Category Archives: Research

Advancing a more resilient and proportional banking regulatory framework in Canada

OSFI | March 11 2021

OSFIOSFI launches consultations on Basel III implementation and a new tailored approach to capital and liquidity requirements for smaller, less complex banks

OTTAWA ─ March 11, 2021 Office of the Superintendent of Financial Institutions

The Office of the Superintendent of Financial Institutions (OSFI) plays an essential role in building and preserving resiliency in Canada’s financial system. OSFI’s commitment to implementing the international Basel III Framework has strengthened Canadian banks and improved their ability to handle financial shocks, so they can continue to support economic growth while remaining competitive.

Today OSFI launched an industry consultation on proposed regulatory changes to introduce the latest and final round of Basel III reforms into its capital, leverage and related disclosure guidelines for banks. OSFI’s proposals are in line with the international standards set by the Basel Committee on Banking Supervision (BCBS), while reflecting the Canadian market. Along with these updates, OSFI is proposing changes to enhance proportionality in its capital and liquidity regimes so they remain appropriate for smaller, less-complex banks.

See:  Review: Financial Consumer Agency of Canada (FCAC) submission to Advisory Committee on Open Banking

Enhancing transparency and improving comparability in disclosure requirements

In addition, OSFI is consulting on updates to its Pillar 3 Disclosure Guideline. These proposed changes enhance transparency surrounding the capital, leverage and liquidity positions of Canada’s largest banks while ensuring comparability and consistency with the disclosures of their global peers. Similar but proportional updates are being developed for Canada’s smaller, less-complex banks.

Tailoring capital and liquidity expectations for small- and medium-sized banks (SMSBs)

OSFI is unveiling the SMSB Capital and Liquidity Requirements Guideline, a new guideline that outlines revisions to the capital and liquidity frameworks for SMSBs which are more tailored to reflect the unique attributes of these institutions. OSFI used input from its January 2020 consultative document: Advancing Proportionality to design the new framework.

Questions for SMSBs:

  1. For Category I, II and III SMSBs, if OSFI were to adopt Pillar 3 disclosures from the Basel Framework Disclosure Requirements, which disclosures would be particularly challenging to prepare among the following risk categories:
    • Credit risk
    • Counterparty credit risk
    • Securitisation
    • Operational Risk
    • Remuneration
    • Comparison of modelled and standardised RWA (A-IRB approved SMSBs only)?

    Please provide your rationale.

    OSFI is seeking input on its proposals until June 4, 2021, while consultation on changes to its disclosure guideline is open until July 2, 2021. OSFI will publish a summary of comments with the release of its final guidance in late 2021.

View the original press release --> 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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NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter

 

European Banking Authority Adressing Crowdfunding and Money Laundering, Terrorist Financing Risk

Crowdfund Insider |

Euopean Bank Authority

The European Banking Authority has published a document that addresses anti-money laundering (AML) and counter-terrorist financing (CFT) when it comes to crowdfunding. The guidelines for crowdfunding platforms are incorporated into the Final Report “on customer due diligence and the factors credit and financial institutions should consider when assessing the money laundering and terrorist financing risk associated with individual business relationships and occasional transactions.” The report was part of a consultation regarding KYC requirements.

The first section of the report is described as generic and applying to all firms. The second section, Title II, is sector-specific and designed to “complement” the first section. Specifically:

“[Title II] sets out risk factors that are of particular importance in certain of those sectors and provides guidance on the risk-sensitive application of Customer Due Diligence measures by firms in those sectors. So as to foster greater convergence of supervisory expectations of the measures firms should take to tackle emerging risks, additional sectoral guidelines have been added to the original Risk Factors Guidelines on crowdfunding platforms, providers of currency exchange services, corporate finance, and payment initiation services providers (PISPs) and account information service providers (AISPs). Therefore, in total Title II now contains thirteen sectoral guidelines about very different key financial sectors such as for instance correspondents banking, retail banking, electronic money, money remittance, life insurance and investments firms.” [emphasis added]

The EBA posits that crowdfunding service providers (CSPs) should recognize the risk of the borderless nature of their transactions as customers may be located anywhere in the world, including high-risk locations. The EBA states that CSPs should know their customers as to not be utilized for illicit activities as funds could be used to finance a terrorist attack.

