Category Archives: Entrepreneurs and Start-ups

Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China’s digital currency

Reuters | Sharon Lam | Nov 8, 2019

HK - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency

Recession gatecrashes Hong Kong’s fintech party

HONG KONG (Reuters Breakingviews) - Hong Kong’s economic travails are an unwelcome guest in the city’s fintech party. Enthusiasm for online-only banks was palpable at the Fintech Week conference. Yet months of political unrest have hit small businesses, and the added risks may delay local launches by the likes of Standard Chartered and Tencent.

Attendees this week descended on Hong Kong’s Lantau Island for the financial hub’s fourth annual gathering. With appearances from top officials like Financial Secretary Paul Chan to executives at Singapore’s $14 billion Grab and other rising stars, there was plenty of buzz. Hot topics included central bank digital currencies and cross-border payments.

See:  News on China cryptocurrency and more reforms

Virtual banks, as these branchless outfits are known in Hong Kong, took centre stage. Earlier this year, Hong Kong authorities granted eight licenses for such firms to offer payments, deposits and other services, in a long overdue shakeup. HSBC, Bank of China Hong Kong, Hang Seng Bank and Standard Chartered account for some three-quarters of the city’s mortgages and two-thirds of retail loans. Online challengers, including a joint venture between Chinese handset maker Xiaomi and AMTD, as well as insurance giant Ping An, are ready to muscle in. About 30% of total banking revenue, or $15 billion, is up for grabs, analysts at Goldman Sachs reckon.

Yet just 40 kilometres away from sunny Lantau, Hong Kong’s central business districts and elsewhere are reeling from broader malaise. The financial centre’s economy shrank by 3.2% in the third quarter, plunging it into recession for the first time in a decade, as increasingly violent anti-government protests took hold. Lenders now face lower profitability as risks of loan losses and higher credit costs rise, Morgan Stanley analysts warned in a recent note. The protest-battered city’s 340,000 small and medium-sized businesses, prime customers for online-only banks, have been hit the hardest. Virtual banks say they remain fully committed to Hong Kong.

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Latham and Watkins LLP | Simon Hawkins and Kenneth Y.F. Hui

SFC outlines new regulatory framework for virtual asset trading platforms, HKMA highlights recent FinTech initiatives, and PBOC discusses China’s forthcoming central bank digital currency.

The fourth annual Hong Kong FinTech Week conference kicked off with a major announcement from Mr. Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), who introduced a new, formalized regulatory framework for virtual asset trading platforms (VATPs). A panel of central bankers also discussed stablecoins and central bank digital currencies, including the People’s Bank of China’s (PBoC) forthcoming central bank digital currency, referred to as the digital currency / electronic payment (DCEP) coin.

VATP Regulation

Last year, the SFC published its conceptual framework for the potential regulation of VATPs and, since then, the SFC has worked behind the scenes with some of Hong Kong’s existing VATPs to better understand their operations, and to explain the SFC’s regulatory expectations, while also assessing VATPs capability to comply with the SFC’s expected requirements.

Importantly, under Hong Kong’s securities laws, the SFC only has power to regulate a VATP that trades virtual assets or tokens that are legally “securities” or “futures contracts.” Bitcoin and other, more familiar, cryptoassets are not securities, and nothing in the SFC’s new framework alters this position. The new framework therefore only applies to VATPs, which include at least one security virtual asset or token for trading. Thereafter, the SFC’s new rules will apply to all of a VATP’s operations, even if the vast majority of other virtual assets or tokens traded on the platform are not securities.

See:  Hong Kong being pulled into the 21st Century — digital banking licenses finally arrive

Essentially, the new regulatory framework allows a VATP to “opt in” to SFC regulation by electing to trade at least one security virtual asset. The SFC’s view is that the principal benefit of being regulated is that the VATP would be able to represent itself to clients as a supervised business. Once licenses are granted to the VATPs that choose to opt in, investors will then be able to distinguish easily between regulated platforms and platforms that are not regulated.

VATPs that wish to opt in under the new framework may apply to the SFC to be licensed for Type 1 (dealing in securities) and Type 7 (providing automated trading services) regulated activities. The SFC will only accept license applications from centralized VATPs that are based in Hong Kong, so decentralized and peer-to-peer VATPs will not be able to obtain licenses (for the time being, at least).

