Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Research
Elliptic Publishes New Research on AI and Money Laundering
AI Research | May 31, 2024
Image: Freepik/macrovector_official
Elliptic's new AI research advances blockchain analytics, enhancing risk detection and transaction analysis
Elliptic, in collaboration with the MIT-IBM Watson AI Lab, has unveiled updated research showcasing the potential of AI in enhancing blockchain analytics, and more specifically using AI to detect money laundering in crypto markets. The study uses deep learning models to identify money laundering activities, using the extensive Elliptic2 dataset comprising over 200 million transactions. This approach not only detects known laundering patterns but also uncovers new, previously undetectable illicit activities.
Instead of concentrating on finding specific unlawful wallets, Elliptic's AI models identify "subgraphs," which are collections of transactions that indicate laundering operations. A more thorough and precise detection of money laundering is possible with this approach. The AI model used in the study demonstrated remarkable performance measures, such as an F1 score of 0.933 and a ROC-AUC of 0.889. The model's effectiveness was validated through practical testing with a cryptocurrency exchange, which correctly detected 14 out of 52 flagged subgraphs as potentially related to money laundering.
See: FINTRAC Guidance on Bitcoin ATMs and Money Laundering
Elliptic has made the Elliptic2 dataset publicly available in addition to its technical accomplishments in order to promote additional study and advancement in the area. By encouraging cooperation and creativity, this openness hopes to improve the identification of illegal cryptocurrency activity. Read the full research paper here.
Final Thought
The creative application of AI in blockchain analytics by Elliptic's new research is a major advancement in the battle against financial crime. Through the utilization of vast datasets and sophisticated artificial intelligence methodologies, this study improves the security and transparency of blockchain transactions.
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, artificial intelligence, 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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Generative AI and Major Human Rights Fintech Risks
GenAI | May 28, 2024
Image: Freepik/rawpixel.com
Key GenAI Human Rights Risks That Fintech Companies Need To Mitigate
As generative AI (GenAI) technologies are increasingly being integrated into fintech companies to create unrivalled opportunities for efficiency and innovation, fintech founders need to develop responsibly and respect the most crucial human rights. B-Tech, a project of the UN Human Rights Office of the High Commissioner has published an informative paper linking these risks to the Universal Declaration of Human Rights (UDHR) in a recent report titled, "Taxonomy of Human Rights Risks Connected to Generative AI". Such risks include threats to privacy, further discrimination and bias, job displacement that leads to economic instability, and an infringement on freedom of expression and access to true information. Below are some key fintech related risks. Let's dig in...
1. Privacy and Data Protection
"No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks." UDHR Article 12
Financial technology companies are processing reams of sensitive personal data. GenAI technology enhances the data analytics, but at the same time, it risks serious threats to privacy. The greatest fears are around the deepfake abuse, unauthorized data scraping, and intrusions into the privacy of personal data.
- The capability of creating convincingly realistic fake content will implicate identity impersonation for the purposes of fraud.
- The malpractice of unapproved data scraping of personal data from social media and other sources is likely to lead to violation of privacy.
2. Prejudice and Bias
"All are equal before the law and are entitled without any discrimination to equal protection of the law." UDHR Article 7
GenAI systems can further highlight, replicate, and amplify training data bias, leading to adverse practices in credit scoring, loan approval, customer service, among others.
- AI-trained models built from biased data sets could unfairly deny loans or credit to certain demographic groups.
- Automated processes and decision making may further exacerbate the already existing socioeconomic inequalities.
3. Right to Work and Economic Stability
"Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment." UDHR Article 23(1)
Potential GenAl applications in fintech may automate even repeatable jobs, thus leading to relocation of employment opportunities. This affects the economic stability and right of gainful living.
- Automation of customer service and compliance positions could see significant job displacement.
- The shift to AI-driven processes will likely expand the economic gap and truly affect a wide range of labour, not just the unskilled
4. Freedom of Expression and Access to Information (Bill of Rights Chapter Four)
"Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers." UDHR Article 19
In fintech, the key is trustworthy information to support making informed decisions based on facts and reliability. AI in its current form might propagate misinformation adversely affecting trust in financial systems and fuelling the flow of incorrect information.
See: CAI’s Draft AI Framework for Human Rights
- A fake piece of financial news produced by AI could fuel market manipulation and investor confidence loss.
- Overreliance on AI for information can lead to a failure to tap multiple, diverse, and reliable sources of information.
What Could Happen If There's a Breach?
