Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Blockchain, Crypto, Digital Assets Regulations
Industry warns Congress the U.S. risks ‘chilling’ regulations on crypto
Reuters | Pete Schroeder and Katanga Johnson | Dec 8, 2021
WASHINGTON, Dec 8 (Reuters) - Top executives from six cryptocurrency firms told Congress on Wednesday to tread lightly in imposing new rules on digital assets - or risk sending activity underground or outside the United States.
At the hearing at the U.S. House Financial Services Committee, executives leading some of the world's biggest crypto companies indicated in prepared testimony they generally support clearer rules. But they emphasized that overly restrictive ones would not stifle the activity, but merely push it away from U.S. reach.
See: Biden’s report on Stablecoins Misses the Mark
"Without tailored legislative solutions that are openly debated with public participation, the United States risks unnecessarily onerous and chilling laws and regulations," warned Alesia Haas, chief executive of Coinbase Inc, in testimony released on Tuesday. "This could effectively push crypto activity underground or to offshore exchanges that have little or no compliance programs."
Representative Maxine Waters, the Democrat who chairs the panel, said there are "several questions" about the need for new rules for crypto, and also highlighted concerns about significant energy usage to mine and trade cryptocurrency.
"Cryptocurrency markets have no overarching or centralized regulatory framework, leading investments in the digital assets space vulnerable to fraud, manipulation and abuse," she said.
To the contrary, Representative Patrick McHenry, the top Republican on the panel, urged lawmakers to seek ways to boost cryptocurrency with sufficient safeguards. "We should embrace it, we should understand it, and we should be international leaders in this space," he said.
See: The Infrastructure Investment and Jobs Act’s Attack on Crypto
Executives said they would welcome regulatory clarity, but that overly restrictive rules could prove counterproductive.
"Stablecoins and internet-native capital markets are not too big to fail, but they are now too big to ignore," said Jeremy Allaire, CEO of Circle Internet Financial. "Policy frameworks need to support an open and competitive playing field, and allow new technologies to flourish."
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Crypto lobbying is going off the charts
The Economist | Dec 7, 2021
BETWEEN 2017 and mid-2021 the Commodities Futures Trading Commission (CFTC) was one of the American government agencies that discussed crypto the most. Brian Quintenz, who ran its Technology Committee, was responsible for much of that, organising presentations on everything from the integrity of bitcoin spot markets to the subject of decentralised finance.
“I developed a reputation as being...an advocate of innovation,” he says.
See: Cryptocurrency executives called to testify in Congress Dec 8
In September Mr Quintenz joined Andreessen Horowitz, a venture-capital firm and an investor in crypto startups, as an adviser. He is only one of many former American officials to have flocked to the cryptoverse. Others include Jay Clayton, the previous head of the Securities and Exchange Commission (SEC); Brian Brooks, who until January was the acting Comptroller of the Currency; and Chris Giancarlo, head of the CFTC between 2017 and 2019. In Britain, Philip Hammond, a former Chancellor of the Exchequer, joined Copper, a crypto startup, in October.
One prong of it has been to lure government officials and compliance experts from banks with big pay packets. Deepali Vyas of Korn Ferry, a headhunting firm, says senior risk managers are typically promised a salary of $600,000-2m; former high-ranking regulators are also locked in with share bonuses worth tens of millions of dollars, which vest over years. The former head of an American regulator, now at a crypto group, says he spends a lot of time meeting lawmakers and civil servants.