License applicants must demonstrate that they are willing and able to comply with the expected standards under the regulatory framework published by the SFC. Under the key licensing conditions that will be imposed on licensees, a VATP operator must:

  • Only offer its services to “professional investors” (i.e., the general public will not be able to trade on SFC-licensed VATPs)
  • Have stringent criteria for the inclusion of virtual assets to be traded on its platform
  • Obtain the SFC’s prior written approval for any plan or proposal to add any product to its trading platform
  • Submit monthly reports to the SFC on its business activities
  • Engage an independent professional firm acceptable to the SFC to conduct an annual review of its activities and operations and prepare a report confirming that it has complied with the licensing conditions and all relevant legal and regulatory requirements
  • Only provide services to clients who have sufficient knowledge of virtual assets
  • Not conduct any offering, trading, or dealing activities of virtual asset futures contracts or related derivatives
  • Adopt a reputable external market surveillance system to supplement its own market surveillance policies and controls
  • Ensure that an insurance policy covering the risks associated with custody of virtual assets is in effect at all times

Notably, SFC-licensed VATPs should only include security virtual assets that are (i) asset-backed; (ii) approved or qualified by, or registered with, regulators in comparable jurisdictions; and (iii) with a post-issuance track record of 12 months.

VATPs

In light of the intensive assessment process and to meet the expected regulatory standards, the time required for processing a licensing application from a VATP may be longer than the 16-week period that is typically expected for a standard securities licensing application.

If a platform operator is licensed, its infrastructure, core fitness and properness, and conduct of virtual asset trading activities should be viewed as a whole. Although trading activities in non-security virtual assets or tokens are not “regulated activities,” the SFC’s regulatory remit over all of these aspects of platform operations will be engaged once a platform involves trading activities in security virtual assets or tokens, even if these activities are a small part of its business.

The SFC has stated that it will continue to monitor the evolution of cryptoassets and work with the Hong Kong government to explore the need for legislative changes in the longer term.

See:  The future of Asia: Asian flows and networks are defining the next phase of globalization

Other FinTech Initiatives in Hong Kong

Mr. Eddie Yue, Chief Executive of the HKMA, highlighted a series of recent initiatives aimed to foster the FinTech ecosystem in Hong Kong:

  • The subsidiaries of Hong Kong Interbank Clearing Limited and Institute of Digital Currency of the PBoC have signed a memorandum of understanding to connect the digital trade finance platforms of Hong Kong and the PRC.
  • The HKMA and the Bank of Thailand are conducting a joint research project to study the application of central bank digital currency to cross-border payments, with a view to facilitating HKD-THB payment-versus-payment among banks in Hong Kong and Thailand. A joint report is scheduled for release in the first quarter of 2020.
  • The first-ever innovation hub of the Bank of International Settlements (BIS) commenced operations in Hong Kong in November 2019. The mandate of the BIS innovation hub is to identify and develop in-depth insights into critical trends in financial technology of relevance to central banks, to explore the development of public goods to enhance the functioning of the global financial system, and to serve as a focal point for a network of central bank experts on innovation.
  • The HKMA is conducting a study on the application of artificial intelligence (AI) technology in the banking industry and will release a series of publications on this topic in the coming months. This announcement follows a circular issued by the HKMA earlier in November 2019, setting out high-level principles that banks should take into account when designing and adopting AI and big data analytics applications.
  • The HKMA has jointly launched the Fin+Tech Collaboration Platform with the Hong Kong Science and Technology Parks to support FinTech development. Industry players can use the platform to organize FinTech-related activities, such as hackathons.

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NCFA Jan 2018 resize - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency 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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Robinhood’s ‘infinite money’ glitch has reportedly drawn regulatory scrutiny

Markets Insider | Ben Winck | Nov 8, 2019

vault door - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency

  • Robinhood's "infinite leverage" glitch has placed the company back under regulator scrutiny, which could result in a fine, Bloomberg reported Thursday.
  • One person on the WallStreetBets sub-Reddit — the forum where much of the discussion around the glitch has taken place — described the bug as an "infinite money cheat code."
  • The Securities and Exchange Commission and the Financial Industry Regulatory Authority are the two agencies most likely to investigate the matter. Both have the authority to levy fines for financially-irresponsible behavior.
  • The glitch that allowed traders to borrow limitless amounts of capital was exploited by about 20 users and led to losses of less than $100,000 for Robinhood, a source familiar with the matter told Bloomberg.

