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OpenGov Asia | Priyankar Bhunia | March 26, 2018

The Australian Treasurer, the Hon Scott Morrison MP, and UK Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, signed an agreement in London on 22 March, 2018 to establish a FinTech bridge.

The UK-Australia FinTech Bridge will deepen collaboration between governments, regulators, and industry bodies in the two countries. It will also support improved access for Australian FinTech firms to the UK market.

The FinTech Bridge includes collaboration between Australian and UK governments to identify emerging FinTech trends and policy issues, enabling better policy positions. Regulatory expertise will be shared between Australia and the UK, through closer cooperation between the Australian Securities and Investments Commission (ASIC), Australian Transaction Reports and Analysis Centre (AUSTRAC)  and the UK’s Financial Conduct Authority (FCA).

The regulatory authorities will facilitate the entry of FinTech start-ups into each jurisdiction’s regulatory sandbox and explore opportunities for quicker licence processing for FinTech firms that are already licenced or authorised in the other country.

Joint projects will also be undertaken to identify shared approaches and identify links between Australia and the UK.

See:  FCA: Regulating innovation: a global enterprise

Austrade and the UK’s Department for International Trade (DIT) will provide support for FinTech firms looking to expand into the other market. This support includes providing bespoke advice and mentorship to FinTech firms looking to expand into the UK or Australia. They will also provide a ‘one stop shop service’ to enable firms to access legal, regulatory and practical advice about setting up in a new market.

Matchmaking events, meetings and networking opportunities will be facilitated for companies with potential partnership prospects, and introductions to investors will be provided, assisted by specialist teams at Austrade and DIT.

The collaboration also includes promoting engagement between Australian and UK FinTech sector bodies, led by FinTech Australia and the UK’s Innovate Finance, to discuss collaboration opportunities between FinTech businesses.

UK FinTech firms generate £7 billion in revenue annually, employ over 61,000 people and in 2017 raised £1.3 billion of investment. Investment in Australian FinTech in 2016 reached a high of over US$656 million. Australia is also the second largest alternative finance market in the Asia Pacific. Australia’s supportive regulatory settings and high rate of FinTech adoption presents an attractive market for the launch and expansion of FinTech products.

In his speech at the International FinTech Conference, Mr Morrison said, “Thanks to the support of Austrade and the UK’s Department of International Trade, the Bridge will give businesses tailored assistance to navigate the complexities of operating in a foreign market, such as connections for legal, regulatory and practical advice about setting up between the two markets.”

“These agencies will give FinTechs a networking leg-up, while a collaboration between FinTech industry groups will facilitate stronger business-to-business links in the sector. This is a critical aspect needed to foster development in this fast-paced sector.”

Continue to the full article --> here

 


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

 

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FCA: Regulating innovation: a global enterprise

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FCA - Financial Conduct Authority, UK | March 19, 2018

Speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at Innovate Finance 2018.

Speaker: Christopher Woolard, Executive Director of Strategy and Competition
Location: Innovate Finance 2018, The Guildhall, London
Delivered on: 19 March 2018

Highlights:

  • Collaboration with international colleagues has been a core part of the FCA’s FinTech story since we launched Project Innovate in 2014.
  • Our regulatory sandbox is supporting firms in reducing the time and cost of getting innovative ideas to market.
  • We’re increasingly hearing a demand from firms to operate internationally, so we’re working with partners from around the world to consider options for a global sandbox.
  • The potential of such a project is huge – from solving global problems like money laundering to reducing the regulatory burden of compliance.

Note: this is the speech as drafted and may differ from delivered version.


FinTech is one of those industries that we can genuinely call a global community. The international dimension of FinTech is inextricable from its success as a sector. And for the FCA as a regulator, the degree to which we seek to work with international colleagues is a defining feature of our work in this space.

In previous years, I’ve had the opportunity to talk here about our innovation work and the launch of our regulatory sandbox. We have worked with over 500 firms through FCA Innovate and around 70 in depth in our sandbox. This has been one of the largest and most complex regulatory sandboxes in the world, involving firms from Singapore, the US and South Africa, amongst other countries. So, as we look to the next stage of our innovation journey, it is only natural that international cooperation should be a key part of the picture.

Today I’d like to talk about this vision and the role that the FCA will play in it.

Future innovation

As many here will know, our innovation story began in 2014 with the launch of Project Innovate. The purpose of Innovate was and remains to help firms tackle regulatory barriers to innovation, be it through clarifying regulatory expectations, examining our own rules or enacting policy changes, to give them space to innovate in the interest of consumers.

We found that the risk of not opening up markets to innovation was bigger than the risk of taking that leap.

Central to this is our regulatory sandbox, a ‘safe space’ where businesses can test innovative products, services, business models and delivery mechanisms in the real market, with real consumers.