See: Over 400 SEC new enforcements in 2021 including Crypto, Dark Web, DeFi targets
The industry is also hiring lobbyists. Based on public disclosures The Economist calculates that crypto firms spent around $5m lobbying the American Senate in the first nine months of 2021. About $2.5m of that was spent between July and September—a quadrupling over the same period last year. Such activities employ the equivalent of 86 full-time staff, up from just one in 2016. Coinbase, a big crypto exchange, doled out $625,000 on lobbyists in the third quarter alone. Block, a crypto-friendly payments firm, has spent more than $1.7m since April 2020. The campaign is also ramping up in Brussels, the EU’s de facto capital, where the industry has deployed the equivalent of 52 full-time lobbyists.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Craig Wright wins dispute over 1.1 million BTC: Not Liable Kleiman Business Partnership Breach
CTV News | AP Business Writer Ken Sweet | Dec 6, 2021
NEW YORK - Craig Wright, a computer scientist who claims to be the inventor of Bitcoin, prevailed in a civil trial verdict Monday against the family of a deceased business partner that claimed it was owed half of a cryptocurrency fortune worth tens of billions.
A Florida jury found that Wright did not owe half of 1.1 million Bitcoin to the family of David Kleiman. The jury did award $100 million in intellectual property rights to a joint venture between the two men, a fraction of what Kleiman's lawyers were asking for at trial.
“This was a tremendous victory for our side,” said Andres Rivero of Rivero Mestre LLP, the lead lawyer representing Wright.
See: Did Satoshi Nakamoto’s Plan a Blockchain BTC Treasure Hunt?
David Kleiman died in April 2013 at the age of 46. Led by his brother Ira Kleiman, his family has claimed David Kleiman and Wright were close friends and co-created Bitcoin through a partnership.
At the center of the trial were 1.1 million Bitcoin, worth approximately $50 billion based on Monday's prices. These were among the first Bitcoin to be created through mining and could only be owned by a person or entity involved with the digital currency from its beginning - such as Bitcoin's creator, Satoshi Nakamoto.
Now the cryptocurrency community will be looking to see if Wright follows through on his promise to prove he is the owner of the Bitcoin. Doing so would lend credence to Wright's claim, first made in 2016, that he is Nakamoto.
The case tried in federal court in Miami was highly technical, with the jury listening to explanations of the intricate workings of cryptocurrencies as well as the murky origins of how Bitcoin came to be. Jurors took a full week to deliberate, repeatedly asking questions of lawyers on both sides as well as the judge on how cryptocurrencies work as well as the business relationship between the two men. At one point the jurors signaled to the judge that they were deadlocked.
See: Bitcoin’s mystery man turns up in the law courts
Wright's claim that he is Nakamoto has been met with skepticism from a sizeable portion of the cryptocurrency community. Due to its structure, all transactions of Bitcoin are public and the 1.1 million Bitcoin in question have remained untouched since their creation. Members of the Bitcoin community have regularly called for Wright to move just a fraction of the coins into a separate account to prove ownership and show that he truly is as wealthy as he claims.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Know Your Customer – and your Obligations – in the age of Real-Time Rails and Open Banking
MinervaAI.io | Jennifer Arnold and Charlene Sebastian | Dec 7, 2021
Canada’s innovation landscape is evolving like never before. With Payments Modernization, Open Banking, and the approval of Canada’s first crypto-asset custodian, Canadian regulators are also stepping up to the plate, ensuring protection for consumers. This means constant and rapid adjustment of regulatory frameworks to ensure regulations reflect the nuances that innovation brings, while addressing customer demand for advanced technology and simplified experiences through leveraging digital options.
That can make it hard for startups and even established organizations to keep up with the changes, let alone ensure that they have the right tools and resources to operationalize complex legislative requirements.
When it comes to compliance for FinTech, Security and Data protection often take the lion’s share of focus and can eat up a significant chunk of capital along the way. For example, the average cost of SOC 2 Type 2 compliance, a precursor for the vendor management process, ranges from $30-40K – not including the costs to get there, which can be well over $100K.
Emerging Retail Opportunities
The mainstream adoption of virtual assets in the retail consumer space (e.g., cryptocurrencies, NFT’s and the like), coupled with modernized payment rails and consumer directed finance, points to a likely increase of entrants into the payments market – a historical “sweet spot” offering for startups. Along with this comes an increased focus on consumer protection while trying to balance innovation and competition.