A violation of any of these human rights can lead to various forms of recourse:
- Individuals can seek redress under data protection regulations, for example, the General Data Protection Regulation (GDPR) in Europe. This regulation calls for strict privacy protections and tends to impose severely high penalties for non-compliance.
- A breach involving discrimination or bias may trigger anti-discrimination laws, which prohibit unfair treatment on the basis of race, gender, ethnicity, and other protected characteristics.
- A violation of the right to work and economic stability, employees can claim based on employment and labor laws that protect against unfair dismissals or unsafe working environments.
- Financial regulators, such as the SEC in the US have the authority to investigate and litigate fintech businesses on breaches of the financial regulations that have a consumer protection and ethical behavior conduct element.
- Most countries have human rights commissions or kinds of bodies through which the complaints filed are taken to the extent of taking any necessary measures against firms abusing human rights.
See: The Battle for Privacy in the Digital Age
- Filing of class action lawsuits can lead companies to alter unethical practices.
- Another remedy is through individual law suits for recovery of damages due to an injury suffered because of a breach.
- Negative media or influencer publicity would publicly exposed the fintech firm and it would tarnish its reputation, which would press the firm to change its practices. Advocacy groups could also have campaigns for more awareness to make companies accountable.
- Shareholders and investors pressure fintech companies to maintain ethical practices and respect for human rights, leading corporations to shift their policies and practices.
As one can see from the long list above, violated individuals and organizations have a range of channels to seek redress and hold the fintech companies accountable for human rights violations.
How to Proactively Mitigate Human Rights Risks in Fintech
Several best practices that fintech companies and financial institutions might adopt to proactively mitigate these risks of human rights.
1. Implement Ethical AI Guidelines and Conduct Regular Audits
- Adopt and enforce policies that make ethics and human rights the key considerations in the development and application of AI.
- Establish internal review boards for the AI projects to ensure that the projects are within the ethical standards and human rights principles.
- Conduct regular audits of AI systems and algorithms to prevent data from having bias or that algorithms don't further bias the data thus making unfair and discriminatory practices.
See: India Biometric Data Breach Highlights Cybersecurity Risks
- Use privacy impact assessments regularly to prevent data protection and privacy threats.
- Conduct AI operations, decision-making, and policies on the use of data in a transparent manner and publicly report on the use of AI including any measures to mitigate human rights-related risks.
2. Engage Stakeholders and Invest in Training
- Collaborate with human rights industry experts, organizations, and regulatory bodies to keep on top of best practices and evolving standards.
- Engage a diversity of stakeholders, inclusive of customers and affected communities, in the development and review of AI systems.
- Train all employees comprehensively in ethical AI practices, data privacy, and human rights.
3. Data Protection and Inclusive Innovation
- Develop strong management and data security measures to protect sensitive, personally identifiable information from potential breaches and unauthorized access.
- Put anonymization and encryption methods into place for personal data.
- Use diverse training data when developing AI solutions to reduce bias.
4. Establish Clear Recourse Mechanisms
- Stay informed of the laws and regulations in force. Adhere to industry standards and guidelines for the ethical use of AI and fintech operations.
- Prepare, develop, and implement plans to remediate any harm that has been caused by the AI system.
See: NIST Insights: GenAI Risk Management Framework
- Setup clear way to handle complaints and grievances related to the outcomes of the AI systems.
- All leaders in the company must commit to practising and ensuring an ethical corporate culture that encourages ethical behaviour, transparency, and respect of human rights.
Conclusion
Generative AI is a game-changer in fintech but it can amplify potential human rights risks. Companies big and small are advised to proactively mitigate core risks through privacy-first design, elimination of biases through culture, staff training, and ethical leadership and integrity around the processes and information within their organizations. Businesses need to embrace ethical guidelines, be subject to periodic audits, and include stakeholders in the process of building trust and responsibility in the use of AI for financial services.
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, artificial intelligence, 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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Primer on Quebec’s New Data Portability Law
Data Privacy | May 27, 2024
Image: Freepik/rawpixel.com
This September, Quebec's Law 25 mandates data portability rights, impacting organizations handling Quebec residents' personal information
On September 2024, Quebec's Law 25—namely, An Act to Modernize Legislative Provisions as Regards the Protection of Personal Information—will begin, creating a sea change in data privacy regulation that governs all transactions of companies in Quebec. This law intends to increase individuals' control over their personal data and provide additional responsibilities for firms in terms of data processing, transparency, and security. With these looming changes, Law 25 is something a fintech firm must understand now to stay compliant in the future and to deter hefty fines. NCFAs industry partner, Gowling WLG has put together this handy guide called, 'The Right to Data Portability: Everything You Need to Know"
Overview
- Starting September 22, 2024, Quebec individuals will be able to request their computerized personal information in a structured, commonly used format (e.g., JSON, CSV, XML) see Right to data portability, which shall allow them to have their personal data transferred from one company to another. This requires a fintech firm to develop robust systems that enable the transfer of data seamlessly, without compromise to the security and integrity of the data. This affects organizations collecting, using, or disclosing personal information of Quebec residents.