Members of the WallStreetBets subreddit discovered the bug in late October, with one user deeming it an "infinite money cheat code."

The bug allowed traders to borrow seemingly-limitless amounts of capital without posting enough cash as collateral. The glitch was exploited by about 20 Robinhood Gold users and led to losses of less than $100,000 for the company, a source familiar with the matter told Bloomberg.

The Securities and Exchange Commission and the Financial Industry Regulatory Authority are the two agencies most likely to investigate the matter. They typically look into brokerage outages and irregularities, and are authorized to levy fines as a penalty for financially-irresponsible actions.

Robinhood said on Thursday it banned the participating accounts and made a "permanent update" to prevent the trading pattern. Some Reddit users debated the statement, commenting Thursday afternoon that the core flaws still exist in some capacity.

The trading platform is also seeking a bank license from the government, and the misstep could curtail efforts to expand in the highly-regulated finance sector.

The gaffe isn't Robinhood's first. The trading platform unveiled a cash management product last December that would pay 3% interest on deposits, and advertised the service as insured by the Securities Investor Protection Corp. The Washington nonprofit — which insures investors against losses should a trading platform go under — quickly noted that it never backed the service.

Robinhood subsequently pulled the product after increased public and regulatory scrutiny. An updated cash management service was unveiled October 8, but touted a 1.8% yield on cash deposits, nearly half the rate it previously boasted.

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NCFA Jan 2018 resize - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency 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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Vancouver-based Grow Technologies acquired by Alberta’s ATB Financial

Betakit | Nov 8, 2019

Kevin Sandhu - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currencyVancouver-based FinTech startup Grow Technologies, which develops software solutions in the loan management space, has been acquired by Alberta’s ATB Financial. The purchase price was not disclosed.

“With the Grow assets and team, we are strengthening that position by accelerating our digital experience for our customers.”

Through the acquisition, the majority of Grow’s team members, including founder and CEO Kevin Sandhu (who authors BetaKit’s yearly Canadian Tech Companies to Watch list), will transition to the ATB team. ATB said its customers will begin to use Grow’s digital services within the next few months. Customers will have access to Grow’s digital platform, which was designed to help financial institutions acquire new users and grow wallet share with existing users.

“The entire Grow team is excited about a new chapter ahead of us as we look to bring our FinTech solutions and expertise to ATB,” Sandhu told BetaKit.

Grow offers a range of cloud-based digital banking solutions spanning retail and business banking. Founded in 2014, the company has developed a variety of software solutions, including account opening and lending for SMEs and retail, a personalized financial health tool, and Finsnap, a bank account data aggregator. Grow also uses big data and machine learning algorithms to improve the performance of its platform, aiming to make the platform “smarter and better over time.”

See:  How AI may help solve banks’ customer relationship issues

The startup has partnered with a number of financial institutions in its five-year history, including First West Credit Union, Celero, National Bank of Canada, and Motusbank, the digital spin-off of Ontario’s Meridian Credit Union.

“With the Grow assets and team, we are strengthening that position by accelerating our digital experience for our customers,” said Curtis Stange, president and CEO of ATB Financial. “This acquisition is part of our strategy of putting customers first while driving growth to support Alberta’s economy.”

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More from the original ATB Financial Release | Nov 8 , 2019

ATB Financial enhancing customer experience with acquisition

EDMONTON, Nov. 8, 2019 /CNW/ - ATB Financial is proud to announce its acquisition of the technology assets of Grow Technologies Inc. to bring a new, enhanced digital experience to our customers.

Through conversations with our customers, ATB heard their need for convenient online tools that operate seamlessly so they can quickly open accounts and request loans. With ATB's acquisition of Grow, customers will soon have access to an easy-to-use and time-saving digital platform that will significantly improve their banking experience.

Grow is a leading enterprise fintech company that is known for delivering exceptional, AI-powered customer experiences with hyper-personalized financial insights. The assets acquired include Grow's digital account and loan origination platform, FinSnap financial insights technology, and other proprietary digital banking technology solutions.