See: NFTs and The Metaverse for Marketers
This is the driver for the new Retail Payments Activities Act (RPAA), passed on June 29, 2021, and continued updates to the Proceeds of Crime (Anti-Money Laundering) and Terrorist Financing Regulations (PCMLTFR).
What do I need to know?
The RPAA defines the nature of a Payment Service Provider (PSP) and requires PSPs to register with the Bank of Canada who will administer and enforce the RPAA, including financial penalties for violations.
A PSP is defined as “an individual or entity that performs payment functions as a service or business activity that is not incidental to another service or business activity” and covers “any retail payment activity that is performed by a payment service provider that has a place of business in Canada…(or) performed for an end user in Canada by a payment service provider that does not have a place of business in Canada but directs retail payment activities at individuals or entities that are in Canada.”
While there are some exceptions, this aligns directly to the FINTRAC definition of a Money Services Business (MSB) including services dealing with virtual currencies. This evokes the requirement to also register with FINTRAC and directly connects a PSP to the obligations outlined in the PCMLTFR for an MSB. It’s important to note that the PCMLTFR already accounts for Money Services Businesses (MSB’s) and Virtual Asset Service Providers (VASP’s) and has for several years.
If you are unsure whether you fall under these categories, please reach out to us and we’d be happy to review the criteria together.
What are my obligations under the PCMLTFR?
In short, MSB’s must set up a compliance program that consists of knowing your customer (KYC - verifying their identity) and conducting a risk assessment of your customer base to determine the level of due diligence and ongoing monitoring required. Risk assessments should be updated regularly to and in accordance with detailed FINTRAC guidance.
See: Technology Due Diligence Process and Cyber Risks for Fintech Start-ups
In addition to screening for Sanctions compliance and Politically Exposed Persons (PEP), there are multiple reporting requirements depending on the types of transactions conducted and in relation to customer risk. There are also special requirements when certain types of transactions are above a specified monetary threshold.
What’s this going to cost?
It depends. Factors like customer risk, volume, and velocity of transactions weigh into the costs of establishing a compliance program.
...but making sure you get it right, protects you from fines. FINTRAC actively enforces penalties for violations, and if the US and UK examples are any indicator, monetary penalties are positioned to grow. Even a small fine can cripple a smaller firm.
Trust is also a huge factor in influencing retail adoption for new entrants, especially for newer players in the crypto space. An enforcement action can have significant reputational risk, something a startup may never recover from.
Fines in 2021 so far…
What can we do about it?
What we do know is that leveraging established Regulatory as a Service tools like MinervaAI can help you deliver on your obligations and are proven to be much more effective and efficient than traditional methods alone.
See: RegTech: Powering the future of regulation
Firms like MinervaAI are led by professionals with deep knowledge of the regulations, the investigations process, and the machine and deep learning expertise to “plug and play” into your existing technology and process ecosystem. AI innovations coupled with cloud scalability allows investigators to do in minutes, what would traditionally take hours and days to do.
Compliance doesn’t have to be scary or slow down customer onboarding. In fact, having an efficient and accurate risk assessment process upfront, with automated ongoing monitoring behind the scenes, ensures that your customers will be able to transact without interruption.
Request a demo at minervaai.io
Authors:
Jennifer Arnold, CEO and Co-Founder, MinervaAI. Chief Regulatory Nerd and financial crimes enthusiast.
Charlene Sebastian, Head of Client Success and Delivery Enablement, MinervaAI. Obsessed with Data and getting *&^% done.