See: The Formation of the Canadian Digital Regulators Forum and its Impact on the Digital Economy and Consumer Privacy
- Non-compliance with Law 25 can lead to severe fines, from $15,000 to $25,000,000 CAD, or up to 4% of the corporation's worldwide annual turnover, whichever is higher. That means failure to fully comply with the new regulations regarding operations for data protection can result in significant financial costs.
- Personal data may not be transmitted to a third country unless a mandatory Privacy Impact Assessment (PIA) has been carried out, the risks have been assessed, and remediation measures have been implemented. This is intended to prevent any risk of breach or misuse of that data.
- The law strengthens requirements for obtaining consent and shall be explicit, informed and collected separately from other stipulations of the general terms of use. Under these conditions, fintech companies must ensure that users are perfectly aware of how their data is going to be used and have the ability to withdraw consent at any time.
- Technological products and services should, by design, provide the highest privacy levels with an onus on the default privacy settings (in other words, 'privacy by default'. This way, it shall ensure that the data of the users is protected from the start and thus reduce any risks attributed to its collection and processing.
Takeaways for Fintech Companies
- Prepare now and ensure systems can export data in required formats
- Implement an efficient process and secure method for handling requests
- Educate and train staff on new requirements and procedures
See: 2023 Data Privacy in North America – Year in Review
- Continuously monitor compliance to avoid severe penalties
- Seek legal advice to fully understand and comply with the law
How Does Law 25 Compare with PIPEDA?
The following is an in-depth comparison of the similarities and differences between PIPEDA and Quebec's Law 25.
| Feature | Quebec's Law 25 | PIPEDA |
|---|---|---|
| Scope and Jurisdiction | Applies to organizations in Quebec and those doing business with Quebec residents, focusing on protecting residents' privacy regardless of business location. | Applies to private-sector organizations across Canada involved in commercial activities, focusing on national-level privacy protection. |
| Consent Requirements | Requires explicit, informed consent, separate from other terms of service, similar to GDPR standards. | Allows for either express or implied consent, depending on the sensitivity of the personal information being collected. |
| Data Portability | Introduces the right to data portability, allowing individuals to transfer their personal data between organizations starting September 22, 2024. | Does not explicitly provide for data portability rights. |
| Privacy by Default | Mandates the highest privacy settings enabled by default, ensuring maximum data protection from the outset. | Does not specifically mandate privacy by default settings. |
| Privacy Impact Assessments (PIAs) | Requires organizations to conduct PIAs before transferring personal data outside Quebec, similar to GDPR requirements. | Encourages PIAs but does not mandate them. |
| Penalties for Non-Compliance | Imposes fines ranging from $15,000 to $25,000,000 CAD, or up to 4% of the company's worldwide annual turnover. | Imposes fines up to $100,000 CAD for non-compliance. |
| Data Protection Officer (DPO) | Requires certain organizations to appoint a privacy officer responsible for compliance. | Does not require the appointment of a DPO, but recommends it for large organizations. |
| Right to Erasure | Introduces the right to erasure, allowing individuals to request deletion of their personal information. | Does not include a specific right to erasure, but individuals can request corrections to their personal information. |
| Private Right of Action | Empowers individuals to take legal action against businesses for privacy violations, allowing for collective actions. | Does not provide a broad private right of action. |
| Cross-Border Data Transfers | Requires PIAs to assess the equivalence of foreign data protection laws before transferring data outside Quebec. | Requires organizations to use contractual or other means to protect personal information when transferring it to a third party. |
What About A National Standard?
While Quebec's Law 25 is currently specific to the province of Quebec, there is growing momentum for similar privacy protections to be adopted across Canada.
See: Analysis: Does Bill C-27 Reflect Lessons Learned from Past Public Outcry? Data Sharing for Public Good
The federal Bill C-27, which includes provisions for a new Consumer Privacy Protection Act, signals an ongoing effort to enhance data privacy nationwide. If adopted, these regulations could harmonize with Quebec's stringent standards, setting a unified framework for data protection across the country.