See:  European Union Approves New Crowdfunding Rules that Apply to Member States, Funding Cap Set at €5 Million

The advent of pan-European crowdfunding rules, where an issuer may raise up to €5 million across all EU member states, may have compelled the EBA to address online capital formation in regards to securities crowdfunding.

Continue to the full article --> here

Download the 225 page PDF report --> 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

NCFA Financial Innovation MapNCFA Innovation Opportunity BriefsNCFA Fintech Insights
NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter

 

Latest Trends in 2021 AI Index: Major Growth Despite the Pandemic, Low Diversity, Synthetic Media and Ethical Challenges

HAI - Stanford University | Jack Clark and Daniel Zhang | March 3, 2021

AI Index report 2021

This year’s report shows a maturing industry, significant private investment, and rising competition between China and the U.S.

The last decade was a pivotal one for the AI industry, and 2020 saw AI substantially increase its impact on the world despite the chaos brought about by the COVID pandemic: Technologists made significant strides in massive language and generative models; the United States witnessed its first drop in AI hiring ever – pointing to a maturation of the industry – while hiring around the world increased; more dollars flowed to government use of AI than ever before, while colleges and universities offered students double the AI courses from a few years ago.

These are just some of the findings from the 2021 AI Index, an annual study of AI impact and progress developed by an interdisciplinary team at the Stanford Institute for Human-Centered Artificial Intelligence (HAI) in partnership with organizations from industry, academia, and government.

“The impact of AI this past year was both societal and economic, driven by the increasingly rapid progress of the technology itself,” said AI Index co-chair Jack Clark. “With the AI Index, we can actually measure and evaluate the changes, enabling leaders and decision makers to take meaningful action to advance AI responsibly and ethically with humans in mind.”

The 2021 AI Index is one of the most comprehensive reports about AI to date, analyzing and distilling patterns about AI’s impact on everything from national economies to job growth to the analysis of technical progress within AI research itself, and analysis of the diversity (or lack of) among the people who create AI systems.

See: 

The new index shows that, in 2020:

  • Private investment in AI substantially increased – despite the COVID crisis negatively impacting the economy in other ways.
  • China surpassed the U.S. in significant scholarly work. Chinese-affiliated scholars were cited in more peer-reviewed journals than any other country’s scholars, indicating China’s AI research has increased in quality and quantity. However, the United States has consistently (and significantly) more cited AI conference papers than China over the last decade.
  • Synthetic media, colloquially known as deepfakes, are on the rise, with breakthroughs in the generation of synthetic text, imagery, and video demonstrating the progress of AI but also highlighting the potential for unethical or dangerous use.
  • Ethical challenges of AI applications have become a bigger focus for the AI community, with a significant increase in papers mentioning ethics and related keywords between 2015 and 2020.
  • Diversity in AI is low – in 2019, 45% of new AI PhD graduates who stayed in the United States were white, while 2.5% were African American and 3.2% were Hispanic. AI researchers are forming more affinity groups to try to improve diversity in the field, and these groups are seeing significant growth in their membership and impact: Black in AI members had twice the number of papers accepted at NeurIPS in 2019 compared to 2017, and participation at workshops held by the Women in Machine Learning Group has grown from under 200 participants in 2014 to more than 900 in 2020.
  • Since Canada published a national AI strategy in 2017, other nations have followed, with more than 30 countries committing to national AI strategies by 2020.
  • More AI PhDs took jobs in private industry rather than academia, and professors continued to leave higher education for roles in corporations.

Continue to download the 222 page PDF report --> 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

NCFA Financial Innovation MapNCFA Innovation Opportunity BriefsNCFA Fintech Insights
NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter

 

CB Insights report features over 50 sectors Blockchain is transforming (beyond just banking)

CB Insights | March 3, 2021

Energy management blockchain

The future of blockchain is near and banking isn't the only industry affected.