See:  NCFA: Canada Needs a Harmonized Securities Environment as Current Provincial Approach is a Fintech Innovation Killer

We were the first regulator to attempt a project of this type. And in order to make it work we had to change perceptions about the role of the regulator – for both firms and ourselves. We had a big job to do to ensure firms found us easy to work with and knowledgeable about the challenges they face in bringing new products to market.

The shift in mindset that was required was significant too: from the traditional regulator’s standpoint of ‘what is the risk?’ to asking ‘what is the risk of not doing this?’ And when we asked ourselves that question we found that the risk of not opening up markets to innovation was bigger than the risk of taking that leap.

The sandbox has been as much an experiment for us as it is for the firms themselves. But, I have to say, for a calculated risk, this bet has really paid off. Since we launched the sandbox in 2016 we have supported firms in reducing the time and cost of getting innovative ideas to market. In fact, 90% of firms from our first round of applications have gone on to market, with many firms finding it easier to get funding as a result of participating in the sandbox.

We’ve seen take-up by large firms as well as start-ups, who may not have had the confidence to try new approaches without the security of the sandbox. And through sandbox firms being closely supervised in their test phase we’ve learnt an enormous amount about how new technologies are being applied.

So we know this approach is working. The question is, is it enough? Over the last couple of years, we’ve seen a trend emerge which has become impossible to ignore. Increasingly we’re hearing from firms a demand to operate globally, to grow at real scale and pace. This would involve working with other regulators across the globe to conduct tests at the same time.

Our whole history with Innovate has been about doing things that regulators historically haven’t done.

Through the sandbox we’ve seen 30 applications from international firms and have gone on to support 11 of them – many of which are also in other countries’ innovation programmes. It’s clear which way the wind is blowing.

Nor is international collaboration around FinTech new to us. Over the last few years, we’ve signed ten cooperation agreements with eight different jurisdictions, allowing us to share market trends, collaborate on projects and refer innovative firms across markets.

But currently there is no joint sandbox programme with other regulators for firms to participate in. Such a project represents new territory. Breaking new ground requires an element of risk, not something, as I’ve said, that regulators are generally comfortable with. But our whole history with Innovate has been about doing things that regulators historically haven’t done.

To face those risks, we have to ensure we have the right controls, all the while bearing in mind the risk of not acting. So we’re up for the challenge.

Naturally, though, we want to do our homework. That’s why last month we invited stakeholders to share their views on what a global sandbox could look like. The responses – from regulators to start-ups, challengers to large firms, trade bodies to think tanks – make for fascinating reading.

As expected, there is lots of interest in the idea of cross-border testing; in the benefits this could bring, such as reducing cost and complexity, and accelerating expansion into other jurisdictions – especially for smaller firms who are keen to expand internationally.

See:  SCC hears Canada and Quebec AGs arguments on national securities regulator

In terms of the jurisdictions that respondents are keen to see included, the US featured high up the list. South America, Australia, Hong Kong, Singapore and Europe also made an appearance. African countries, like South Africa and Kenya, also featured in a number of responses. This should come as no surprise when you consider how new models of banking have grown up there.

When it came to how a global sandbox might work in practice we saw some really creative suggestions coming through – from a ‘global dictionary’ which covers data needs across different countries to a joint mission statement from participating regulators with agreed criteria and consumer safeguards.

And overseeing it all, it was suggested, could be a ‘college of regulators’ – a consortium of representatives from participating regulators, something that corresponds with our own thinking.

So, what do we think?

  1. We should be practical. Establishing a global sandbox is an immense undertaking and we have to be realistic about the task at hand. In some quarters, there could be an aspiration for global standards. The logic is clearly there, but my strong suspicion is that it would take twenty years to negotiate and in a fast-moving market would be nineteen years and six months out of date when we got there.
  2. We should work with and through international bodies where we can – we are already working closely with international colleagues in IOSCO, for example. To avoid running before we can walk, we might want to start with those jurisdictions which already have established sandboxes or innovation hubs.
  3. The model should allow some room for us to experiment with what works. So we could see a range of sandbox tests. For example, a single test in one country collecting data for multiple interested regulators. Or simultaneous testing in more than one country.
  4. The membership should be flexible. We should not assume that all regulators would be engaged in every test, although we should, of course, share knowledge and learning widely.
  5. Most of all - the key to all of this is collaboration – this has to be a joint effort across international regulators, not a UK global sandbox.
Collaboration will run through the next chapter of the UK’s FinTech story like a stick of rock

Because, clearly, we can’t do this alone. While we may be the ones kicking off the discussion, we won’t have much success if we’re just talking to ourselves. So now is the time to bring fellow regulators around the world into the conversation. In fact, collaboration will run through the next chapter of the UK’s FinTech story like a stick of rock.