Looking Ahead
For organizations operating in the fintech space, it is important to remain aware of the law and how it is evolving in order to ensure full compliance for the protection of the data of their users. This will raise consumer trust in the economy and yield a safer and more transparent digital environment.
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, artificial intelligence, 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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WEF Insights On Coordinating Global Crypto Regulation
Crypto Regulation | May 27, 2024
Image; Pathways to Regulation of Crypto Assets - A Global Approach (WEF)
World Economic Forum (WEF) Publishes Recommendations for Global Coordination in Regulating Crypto Assets
Regulating crypto assets that are continuously evolving at light speed is complex and coordination among international jurisdictions, national regulators, and industry participants is key. In this light, WEF 2023 report (34 page PDF) offers a comprehensive set of recommendations and insights for a harmonized approach to regulating crypto assets.
See: Canada’s Proposed Mutual Fund Crypto Regulations 2024
This article reviews the recommendations drawn from the report and compares them with the current approach for different regions.
1. Recommendations to International Bodies
International bodies have a role in setting the stage for a unified global approach on crypto regulation.
a. Promote a harmonized understanding of the taxonomy and classification
- Describe different features and risks across crypto-assets and associated activities. Promote technology-neutral principles in supporting cross-jurisdictional convergence.
- Example: World Custom Organization's Harmonized System provides a model of standardized classification to ensure consistency across international trade.
b. Set out best practices and baseline regulatory standards
- Definition of best practices for key functions: custody, transfer, and settlement. Definition of baseline standards, such as AML/KYC, Consumer Protection, Market Integrity.
- Example from other sector: IOSCO harnesses the collective power of the capital markets' regulators to create global standards for securities regulation, ensuring adherence and compliance with baseline requirements.
c. Encourage data portability of entities and data sharing
- Develop standards around data sharing and interoperability, to support passportability of data. Interoperability will ensure a global coordination and resolution of entities' risks.
See: Open Banking: Revolutionizing Financial Data Sharing
- Example from other sector: Supervisory Colleges establish cooperative and effective mechanisms in conducting consolidated supervision over a financial group that is active on a worldwide basis.
2. Recommendations for National and Regional Regulators
National and regional regulators should build a safe and sound environment for crypto assets. Key points are cross-segment coordination, regulatory certainty, and using technology to design regulation.
a. Coordination Across Sectors
- Increase collaboration between financial supervisors and law enforcement. Multi-regulator sandboxes for controlled testing in practice.
- Example: India's IoRS allows for financial product cross-regulatory testing in practice.
b. Regulatory Certainty
- Develop guidelines and frameworks for the regulation of crypto-asset ecosystems. Focus on centralized intermediations and existing financial institutions in the beginning.
See: SEC Enforcement Director Grewal On Crypto Regulation
- Examples: The internet protocols like HTTP and SMTP are unregulated but all the applications built on them, for example, e-commerce or fintech, are regulated under different frames.
c. Using Technology for Regulation by Design (RegTech)
- Adapt technologies for automated compliance and real-time risk alerts and tracking of change in the regulation. Support public-private partnerships on innovation and risk monitoring.
- Examples: India, through consent-by-design data protection, ensures neutrality and compliance with consent obligations.
3. Recommendations for the Crypto Industry
Some proactive steps that the industry will have to take in order to achieve global coordination and regulatory alignment are discussed in the WEF report. It also calls for standard setting, sharing best practices, and responsible innovation in technology.
a. Standard Setting
- Coordination on technical standards around aspects like governance, consumer protection, cybersecurity, and interoperability.
- Example: The payment card industry data security standard.
b. Sharing of Best Practices
- Develop best practices with regard to managing operational, market, and counterparty risks. Periodically review material risks to financial infrastructure and service providers.
See: CSA Updates on Value-Referenced Crypto Assets Regulation
- Example: The global FX code, developed together with central banks and market participants, is a set of principles for good practices in the FX market.
c. Responsible Technology Innovation
- Engage with policymakers to innovate responsibly, considering maturity of industry and impacts to environment, society and economy.
- Example: Banking industry in Hong Kong jointly produced the Treat Customers Fairly Charter with the Hong Kong Monetary Authority to promote strong consumer protection principles.
Overview of Crypto Regulations in Leading Countries in 2024
As of 2024, several countries are progressing their regulatory landscape for cryptocurrencies. These nations are setting benchmarks by implementing comprehensive regulatory frameworks that align closely with the World Economic Forum’s (WEF) recommendations for a global approach to crypto regulation. Here’s an overview at some of these countries (in no particular order).