View release

 


NCFA Jan 2018 resize - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency 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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US DHS Awards Mavennet $182K for Cross-Border Oil Import Tracking Using Blockchain

Mavennet and US Department Homeland Security | Patrick Mandic | Nov 6, 2019

mavennet - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency

WASHINGTON – The Department of Homeland Security (DHS) Science and Technology Directorate (S&T) has awarded $182,700 to Toronto-based Mavennet Systems, Inc. to adapt its oil and gas industry blockchain security technology for Custom Border Protection (CBP) to track cross-border oil imports.

“Accurately tracking the evidence of oil flow through pipelines and refinement between the U.S. and Canada and attributing oil imports with the accurate composition and country of origin are of great interest to U.S. Customs and Border Protection (CBP),” said Anil John, S&T’s SVIP Technical Director. “Mavennet’s platform could provide this digital auditability while ensuring broad interoperability by supporting emerging World Wide Web Consortium standards such as decentralized identifiers and verifiable credentials.”

Mavennet Systems, Inc. Phase 1 award project “Blockchain-as-a-Service for Cross-Border Oil Exchange” will apply the company’s expertise, gleaned from building a platform enabling real-time auditability of the natural gas trading markets in Canada, to address CBP needs for cross-border oil import tracking. Mavennet’s solution will build a generic end-to-end platform that can be used for any type of commodity that includes automation and integrating application program interface, physical measurement and legacy system capabilities.

See:  President Xi Says China Should ‘Seize Opportunity’ to Adopt Blockchain

The Phase 1 award was made under S&T’s Silicon Valley Innovation Program (SVIP) Other Transaction Solicitation Preventing Forgery & Counterfeiting of Certificates and Licenses seeking blockchain and distributed ledger technology (DLT) solutions to fulfill a common need across DHS missions.

SVIP is one of S&T’s programs and tools to fund innovation and work with private sector partners to advance homeland security solutions. Companies participating in SVIP are eligible for up to $800,000 of non-dilutive funding over four phases to develop and adapt commercial technologies for homeland security use cases.

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NCFA Jan 2018 resize - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency 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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Where top VCs are investing in fintech?

TechCrunch | Arman Tabatabai | Nov 6, 2019

top VC fintech insights - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currencyOver the past several years, ‘fintech’ has quietly become the unsung darling of venture.

A rapidly swelling pool of new startups is taking aim at the large incumbent institutions, complex processes and outdated unfriendly interfaces that mar billion dollar financial services verticals, such as insurtech, consumer lending, personal finance, or otherwise.

In just the past summer, the startup community saw a multitude of hundred-million dollar fintech fundraises. In 2018, fintech companies were the source of close to 1,300 venture deals worth over $15 billion in North America and Europe alone according to data from Pitchbook. Over the same period, KPMG estimates that over $52 billion in investment pour into fintech initiatives globally.

See:  How to Value a Fintech Startup

With the non-stop stream of venture capital flowing into the never-ending list of spaces that fall under the ‘fintech’ umbrella, we asked 12 leading fintech VCs who work at firms that span early to growth stages to share where they see the most opportunity and how they see the market evolving over the long-term.

The participants touched on a number of key trends in the space, including rapid innovation in fintech infrastructure, fintech companies embedding themselves in specific verticals and platforms, rebundling and unbundling of financial services offerings, the rise of challenger banks and the state of fintech valuations into 2020.

Charles Birnbaum, Partner, Bessemer Venture Partners

The great ‘rebundling’ of fintech innovation is in full swing. The emerging consumer leaders in fintech — Chime, SoFi, Robinhood, Credit Karma, and Bessemer portfolio company Betterment — are moving quickly to increase their share of wallet with their valuable customers and become a one-stop-shop for people’s financial lives.

In 2020, we anticipate continued entrepreneurial activity and investor enthusiasm around the infrastructure and middleware layers within the fintech ecosystem that are enabling further rebundling and a rapid convergence of product themes and business models across the consumer fintech landscape.

Many players now look like potential challenger bank models more akin to what we have seen unfold in Europe the past few years. Within consumer fintech, we at Bessemer are more focused on demographically-specific product offerings that tap into underserved themes, whether that be the financial problems facing the aging population in the US or new models to serve the underbanked or underserved population of consumers and small businesses.