What began as the basis of cryptocurrencies such as Bitcoin, blockchain technology — essentially a virtual ledger capable of recording and verifying a high volume of digital transactions — is now spreading across a wave of industries.

Blockchain has gone far beyond its beginnings in banking and cryptocurrency: Annual funding to blockchain companies, despite falling from 2018’s record high, more than doubled in 2020 compared to 2017. Annual spending on blockchain solutions will reach nearly $16B by 2023, according to CB Insights’ Market Sizing Tool. Industries from insurance to gaming to cannabis are seeing blockchain applications.

See:  Tokenizing Assets and Unlocking Value on the Blockchain

Bitcoin’s popularity helped demonstrate blockchain’s application in finance, but entrepreneurs have come to believe the tech could transform many more industries. Ultimately, the use cases for a transparent, verifiable register of transaction data are practically endless — especially since blockchains operate through a decentralized platform requiring no central supervision, making them resistant to fraud.

Energy Management

Energy management is another industry that has historically been highly centralized. In the US and UK, to transact in energy one must go through an established power holding company like Duke Energy or National Grid, or deal with a reseller that buys from a big electricity company.

As with other industries, distributed ledgers could minimize (or eliminate) the need for intermediaries. Companies like LO3 Energy are rethinking the traditional energy-exchange process.

See:  Podcast: How blockchain could revolutionize green finance in Asia

LO3 Energy’s Pando product, which runs on the open-source blockchain platform Energy Web Chain, enables utility companies’ customers to transact in “decentralized energy generation schemes,” effectively allowing people to generate, buy, and sell energy to their neighbors.

Other companies have used blockchain as a path toward providing access to renewable energy, too. For example, 2 major Spanish power companies — Acciona Energy and Iberdrola — are using blockchain to certify that energy is clean by tracking its origins.

Charity

For those making charitable donations, blockchain provides the ability to precisely track where your donations are going, when they arrived, and whose hands they ended up in.

From there, blockchain can deliver the accountability and transparency to address the perennial complaints around charitable donations — including the organizational inefficiency (or even financial misconduct) that can prevent money from reaching those it was meant for.

Bitcoin-based charities like the BitGive Foundation use a secure and transparent distributed ledger to give donors greater visibility into fund receipt and use.

See:  What to expect from social fundraising world in 2020

The company has also launched GiveTrack, a blockchain-based multidimensional donation platform that provides the ability to transfer, track, and provide a permanent record of charitable financial transactions across the globe. By leveraging GiveTrack, charities can drive stronger trust with donors.

Gift Cards and Loyalty Programs

Blockchains can help retailers offering gift cards and loyalty programs to make those systems cheaper and more secure. With fewer middlemen needed to process the issuing of cards and sales transactions, the process of acquiring and using blockchain-reliant gift cards is more efficient and cost-effective.  Similarly, increased levels of fraud prevention enabled by blockchain’s unique verification capability can also save costs and help prohibit illegitimate users from obtaining stolen accounts.

One example of a company working in this space is Loyyal, which is innovating to make loyalty incentives more easily exchangeable across different sectors (think multi-branded “Airline/Retailer/Consumer” rewards) by using blockchain to support and verify their value.

Continue to the full article --> 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

NCFA Financial Innovation MapNCFA Innovation Opportunity BriefsNCFA Fintech Insights
NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter

 

Edelman Canadian Trust Report: Trust declines in all sectors including 8% in technology

Edelman | Feb 17, 2021

Trust declines across all sectors

Canada is facing a crisis in leadership

This year, after months of unprecedented disaster and turbulence – including the COVID-19 pandemic, economic crisis, the global outcry over systemic racism and political instability – the findings reveal widespread misinformation and mistrust of societal leaders in Canada.

See: Future Market Dynamics Part 3 – data sharing, trust and a world of choice

In fact, 50% of respondents worry that business leaders are purposely trying to mislead them, and 46% believe the same about government leaders – this is a wake-up call for leaders, who need to take action to build trust amongst their stakeholders, or risk falling behind.