European Union (EU)
Markets in Crypto Assets (MiCA) Regulation
- MiCA is the EU’s landmark regulatory framework, set to take effect in 2024. It aims to provide legal certainty and protect consumers while fostering innovation within the crypto sector.
- MiCA includes stringent requirements for crypto asset service providers (CASPs), such as authorization procedures, operational requirements, and transparency obligations. It also addresses the regulation of stablecoins, setting high standards for issuers to ensure financial stability and consumer protection.
See: Challenges in Global Crypto Regulations – Lessons from Dubai
- MiCA’s comprehensive approach, including cross-border regulatory standards and consumer protection measures, closely aligns with WEF’s call for harmonized global standards and robust regulatory frameworks.
United Kingdom
Phased Regulatory Approach
- The UK is implementing a new regulatory regime following extensive consultations in early 2024. The Financial Conduct Authority (FCA) oversees crypto activities, ensuring compliance with AML and CFT regulations.
- The UK’s framework includes registration requirements for crypto firms, stringent consumer protection measures, and specific regulations for stablecoins and crypto-derivatives.
- The UK’s phased approach and focus on creating a secure, transparent environment for crypto activities reflect the WEF’s recommendations for regulatory certainty and consumer protection.
United States
Regulatory Developments
- The US regulatory landscape remains complex due to the involvement of multiple agencies, including the SEC, CFTC, and FinCEN. Recent legislative efforts include the Fit21 Bill that was approved with bipartisan support and still needs to receive passage from the Senate and presidential blessing.
- The US approach involves significant enforcement actions and a focus on integrating stablecoins into the financial system. However, regulatory uncertainty persists due to jurisdictional overlaps and legislative challenges.
See: U.S. House passes FIT21 with Bipartisan Support
- While the US is making strides in certain areas, the fragmented approach and ongoing regulatory ambiguity highlight the need for more cohesive standards, as advocated by the WEF.
Canada
Comprehensive Regulatory Framework
- Canada has established a robust regulatory framework for crypto assets, with stringent requirements for trading platforms to register with the Canadian Securities Administrators (CSA).
- The framework emphasizes consumer protection, requiring platforms to segregate customer assets and comply with AML and KYC regulations. The introduction of Bitcoin and Ether ETFs and discussions on a central bank digital currency (CBDC) further indicate Canada’s proactive stance.
- Canada’s comprehensive and transparent regulatory environment aligns well with the WEF’s recommendations for regulatory certainty, consumer protection, and the use of technology for regulation by design.
United Arab Emirates (UAE)
Innovative Regulatory Environment
- Dubai, through the Virtual Assets Regulatory Authority (VARA), and Abu Dhabi have established themselves as leading crypto hubs with robust regulatory frameworks.
See: The Complexities of Auditing Digital Assets
- The UAE’s regulations cover a wide range of crypto activities, providing clarity and security for businesses and consumers. These regulations include stringent AML/CFT measures and a clear framework for licensing and supervision.
- The UAE’s proactive and detailed regulatory approach supports WEF’s vision of harmonized standards and effective cross-border cooperation.
Hong Kong
Retail Crypto Trading Services
- Hong Kong has implemented regulations that promote responsible innovation while ensuring high standards for retail crypto trading services. Hong Kong also recently approved both spot bitcoin and ethereum ETFs.
- The regulatory framework includes comprehensive requirements for licensing, consumer protection, and AML/CFT compliance.
- Hong Kong’s regulations align with WEF’s recommendations by providing regulatory certainty and fostering a secure environment for crypto activities.
Singapore
Retail Crypto Trading Services
- Singapore has developed an enabling framework in which retail crypto trading services should be offered in and which will promote innovation at the same time as protecting market integrity.
- Strong licensing requirements, significant consumer protection measures, and comprehensive compliance with AML/CFT.
See: SEC Approves 19b-4 Forms of First Batch Ethereum ETFs
- The regulations in Singapore are highly aligned with the WEF recommendations to underpin the importance of regulatory certainty for a safe and transparent crypto environment, shown through the clarity of the guidelines and active integration of the best international practices.
Which Country Best Aligns with the WEF's Recommendations?