See: 

Ian Sigalow, Co-founder & Partner, Greycroft

What trends are you most excited in fintech from an investing perspective? 

I suspect that many enterprise software companies become fintech companies over time — collecting payments on behalf of customers and growing revenues as your customers grow. We have seen this trend in many industries over the past few years.

Business owners generally prefer a model that moves IT expenditures from Operating Expenses into Cost of Goods Sold, because they can increase prices and pass their entire budget onto the customer.

On the consumer side, we have already made investments in branchless banking, insurance (auto, home, health, workers comp), cross-border payments, alternative investments, loyalty cards/services, and roboadvisor services. The companies we funded are already a few years old, and I think we will have some interesting follow-on activity there over the next few years. We have been picking spots where we think we have an unfair competitive advantage.

Our fintech portfolio is also more global than other sectors we invest in. This is because there are opportunities to achieve billion dollar outcomes in fintech, even in countries that are much smaller than the United States. That is not true in many other sectors.

We have also seen trends emerge in the US and move abroad. As an example we seeded Flutterwave, which is similar to Stripe, and they have expanded across Africa. We were also the lead investor in Yeahka, which is similar to Square in China. These products are heavily localized —tin for instance Yeahka is the largest processor of QR code payments in the world, but QR code payments are not popular in the US yet.

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NCFA Jan 2018 resize - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency 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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What the European Crowdfunding Industry Recommends for Harmonized EU Rules

Crowdfund Insider | | Nov 5, 2019

Europe - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currencyLast month, Crowdfund Insider reported on comments by EC Vice President Valdis Dombrovskis, a Commissioner whose portfolio includes Financial Stability, Financial Services, and the Capital Markets Union, indicating harmonized crowdfunding rules may be forthcoming before the end of the year. In a tweet, Dombrovskis stated there is a “willingness to move forward and find compromises, hopefully still this year” (on investment crowdfunding).

Harmonization across all EU member states could dramatically help European SMEs and entrepreneurs access much-needed growth capital.  Platforms could operate across national borders with the assurance of a single set of regulations.

Currently, investment crowdfunding platforms must adhere to national, member state rules which vary dramatically across Europe. This fragmented ecosystem stands in stark contrast to what the European Union ostensibly seeks to achieve. Capital Markets Union has been a longstanding and obvious policy goal of Europe, but while simple in concept, the reality has been far more difficult to accomplish.

The most robust market for investment crowdfunding remains the UK – a country that will sometime soon exit Europe. While the UK platforms will continue to provide online capital formation across the continent, a single set of rules will help all involved. It will also foster competition between crowdfunding providers.

The leading voice for the sector of Fintech has been the European Crowdfunding Network (ECN) an association that has long advocated on behalf of a common-sense approach to regulation. Last month, the ECN published a position paper on what they expect the Commission should produce.

See: 

 

Currently, there are three proposals for regulatory harmonization as the European Parliament, European Commission and the Council have each had their say.

While it appears something (at some point) will be agreed upon, the ECN has itemized its point of view that, hopefully, the Commission will abide by as the industry understands the sector of Fintech better than anyone else.

So what does the ECN seek in final rules?

The ECN has published a position paper that outlines what the industry needs to succeed. The guidance comes in a 12 point outline of key issues. Below is a summary some of the more important aspects of the ECN’s recommendations:

  • Investment crowdfunding should be capped at €8 million. “A limit below €8 million is likely to exclude many of the types of businesses that the Regulation is intended to cover, explains ECN. Currently, the €8 million amount aligns with the prospectus requirement and is the de-facto cap utilized in the UK.
  • Conflict of interest: ECN states that it is very important that CSPs [crowdfunding service providers] be able to align their interests with those of sheir investors by investing in projects and/or charging carry as part of their fee model.
  • Investor classification: ECN believes sophisticated investors must meet one of a set of criteria to be deemed sophisticated:
    • (a) EUR 100k own funds; (b) EUR 2m net turnover; (c) EUR 1m balance sheet; and (2) natural persons that meet two of the following: (a) income of EUR 60k or investment portfolio of EUR 100k; (b) has worked in financial sector, or as an executive in a sophisticated legal person, for at least a year; (c) has carried out 10 significant capital markets transactions per quarter over past four quarters

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  • Bulletin Board: This references secondary transactions. The ECN agrees that a buyer and seller should be able to transact on crowdfunded securities while stating there should not be an internal matching system.
  • Customer due diligence KYC: CSPs must apply due diligence measures including identifying the residency of an investor
  • Due diligence on issuers: ECN believes that due diligence is very important but the Parliament’s version (the only one provided) is not practical.
  • Entry Knowledge Test – consequences of failure: This has to do with risk notifications and the reality that many early stage investments have a high risk of failure. The ECN believes CSPs must warn non-sophisticated investors who fail or refuse to complete test but may still allow them to invest
  • Investment limits – There should be none.