Spring trust bubble bursts with no institution remaining in the trusted category

In the Spring, business, government and NGOs all saw a spike in trust, moving them into the trusted category among the Canadian general population. Since then, the trust bubble has burst, with all institutions giving back most (if not all) of the gains they saw and returning to the neutral zone. Government saw the biggest increase in the Spring with a 20-point increase; however, despite declining 11 points in the past six months, government remains the most trusted institution in Canada.

Societal leaders are not trusted to do what is right

Amid urgent problems and a year of crisis, leadership is failing. Government leaders, CEOs and religious leaders are not trusted to do what is right. Instead, we’re seeing Canadians look to experts and those that are local – like people in their community – to help tackle the issues that matter most to them. In fact, 50% of respondents worry that business leaders are purposely trying to mislead them, and 46% believe the same about government leaders – this is a wake-up call for leaders, who need to take action to build trust amongst their stakeholders.

Trust in most information sources at record lows

Not one information source – traditional media (55%), search engines (47%), owned (32%) or social media (22%) – is trusted in Canada and the latter three are distrusted. All four information sources have witnessed a decline in trust compared to last year.

 

Download the 37 page PDF report --> 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

NCFA Financial Innovation MapNCFA Innovation Opportunity BriefsNCFA Fintech Insights
NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter

 

Review: Financial Consumer Agency of Canada (FCAC) submission to Advisory Committee on Open Banking

FCAC | March 2021

FCAC review 2nd around of open banking consultation

Overview

The Financial Consumer Agency of Canada (FCAC) is a federal financial sector regulator, which oversees federally regulated financial entities’ compliance with consumer protection measures, promotes financial education, and raises consumers’ awareness of their financial rights and responsibilities. In addition, FCAC is responsible for monitoring and evaluating trends and emerging issues that may have an impact on consumers of financial products and services, as well as providing timely and objective information and tools to help consumers navigate financial products and services.

The Advisory Committee on Open Banking (the Committee) shared consultation materials with interested stakeholders, including the FCAC, in fall of 2020.  FCAC welcomes the opportunity to participate in the development of a uniquely Canadian open banking solution that prioritizes the right of the consumer to control their financial data and puts in place safeguards to ensure they are protected from financial and non-financial harm. This submission has been submitted to the Committee for their consideration in the context of their consultations.

See:  NCFA OpEd: Canada’s Open Banking Consultations: Let’s Get it Done!

FCAC is broadly supportive of a hybrid model for open banking that carves out specific roles for government and industry and sets out the building blocks outlined in the Committee’s consultation  materials.  FCAC supports the Committee’s advocacy of a framework centred on several core consumer outcomes:

  • Consumer data is protected;
  • Consumers are in control of their data;
  • Consumers receive access to a wider range of useful, competitive and consumer friendly financial services;
  • Consumers have reliable, consistent access to services; and
  • Consumers have recourse and redress when issues arise.

We strongly recommend adding a sixth core consumer outcome: Consumers benefit from consistent consumer protection and market conduct standards. Based on experiences in other jurisdictions, consumer confidence is necessary for the success of open banking. A core outcome related to market conduct and consumer protection should be explicitly stated to provide assurance to consumers and as a signal to the industry.

This would include the following base level requirements: clear, simple, and not misleading language; no coercion or tied-selling; express consent; and a robust complaints-handling system which prioritizes a fast and seamless process for the consumer.

See:  Digital IDs Help Open Banking Reach Its Fullest Potential

It is inherent in the Committee’s consultation materials that consumers will have meaningful protection; FCAC recommends that the sixth core consumer outcome be added to reinforce this foundational principle. This central focus on consumer issues is critical to enable adoption of open banking and also needs to be ongoing – consumer protection must be embedded in every stage of accreditation, implementation, and in the governance and maintenance of any open banking system. Consumers should continue to receive at least the same level of protection that they currently enjoy, including in terms of liability protection. For example, today consumers are not held liable for unauthorized transactions on their debit and credit cards, provided that they have taken reasonable care to protect their information. FCAC believes that similar protections should apply in the open banking framework.