Here is the table summarizing the alignment of various countries' crypto regulations with the World Economic Forum's recommendations. The alignment score is based on the extent to which each country's regulations incorporate elements of the WEF's recommendations, such as consumer protection, regulatory certainty, and the use of technology for regulation.
| Country/Region | Alignment with WEF Recommendations | Score | |
|---|---|---|---|
| European Union | Comprehensive regulatory framework, consumer protection, cross-border coordination, and use of technology for compliance. | 9/10 | |
| United Kingdom | Phased regulatory approach, strong consumer protection, and supportive of technological innovation. | 8/10 | |
| United States | Fragmented approach with ongoing regulatory uncertainty, significant enforcement actions, and legislative efforts. | 6/10 | |
| Canada | Robust framework, stringent consumer protection, and proactive stance on innovation and regulation. | 8/10 | |
| United Arab Emirates (UAE) | Detailed regulatory framework, cross-border coordination, and clear guidelines for licensing and operation. | 9/10 | |
| Hong Kong | Comprehensive regulations, focus on responsible innovation, and high standards for retail crypto trading services. | 9/10 | |
| Singapore | Strong regulatory framework, stringent consumer protection measures, and support for fintech innovation through regulatory sandbox. | 9/10 |
Conclusion
As the landscape of crypto asset regulation continues to evolve around the globe, it is crucial that international bodies, national regulators, and the industry itself work together to create a harmonized and robust framework by promoting consistent standards, sharing best practices, and fostering responsible innovation.
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, artificial intelligence, 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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Corporate Venture Capital in Canada: Insights and Challenges
Corporate Venture Capital | May 17, 2024
Image: The State of Corporate Venture Capital in Canada 2024, Deloitte and BDC
The State of Corporate Venture Capital (CVC) in Canada 2024
Published this week, "The State of Corporate Venture Capital in Canada," produced by Deloitte Ventures in collaboration with BDC Capital, highlights the potential for growth and innovation that CVC can bring to Canadian corporates, startups, and the broader economy. However, it also underscores significant challenges and areas where Canada lags behind its international counterparts, particularly the United States. Read the release
Key Findings
- Despite the growing number of CVC initiatives, only 6% of Canadian public companies with over $1 billion in annual revenue participate in direct VC investments, compared to 40% of similar U.S. companies. This stark contrast highlights the need for greater engagement by Canadian corporates in venture investing. Slower adoption.
- CVC offers a "triple win" of strategic benefits for corporates, startups, and the economy. Corporates gain access to new technologies, markets, and diversified profit streams. Startups benefit from the resources, expertise, and brand recognition of large corporates. The economy enjoys job creation, productivity gains, and competitive innovations. For example, Deloitte Ventures' $150 million initiative aims to catalyze growth in important verticals such as fintech and worktech, fostering innovation and job creation.
See: AI Metamorphosis in Venture Capital
- Canadian CVCs have seen significant growth in deal activity, nearly tripling between 2019 and 2022. However, this momentum slightly waned, with a drop in the total number of deals from 141 in 2022 to 68 in 2023. This fluctuation suggests the need for sustained efforts to maintain and grow CVC participation.
- Canadian CVCs are active on the global stage, with 53% of their deals in 2023 involving foreign companies. This reflects the smaller size of the Canadian market and the necessity for Canadian corporates to look globally to stay competitive.
Image: Figure 6 from The State of CVC in Canada 2024 (Deloitte/BDC)
Food for Thought
The report is a thorough examination of the current landscape and potential future of CVC in Canada. However, there are some notable exclusions that would have been interesting to discuss:
- The report does not address why CVC in Canada significantly lags behind the U.S. Understanding these reasons is crucial for developing strategies to close the gap. For instance, the participation rate of U.S. public companies in CVC is approximately six times higher than that of Canadian companies.
See: Insights and Challenges of Raising Capital via Reg A+
- The report lacks a detailed analysis of the financial performance (ROI) of CVC initiatives in both Canada and the U.S. which one would think is what investors including CVCs would be interested in knowing. For many corporates, financial returns are the primary driver of investment decisions.
- The report could have benefited from direct feedback from the 94% of Canadian publicly traded companies that do not have a VC subsidiary? Understanding their reasons for not engaging in CVC could provide valuable insights for encouraging broader participation. A direct survey of these companies could reveal barriers such as risk aversion, lack of expertise, or insufficient capital.