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NCFA Jan 2018 resize - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency 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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Lack of open banking framework forcing Canadian consumers to choose between convenience and security, TD exec says

Financial Post | Geoff Zochodne | Nov 5, 2019

TD open banking - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currencyOpen banking is already happening in the market and regulators need to catch up

A lack of action on open banking could be forcing Canadian consumers to choose between convenience and security when it comes to third-party financial service providers, according to the chief digital officer of one of the country’s biggest banks.

“For me, there’s a problem,” Rizwan Khalfan, Toronto-Dominion Bank’s chief digital and payments officer, told the Financial Post at the bank’s technology day last week. “That’s an unfair trade-off.”

So-called open banking is a framework that would allow consumers and businesses to let third-party companies access their financial transaction data via secure online channels known as application programming interfaces (API). This could allow companies to design products and services with the data, as well as possibly enable easier account-switching.

Ottawa has been weighing an open-banking framework since 2018, but has yet to release the results of a consultation process launched in January.

In the meantime, the financial technology industry has been developing quickly, and apps that use “screen scraping” — a process whereby customers hand over their login credentials to a third party which then retrieves their financial information — have grown in popularity. This process can violate the terms and conditions of a bank account and could lead to increased risk of identity theft and cyberattack, according to a Senate of Canada committee report.

Khalfan called this an “emerging problem” in Canada that must be solved.

See:  Open banking has a big branding problem, government’s public opinion research suggests

TD is proposing the government pursue an open banking model that is along the lines of the industry-led model in the United States, where TD already has the necessary technology in place.

“We’ve built out our APIs and we’ve actually gone live with them in the U.S. in the last month,” Khalfan told the Post. “Because we are North American, we leverage our investments on both sides of the border, so we are planning to use the same API gateways in Canada.”

Khalfan expects a third-party certification process in Canada, but TD is proposing an independent assessment organization that would be overseen but not run by regulators. Everyone in the open-banking “ecosystem” would have to follow industry standards, which would be encouraged by regulators.

“There’s enough industry data standards available that we can actually leverage one of them and then tailor it to our needs in Canada,” Khalfan said.

He also said they are working with regulators and financial-technology firms, and added sorting out standards could be done “in months.”

“An industry-led solution has the potential to be a lot faster,” Khalfan said.

An alternative to TD’s vision is the model that has been implemented in the United Kingdom, where a regulator found bigger banks did not have to compete all that hard for business, which left consumers paying more for their services.

Open banking was part of the recommended solution, and the U.K.’s biggest banks were mandated to make personal and small business account data available to third parties via APIs. Standards were set by the bank-funded Open Banking Implementation Entity and the Financial Conduct Authority approves third parties.

By contrast, TD’s proposal would see a customer engage with a third party provider or app, which would then — usually via an aggregator — send a request to the bank for the consumer data. The bank would ask the customer if they consent to sharing the data, Khalfan said. If so, the data would be sent through industry-standardized APIs.

See:  Open Banking Era Starts in Australia (Feb 2020)

Khalfan’s concerns appear to echo feedback the government received in meetings with around 200 stakeholders earlier this year, as detailed in documents obtained by the Post following an access-to-information request.

“An area of consensus among stakeholders is that elements of open banking are already happening in the market and there needs to be consideration of how this activity is managed,”

says a memo sent to an associate deputy finance minister ahead of a March meeting with the lead of Australia’s open banking review.

“Stakeholders are not of the view that the status quo (redacted) is tenable or desirable,” it says.

 

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NCFA Jan 2018 resize - Recession gatecrashes Hong Kong’s fintech party | SFC outlines VATP regulatory framework and China's digital currency 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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