FCAC recognizes that the time to act is now and acknowledges the positive role that open banking can play in the future Canadian economy. We agree that the risks of the status quo (i.e., screen scraping) will lead to adverse outcomes for consumers.

FCAC has already warned consumers of these risks through a consumer alert and will continue educating consumers on open banking as implementation moves forward. To that end, FCAC plans to publish additional consumer education web content on open banking and fintechs in early 2021.

Summary of Recommendations

FCAC’s consumer protection mandate is exercised in two principal ways: 1) we oversee regulated entities’ compliance with consumer protection provisions, and 2) we educate consumers to improve their knowledge, skills, and confidence in making financial decisions. As a result, FCAC is well-positioned to contribute to the design and implementation of an open banking framework. The following are the main recommendations and issues that FCAC believes would merit further consideration by the Committee.

FFCON21:  7th Fintech & Funding Conference and Expo: Breaking Barriers | May 11-13, 2021

Consumer protection / market conduct standards and consumer recourse

  1. Incorporate legally binding consumer protection and financial inclusion requirements into the accreditation criteria from the outset (e.g., fair access to financial products and services; the requirement and verifiable ability to provide financial redress; policies and procedures related to effective complaint handling; express consent for data sharing and how consumer data will be used; and, communicating product and system disclosures in a manner that is clear, simple and not misleading). These requirements should trigger enforcement actions when non-compliance occurs.
  2. Invest in a national awareness and education campaign focused on open banking to ensure consistent and unbiased messaging to consumers that does not select winners and losers. This campaign should be jointly funded by the industry and government and be coordinated by a respected authority who will employ evidence-based practices. FCAC has the experience and mandate to contribute to and coordinate such a campaign.
  3. Apply stricter accreditation and implementation programs for firms seeking write access. Write access carries greater risks for consumers than read access and therefore should only be allowed when the framework is established and operating effectively.
  4. Apply a liability framework that ensures a single, seamless consumer experience, which does not put the onus on the consumer to navigate the attribution of liability, and provides fast redress / reimbursement for consumers.
  5. Designate a single external complaints body (ECB) for open banking activities and afford the ECB binding resolution authority.

See:  Global Risk Institute Report: Discussing Open Banking Regulation for Canada

Oversight

  1. Careful consideration must be given to the delineation of the role, scope and authority of both the accreditation body and the implementation entity.
    1. It may be appropriate for the accreditation body to be industry-led and responsible for technical standards, particularly in relation to accreditation criteria. It will be important to ensure that consumer issues are adequately represented within this body.
    2. The implementation entity should be a regulator or be under the oversight of a regulator or other appropriate government body. The implementation entity needs to be set up in a way that is transparent, prioritizes consumer interests and protection, and manages conflicts of interests.
  2. Appropriate government oversight of both bodies will be fundamental to consumer confidence, particularly if the accreditation or implementation entity is afforded the authority to establish and enforce rules.  Close monitoring will be required to ensure that the rules and their application do not advance business interests at the expense of consumer protection.

Data access

  1. Given that open banking-type activities are already present in Canada (e.g., screen-scraping), immediate direction is required during the interim period while a framework is developed. This direction should include expected commitments/roles for government and industry, guidance on interim liability allocation and access to redress, how consumer protection will be incorporated, and a sunset date for screen-scraping.
  2. The open banking framework should include barriers to prevent firms performing similar functions from operating without accreditation and under different rules (i.e., by continuing to use screen-scraping).
  3. Reciprocity should be driven by consumer consent; firms should not require reciprocal data access in order to provide a product or service.

Continue to the full analysis --> 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

NCFA Financial Innovation MapNCFA Innovation Opportunity BriefsNCFA Fintech Insights
NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter

 

United States: Virtual Currencies Regulatory Overview (and Comparative Guide)

Bull Blockchain Law LLP via Mondaq| Andrew Bull and Tyler Harttraft  | Feb 22, 2021

virtual currency regulation in the US

In broad terms, which legislative and regulatory provisions govern virtual currencies in your jurisdiction?