Richard Remillard, President of RCG Group and Board Director NCFA Canada says it well:
" This Deloittte paper prepared in conjunction with BDC points to some revealing information about the state of corporate venture capital(CVC) in both the US and Canada. Unsurprisingly, Canada trails significantly behind the US on this front. The paper notes that a mere 6% of publicly-traded Canadian corporations have CVC's versus 19% of those in the US. This gap has long been noted and decried by venture capital industry participants, including BDC. Where the paper is lacking is in identifying the source(s) of this weakness in the Canadian risk capital ecosystem. It could be a function of Canada simply not having a substantial number of publicly-traded firms compared to the US - and, many of the latter having received venture capital funding previously. Another factor might be the greater corporate concentration in Canada than in the US that is visible in many industries from banking to telecom, airlines, retail grocery and rail transportation. Or, it could be the business culture in Canada, long considered more risk averse than it is south of the 49th parallel. As well, and importantly, it could simply be the result of the relative lack of transparency about the return on investment(ROI) of the CVC segment of the venture capital asset class to say nothing of the relative illiquidity of venture investments. ROI is missing in action in the Deloitte paper which does spend some time and effort in discussing the overall benefits of investing in tech in Canada - a curious omission. Finally, the paper would have been strengthened if some of the 94% of corporations in Canada had been canvassed about their decision(s) to avoid the CVC route or to get out of the asset class, as some have done in years gone by, in light of the internal management challenges pertaining to remuneration of CVC managers relative to managers in the parent firm."
Outlook
Corporate Venture Capital holds promise for Canada. This requires addressing the barriers to entry, providing clear financial performance metrics, and fostering a culture that values long-term strategic investments. By doing so, Canada can unlock the potential of its startups, drive economic growth, and become more competitive on the global stage.
Download the 32 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, artificial intelligence, 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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How Carbon Pricing Impacts Fintech and Investment Strategies
Carbon Pricing | May 17, 2024
Image: Freepik
Exploring how carbon pricing impacts fintech and investment strategies
Carbon pricing is emerging as an effective mechanism in combating climate change, influencing industries worldwide, including fintech. For fintech founders and investors, understanding carbon pricing's role and potential impacts is essential for strategic decision-making. A study published in Nature Communications suggests that carbon pricing is essential for achieving net-zero emissions by 2050. It acts as a financial incentive for businesses to innovate and invest in clean technologies, fostering a sustainable economic model
Does Carbon Pricing Work?
Carbon pricing is a tool used to reduce greenhouse gas emissions but it's under intense scrutiny. With diverse implementations globally, its effectiveness remains an important question for policymakers, businesses, and environmentalists. Research indicates that carbon pricing mechanisms, such as carbon taxes and cap-and-trade systems, have been effective in reducing emissions. A meta-analysis of ex-post evaluations reveals that regions with carbon pricing saw significant reductions in CO2 emissions. For example, Sweden’s carbon tax, introduced in 1991, has been credited with reducing its emissions by approximately 25% while the economy grew by 75%.
See: Fintech Can Combat Corporate Greenwashing
As of 2023, over 60 carbon pricing initiatives have been implemented globally, covering about 20% of global emissions. The European Union’s carbon price has surged past €50 per ton, while Canada plans to increase its price to CAN$170 per ton by 2030.
Doesn't it Stifle Economic Growth?
Concerns about the economic impact of carbon pricing are common, yet evidence suggests that it does not stifle economic growth. Studies show that well-designed carbon pricing can stimulate innovation and lead to more efficient energy use. For instance, British Columbia's carbon tax, implemented in 2008, has been associated with a 5-15% reduction in emissions with no adverse impact on GDP growth.
The effectiveness of carbon pricing also depends on how the generated revenue is used. Countries like Canada and Switzerland use carbon tax revenues to fund green initiatives or to reduce other taxes, thereby mitigating any regressive effects and garnering public support. In Canada, the revenue from carbon pricing is returned to households through rebates, making the policy more politically palatable and socially equitable.
Impact on Investment Strategies
Investors are increasingly incorporating carbon pricing into their decision-making processes. According to the World Bank, carbon pricing policies generated approximately $95 billion in revenue in 2023, underscoring their economic significance. For fintech investors, understanding these dynamics is crucial as companies with robust carbon management strategies often attract more investment. The integration of carbon pricing data helps in assessing the financial risk associated with carbon-intensive operations.
Fintech’s Role in Green Finance
Fintech is driving innovations in green finance by facilitating investments in sustainable projects. Blockchain technology, for instance, enhances the transparency and integrity of green bond markets, fostering greater investor confidence. Platforms that provide real-time environmental data are enabling more accurate assessment and management of carbon emissions, which is critical for compliance and strategic planning.
See: Canada’s Shift to Enhanced Climate Disclosures
Carbon accounting has become a well-funded sector within climate fintech, with startups raising significant capital to develop tools that measure and report carbon emissions. In 2022, carbon accounting startups attracted $970 million globally. Carbon offsetting, the practice of compensating for emissions by investing in environmental projects, also saw substantial growth, indicating a growing market opportunity for fintech solutions that facilitate these transactions.