This article is featured in NCFA's digital magazine, Fintech Confidential (Issue 4 Oct 2021). Click to read the latest thought leadership, insights and trends about Fintech in Canada:
Checkout NCFA's digital magazine, Fintech Confidential (Issue 4) --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Blockchain Vulnerabilities, Forensics And Legal Challenges
McCarthy Tetrault | | Nov 19, 2021
It is often assumed that blockchain based digital currencies and applications are safe and secure. In fact, blockchain ecosystems including cryptocurrencies such as bitcoin and Ether, smart contracts that power a plethora of transactions, and blockchain exchanges have many vulnerabilities.
Like many other financial systems, blockchain based systems are subject to all manner of hacks, frauds scams, and vulnerabilities. They happen at the speed and anonymity of the Internet.
There are, understandably, numerous legal challenges when it comes to obtaining civil remedies for these Internet based crimes. This is as true, and perhaps even more so, for blockchain hacks, scams, and frauds as it is for a whole host of other Internet crimes and wrongs.
Blockchain vulnerabilities, hacks, frauds and scams
There are trillions of dollars invested in blockchain based digital currencies. Bloomberg recently estimated that the cryptocurrency market is now worth more than U.S. $3 trillion. There are well recognized financial risks associated with cryptocurrencies volatility. But, this has not seemed to have dampened the market for these items.
See: Crypto fraud and breaches on pace to exceed $3 billion in 2021
While losses from hacks and vulnerabilities are hard to estimate, by one account hackers have stolen nearly $2 billion worth of cryptocurrencies in the two year period between 2017-2019. Some hacks are by lone hackers, but many are by sophisticated cybercrime organizations. According to a recent article In the MIT Security review, the hype that these assets are unhackable are “dead wrong”. According to the article:
In short, while blockchain technology has been long touted for its security, under certain conditions it can be quite vulnerable. Sometimes shoddy execution can be blamed, or unintentional software bugs. Other times it’s more of a gray area—the complicated result of interactions between the code, the economics of the blockchain, and human greed. That’s been known in theory since the technology’s beginning. Now that so many blockchains are out in the world, we are learning what it actually means—often the hard way. [ii]
As with every other financial system, there are opportunities for fraud. One vector is fraud associated with online marketplaces.
Private key security attacks are also a known means of allowing malicious actors to steal cryptocurrencies. A private key allows individuals to access funds and verify transactions. An attacker who has discovered a vulnerability in an elliptic curve digital signature algorithm, for example, can recover a user’s private key. If a private key is stolen, it is difficult to track any related criminal activity and recover the relevant blockchain asset.[viii]
See: Decentralized Finance—Risks, Regulation, and the Road Ahead
Hackers have also been known to steal the keys to cryptocurrency wallets.[ix]
Of course marketplaces, like almost every other organization in Canada are subject to data breaches from a myriad of sources.
Despite all the security features blockchain offers, individuals and organizations are still susceptible to phishing attacks.
SIM swap attacks are also not uncommon.
Hackers have also been known to exploit technical weaknesses in blockchain systems.
Hackers can also engage in Routing Attacks. Blockchains rely on real-time, large data transfers. Hackers can intercept real-time large data transfers such as by hijacking IP prefixes or dropping connections momentarily, preventing the system from reaching consensus.
See:
Crypto scams, DeFi hacks, and rug pulls: Why the crypto industry needs insurtech
CipherTrace August 2021 Crypto Crime Report: Crypto Fraud Dips as DeFi Hacks Grow
Other examples of technical weaknesses were a cryptographic flaw in the cryptocurency Zcash that could have been exploited to make unlimited counterfeit Zcash and in bitcoin’s main client, Bitcoin Core, that had a flaw that could have let attackers mint more bitcoins than the system was supposed to allow. [xviii]
Research shows that there are also many other security vulnerabilities associated with in smart contracts. [xxi] Other types of attacks include the “Balance Attack” and “Sybil Attacks”. [xxii]
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Over 400 SEC new enforcements in 2021 including Crypto, Dark Web, DeFi targets
Crowdfund Insider | | Nov 19, 2021
A review of the Securities and Exchange Commission’s (SEC) enforcement actions in this fiscal year show a growing threat posed by cryptocurrency and decentralized finance (DeFi) scammers. The year ended Sept. 30.