In the United States, federal and state regulations and laws govern virtual currencies. While the US Congress has proposed federal legislation over the last two years, Congress has yet to pass any form of legislation directly addressing virtual currencies. Instead, governmental agencies – such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network (FinCEN) – provide guidance through reports and administrative decisions.

See:  Lagarde Says Her ‘Hunch’ Is That ECB Will Adopt Digital Currency

Additionally, US federal courts continually create precedent by applying traditional authoritative statutes through judicial determinations regarding virtual currencies. Overall, a significant portion of the regulatory provisions governing virtual currencies in the United States are from:

  • guidance released by a governmental agency;
  • case-by-case administrative decisions by a governmental agency; and
  • federal and state court rulings.

Which legislative and regulatory provisions govern entities that provide services relating to virtual currencies? Must they be registered or licensed by a regulatory authority?

Companies that issue digital securities must either register with the SEC or find an exemption to the Securities Act of 1933. This typically involves filings with the SEC.

Companies conducting virtual currency transmission are considered a ‘money service business' under the Bank Secrecy Act, and therefore must register as a money service business with FinCEN. Depending on the specific business that the entity conducts, it may also need a money transmitter licence in the state in which it conducts business. For example, Coinbase, one of the largest cryptocurrency exchanges in the world, has money transmitter licences in every state.

See:  Fed Chair Jerome Powell Says Digital Dollar is a High Priority Project

Any company dealing in virtual currency futures in the United States must typically register with the CFTC as a futures commission merchant. This is governed by the Commodity Futures Act.

Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The SEC, the CFTC, FinCEN and the Internal Revenue Service are all federal agencies that possess the administrative power to enforce regulations against entities operating under their respective authority. This authority stems from the federal acts that grant each agency the authority to regulate. In other words, if a company violates a regulation that falls under the authority of one of the governmental agencies, that agency can bring federal administrative proceedings against the entity.

Federal and state courts deal with judicial issues arising in the industry. Courts have the ability to made judicial rulings and set precedent, depending on the court.

The US Congress has yet to provide any legislation in the virtual currency industry.

State legislatures have passed legislation that addresses different aspects of the virtual currency industry.

See:  Privacy laws might prove to be a blessing in disguise for crypto

What is the regulators' general approach to virtual currencies?

The approach is mixed, for lack of a better term. It wholly depends on the governmental agency. For example, the SEC – considered the most active agency regarding virtual currencies – takes an ad hoc approach to issuing fines and punishing companies that violate the Securities Act. In contrast, the CFTC, which possesses similar powers to the SEC in the futures trading context, have not issued nearly as many administrative rulings.

Overall, the United States is considered a strict jurisdiction for conducting virtual currency business, due to the significant amount of regulations and various governmental agencies that each company must consider.

Has there been any notable enforcement action relating to virtual currencies?

Yes. The most recent – and certainly the highest-profile – case to date involves enforcement actions against San-Francisco-based Ripple Labs Inc, the company behind XRP. In December 2020 the SEC filed a complaint alleging that Ripple – along with Brad Garlinghouse and Chris Larsen, both Ripple executives – had raised $1.3 billion in capital for Ripple by selling over 14.6 billion XRP tokens through an unregistered security offering. This case is ongoing.

See:  Canadian researchers develop CBDC digital currency proposal for Bank of Canada

In 2019 the SEC determined that Block.one had violated the registration provisions of the federal securities laws and required the company to pay a $24 million civil monetary penalty. Block.one consented to the order without admitting or denying its findings.

Overall, the SEC has charged around $175 million in total fines to date, while the CFTC has levied about $23 million in fines and other charges.

Continue to the full article --> 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

NCFA Financial Innovation MapNCFA Innovation Opportunity BriefsNCFA Fintech Insights
NCFA Fintech WhispererNCFA Fintech Fridays PodcastNCFA Weekly Newsletter