Global Adoption Challenges
The adoption of carbon pricing varies globally, with the EU Emissions Trading System (EU ETS) being one of the largest schemes. However, challenges persist, such as carbon leakage, where businesses move production to countries with laxer emission regulations (a sort of 'race to the bottom'). Addressing these challenges requires international cooperation and mechanisms to ensure a level playing field.
See: SG Launches First Digital Green Bond on Ethereum
The increasing adoption of internal carbon pricing by corporations reflects a proactive approach to managing climate risks. More than 2,000 companies worldwide are using or plan to implement internal carbon prices. This trend is driven by regulatory pressures and the growing demand for transparency from investors and stakeholders. The International Monetary Fund (IMF) suggests that coordinated international efforts, such as establishing a global carbon price floor, could further enhance the effectiveness of carbon pricing policies.
Conclusion
The data-driven consensus from multiple studies is that carbon pricing works effectively in reducing greenhouse gas emissions without harming economic growth. By encouraging energy efficiency and green innovation, it's an important tool in the global effort to combat climate change. However, its success largely depends on how policies are implemented, international cooperation, and transparent use of revenues.
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, artificial intelligence, 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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FINTRAC Guidance on Bitcoin ATMs and Money Laundering
Bitcoin ATM Guidance | May 16, 2024
Image: FINTRAC
The Role of Crypto ATMs in Laundering Proceeds of Crime
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has issued a Sectoral and Geographic Advisory "The Role of Virtual Currency Automatic Teller Machines in Laundering the Proceeds of Crime" to highlight the risks and provide guidance to businesses, financial institutions, and the public. Cryptocurrency has revolutionized the financial landscape, offering unprecedented accessibility and anonymity. However, these advantages also attract illicit activities. One growing concern is the use of virtual currency automated teller machines (ATMs) in laundering proceeds of crime.
Understanding Crypto ATMs
Virtual currency ATMs, also known as Bitcoin ATMs, are internet-linked terminals allowing users to exchange fiat currency, such as Canadian dollars, for cryptocurrencies. Unlike traditional ATMs, these machines do not require a bank account, directly connecting users to the virtual currency exchange. While most transactions are legitimate, the ease of converting cash to crypto makes these ATMs an attractive tool for money laundering.
Geographic Hotspots
FINTRAC's advisory identifies significant risks associated with virtual currency ATMs. Based on suspicious transaction reports, key hotspots include the Greater Toronto Area, Greater Montréal Area, and Metro Vancouver, with notable volumes of suspicious activities also in Edmonton, Calgary, Winnipeg, Nelson, Abbotsford, Victoria, Ottawa, and Hamilton.
See: Tornado Cash Developer Sentenced 5 Years Prison
These machines are pivotal in the "placement stage" of money laundering, where illicit cash is converted into virtual currency, making the source of funds difficult to trace. Criminals use various techniques to obscure the identity of those controlling the funds, including falsified identities and money mules.
Emerging Trends and Techniques
The advisory highlights several trends and techniques used by criminals:
- Structured deposits is a red flag. Depositing funds in amounts just below reporting thresholds, often using multiple virtual currency ATMs and different phone numbers to avoid detection.
- Utilizing channels that are more complicated to track such as private wallet addresses, darknet markets, online gambling platforms, high-risk exchanges, peer-to-peer exchanges, and mixers to launder funds.
- Fraudsters coaching and manipulating victims over the phone to complete transactions, often seen in video monitoring footage from ATMs.
Compliance and Due Diligence
FINTRAC emphasizes the importance of compliance. Virtual currency ATM operators must implement robust policies, procedures, and internal controls, including client identification and ongoing monitoring of high-risk transactions.
See: Metacrime in the Metaverse
Failure to comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) can result in severe penalties, including fines up to CAN $2,000,000 and imprisonment.
Consumer Awareness and Protection
Consumers are urged to be cautious of scams involving virtual currency investments. Fraudulent schemes often solicit investments through social media or impersonate government agencies to extort payments. Individuals should thoroughly research any virtual currency exchange or investment opportunity and be wary of offers that seem too good to be true.
How to Report Suspicious Activities
If you encounter suspicious transactions or suspect money laundering or terrorist financing activities, report them to your financial institution and FINTRAC. In urgent cases, contact local law enforcement. Victims of fraud are encouraged to report to the Canadian Anti-Fraud Centre.
Download the 9 page PDF Guidance on Crypto ATMs and Money Laundering --> 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, artificial intelligence, 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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