The SEC filed 434 new enforcement actions in FY2021, and that is a seven per cent increase over FY2020.
Overall, 697 total enforcement actions were filed, including 120 against issuers for delinquent filing and 143 “follow-on” proceedings that sought bars against people for criminal convictions, civil injunctions, or other malfeasances.
Orders for almost $2,4 billion in disgorgement fees and more than $1.4 billion in penalties, the latter a 33 per cent increase, were obtained. A total of $564 million was awarded to whistleblowers.
See: Hester Peirce Says SEC Enforcement is Not the Way to Provide Crypto Clarity
Among the highlights the agency cited were charging Poloniex for operating a digital asset exchange and the BitConnect platform and some top executives in an alleged $2 billion cryptocurrency scam.
They also entered into new areas like SPACs, highlighted by an action against the Stable Road Acquisition Company which alleged, among other things, a former CEO tried to obtain shares worth around $200 million.
More new territory was explored as the SEC charged individuals in decentralized finance. In August, they hit Blockchain Credit Partners with charges they offered unregistered securities which raised more than $30 million.
Then the SEC ventured in the murky areas of the dark web by charging James Roland Jones of Redondo Beach, Cal. With selling “insider tips” on the dark web. To access the dark web and obtain insider information for his own activities, Jones allegedly lied about having non-public information to exchange.
See: U.S. State Department offers $10M to hunt Darkside cyber group
Also in the crosshairs was regulation crowdfunding. On Sept. 20 the SEC charged a trio with concocting a fraudulent plan to sell almost $2 million of unregistered securities via a pair of crowdfunding offerings.
Electronic traders were also caught. On June 29 the SEC announced Neovest, a provider of order and execution management software for electronic trading, agreed to pay $2.75 million for failing to register as a broker-dealer. It was the first such charge by the agency against an OEMS provider.
Prior to being acquired by JPMorgan Chase, Neovest engaged in order routing through its registered broker-dealer, Neovest Trading Inc. The order found that although Neovest withdrew its broker-dealer registration after it was acquired, it continued to operate the OEMS as an unregistered broker-dealer by, among other things, participating in the order-taking and order-routing process and soliciting customers and destination brokers through the firm’s website and direct outreach at industry conferences and trade shows.
See: Crypto fraud and breaches on pace to exceed $3 billion in 2021
“Neovest played a role in determining the routing options that were available to its customers by entering into agreements with the destination brokers,” the SEC said in a statement at the time.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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UK Law Commission confirms Smart contracts are legally sound
The existing law of England and Wales is able to accommodate and apply to self-executing 'smart' legal contracts without the need for statutory law reform, the Law Commission reports today. In a conclusion likely to be welcomed by the government, it suggests that 'an incremental development of the common law is all that is required to facilitate the use of smart legal contracts within the existing legal framework'.
A smart legal contract is a legally binding contract in which some or all of the contractual obligations are defined in and/or performed automatically by a computer program. They are usually secured by blockchain encryption.
The commission’s findings generally echo the conclusions reached by the UK Jurisdiction Taskforce, chaired by the master of the rolls.
See: Will the Law Keep Up with Smart Contracts in 2021?
In its report, the commission encourages the market to anticipate and cater for potential uncertainties in the legal treatment of smart legal contracts by encouraging parties to include express terms aimed at addressing them. Examples of such provisions include clauses allocating risk in relation to the performance of the code, and setting out clearly the relationship between any natural language and coded components.
Professor Sarah Green, Law Commissioner for the commercial and common law team, said: 'Smart legal contracts could revolutionise the way we do business, particularly by increasing efficiency and transparency in transactions.
'We have concluded that the current legal framework is clearly able to facilitate and support the use of smart legal contracts; an important step in ensuring increased recognition and facilitation of these agreements.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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