Later this week we start work with interested regulators, including colleagues across Europe, the US and Far East, on a blueprint. So there’s real momentum behind this and we hope that before long the ambition of a global sandbox will be a reality.

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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NCFA: Canada Needs a Harmonized Securities Environment as Current Provincial Approach is a Fintech Innovation Killer

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Crowdfund Insider | | March 25, 2018

There is an ongoing debate in Canada regarding the regulatory approach to financial services. As it stands today, thirteen different financial regulators hold sway when it comes to securities compliance instead of a single national regulator. To the casual observer this makes absolutely no sense at all. Creating an environment where securities laws are not harmonized within the boundaries of a single country adds unnecessary costs to society and is a burden on the populace. It is also an innovation killer. So why not address the problem head on and change things to reflect the need? Well, that’s politics for you. The thirteen provinces have an entrenched hierarchy and bureaucracy. Why would they want to vote themselves out of existence even if it is to the benefit of the country?

Under Discussion Since the 1970s

Recently the National Crowdfunding and Fintech Association of Canada (NCFA) participated in a discussion with Finance Canada in Ottawa that called for urgent regulatory change.

The representatives of the NCFA stated:

“Canada is falling behind international comparators such as the United Kingdom and the United States. Entrepreneurs are reluctant to start up in Canada due to the high costs (relative to a small financing), and significant ongoing regulatory burdens. Investors are inhibited by caps on investment and limited education about  the  benefits  and  downside  risks  of  crowdfunding  and  other  exempt financings. This pushes many talented entrepreneurs and investors to overseas jurisdictions that better understand (and support) innovation and the economic potential of start-ups and small businesses.” [Emphasis added]

The NCFA understandably desires streamlined regulation across the country and is asking the federal government to work with the provinces to enhance Canada’s competitiveness. Makes sense, right?

But this is a debate that has been ongoing since the 1970s. It appears Canadians do not want to move too quickly when it comes to boosting Fintech innovation.

See:  Ontario to ease regulations on financial startups

In a post last week in Canadian Lawyer, the political blocking by those opposed to a harmonized financial regulatory environment was explained;

“A national securities regulator is intended to consolidate the provincial and territorial securities regulators to better assess and minimize systemic risk in capital markets and to improve regulatory enforcement. The effort to establish such a regulator — which has been ongoing since at least the 1970s — has suffered a series of delays and roadblocks. In May, the Court of Appeal of Quebec ruled that the proposal for a Cooperative Capital Markets Regulatory System, which is to date supported by six jurisdictions — Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick and the Yukon — but opposed by Quebec and Alberta, is unconstitutional.”

Fiefdoms and Empires

Of course, any creation of a national securities regulator will reduce the import of provincial agencies. In fact, it may eliminate the need for a provincial securities regulator at all. And if you happen to be a longtime employee of a provincial securities regulator, how would you feel about that?

The Supreme Court of Canada is in the midst of a case addressing this issue. In brief, this is the summary of the case;

  • Does the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the “Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System”?
  • Does the most recent version of the draft of the federal “Capital Markets Stability Act” exceed the authority of the Parliament of Canada over the general branch of the trade and commerce power under subsection 91(2) of the Constitution Act, 1867?
  • The majority of the Court of Appeal answered “no” to the first question, finding that the Constitution of Canada does not authorize the implementation of the regulation at issue under that model. It also answered “no” to the second question, as it was of the view that the most recent version of the draft of the legislation is not beyond the jurisdiction of Parliament, except with respect to its sections 76 to 79 concerning the role and powers of the Council of Ministers which, if not removed, render the act unconstitutional as a whole.

The NCFA is diplomatic in their advocacy urging the federal and provincial governments, and securities regulators, to work together. It is the mission of securities regulators to not just protect investors but to foster capital formation, innovation, and competition.

So what is the solution? Shouldn’t the provincial regulators be rolled up into a single operation to the benefit of all of Canada? Why keep thirteen when one is needed in a country with a population of about 37 million (less than California)?

According to Bruce Ryder, an associate professor and public law expert at Osgoode Hall Law School, who is quoted in the Canadian Lawyer write up, the Supreme Court should view a pan-Canadian system more favorably. He says the “worst case” is where the Supreme Court fudges things and just makes “modes tweaks”.

“Quebec and Alberta don’t have to be on side; there’s nothing that compels them to agree to this regime. The political question will be, can we persuade them [to] join? Or, if we can’t, should we go ahead with national scheme that can operate in most of provinces?”

Canada is not alone in a byzantine financial regulatory environment in an age where the internet can make everything more transparent and easier to monitor. While the US benefits from a federal regulator in the Securities and Exchange Commission, its efficacy is undermined by 50 state regulators creating a costly environment of compliance for Fintech startups.

But globally, it would appear regulatory harmonization is the future. Recently, the European Commission proposed a “Fintech Action Plan“.

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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SCC hears Canada and Quebec AGs arguments on national securities regulator

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Canadian Lawyer | Elizabeth Raymer | March 22, 2018

The Supreme Court of Canada heard the appeal today in Attorney General of Canada, et al. v. Attorney General of Quebec regarding the constitutionality of the implementation of a pan-Canadian securities regulation.

A national securities regulator is intended to consolidate the provincial and territorial securities regulators to better assess and minimize systemic risk in capital markets and to improve regulatory enforcement.

The effort to establish such a regulator — which has been ongoing since at least the 1970s — has suffered a series of delays and roadblocks. In May, the Court of Appeal of Quebec ruled that the proposal for a Cooperative Capital Markets Regulatory System, which is to date supported by six jurisdictions — Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick and the Yukon — but opposed by Quebec and Alberta, is unconstitutional.

In its May 10th decision, Quebec’s appellate court answered “no” to the question of whether “the Constitution of Canada authorize the implementation of pan-Canadian securities regulation under the authority of a single regulator, according to the model established by the most recent publication of the ‘Memorandum of Agreement regarding the Cooperative Capital Markets Regulatory System.’”

As to the second question put before it — whether the most recent version of the draft of the federal Capital Markets Stability Act exceeded the authority of the Parliament of Canada over the general branch of the trade and commerce power under s. 91(2) of the Constitution Act, 1867 — the Court of Appeal answered “no” to it as well. It found that the most recent version of the draft of the legislation was not beyond the jurisdiction of Parliament, except with respect to its ss. 76 to 79 concerning the role and powers of the Council of Ministers, which, if not removed, would render the act unconstitutional as a whole.

See:  NCFA Canada’s submission to Finance Canada (March 2018): Urgent Need for Regulatory Change and Government Support

Before the Supreme Court today, Francis Demers, representing the respondent Attorney General of Quebec, told the justices that the authority of the Council of Ministers, who would be drawn from each participating jurisdiction, “violates parliamentary policy” and would constitute “an abandonment of sovereignty.”

“This entity, Council of Ministers . . . could initiate legislative amendments for us; this is unprecedented,” Demers said.

He argued that a division of powers between federal and provincial governments had already been established and that, in essence, the Council of Ministers would have authority over matters of provincial jurisdiction.

Michael Conner, representing the intervener Attorney General of Manitoba, argued that federal or pan-Canadian power over capital markets should be restricted to dealing with financial crises.

But François LeBel, acting for the intervener Institute for Governance of Private and Public Organizations, said the goal of the proposed regulations was not to regulate securities, but rather the risks they represent.

“We need to have someone who looks at the system as a whole, and intervenes at that level,” he said.

A bid to establish a national securities regulator has been on the table for a long time, says Bruce Ryder, an associate professor at Osgoode Hall Law School, who studies public law and contemporary constitutional issues.

“There’s been a long history to the debate,” Ryder told Legal Feeds. “We’ve been discussing since the 1970s how to have a national securities regulator to replace the 13 systems that exist now or at least to make [regulation] consistent.”

The Harper government drafted legislation that was pushed to the Supreme Court of Canada for reference, resulting in its 2011 opinion, says Ryder. The SCC found that securities regulation was an area of divided jurisdiction and noted that systemic risk in capital markets can affect trade. In most jurisdictions that trade, securities regulation falls within provincial jurisdiction, and it has done so for a century.

See:  Self-regulation: Is it time?

“So, they said a uniform national securities act was unconstitutional because it went too far” and that a national securities regulator should involve a co-operative scheme between the provinces and federal government.

A “worst-case scenario” is that the Supreme Court will suggest some modest tweaks to the proposed scheme going forward, meaning the path to a national securities regulator will be clear, says Ryder. “Quebec and Alberta don’t have to be on side; there’s nothing that compels them to agree to this regime. The political question will be, can we persuade them [to] join? Or, if we can’t, should we go ahead with national scheme that can operate in most of provinces?”

In its 2011 opinion, the SCC said that “it shouldn’t be either federal or provincial, but you need co-operative solutions that meet needs of country as a whole. They noted they had typically been supportive of co-operative schemes that involve both federal and provincial legislation,” Ryder says, the marketing of agricultural products in Canada, which — in the case of eggs and chickens, for example — is done through national boards, and the regulation of inter-provincial trucking are two examples of this.

“I think the Supreme Court will be enthusiastic . . .  and take a friendlier perspective than Quebec did” to implementing a co-operative regulatory system, Ryder says.

Andrew Bernstein, a litigator with Torys LLP in Toronto whose practice includes public law, says that “there’s some fundamental assumptions and conclusions drawn by the Quebec Court of Appeal that appear to be inconsistent with the structure of the Cooperative Capital Markets Regulatory System.”

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

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