Category Archives: Legal Issues and Regulation

Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What?

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Crowdfund Insider | | March 18, 2020

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Towards the end of 2019, the Securities and Exchange Commission (SEC) proposed an update to the definition of an accredited investor. The rule change is part of a broader “concept release” that the SEC has issued to review the exempt offering ecosystem and how this can be improved.

When the rule change was revealed, SEC Chairman Jay Clayton had this to say:

“The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income or net worth. Modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication. I also am pleased that the proposal specifically recognizes that certain organizations, such as tribal governments, should not be restricted from participating in our private capital markets.”

The current definition is purely economic. If your salary is sufficient, $200,000 for an individual, or you have $ 1 million in net worth beyond your primary residence, you qualify. If you are married, your combined salary must be $300,000. The exact language is available here, if you are interested.

A blunt tool at best, just about everyone understands that the size of a bank account is not the best metric for financial acumen. Having a sophistication qualification, where anyone who qualifies may determine whether they want to invest in a private offering, simply makes more sense in the opinion of many.

See:  SEC Proposes to Update Accredited Investor Definition to Increase Access to Investments

Yes, there are outliers – individuals and organizations that believe there should be a heightened hurdle for investors to participate in private offerings under Reg  D. But many people recognize the weakness of the argument. Any investment entails an element of risk. And younger companies tend to hold a greater degree of risk than established firms. But this is where the risk v. reward paradigm kicks in. Investors are willing to shoulder more risk if the reward may be greater. A better metric would be whether or not an individual completely comprehends risk and the potential to lose money.

Over time, as the cost to go public has dramatically steepened, the most promising firms are seeking to remain private for as long as possible. This means the opportunity to participate in these securities offerings are shuffled off to an exclusive segment of the population – typically wealthy VC firms and individuals.

So a change of the definition is in the offing but the exact language of the final amendment is pending.

Perspectives on the current proposal differ. Some believe “it still remains policy that only rich people are permitted to get rich.”

Others view the proposal as a really big deal.

It all comes down to the final wording.

After the proposed amendment was announced, a comment period was initiated for 60 days. The deadline was Monday, March 16th. While the SEC is known for letting tardy submissions slip through, the bulk of the comments are in. So what is everyone saying?

See:  Early-stage Investing – The Public gets a Seat at the Table

Dara Albright, a long-time advocate of online capital formation and well known with the US Fintech sector, pointed to the fact that times have changed since the accredited investor rule was first minted:

“It was a very different world in 1982 when the SEC promulgated Reg D, and in doing so established the accredited investor definition. Four decades ago, the dearth of technology kept both trading commissions as well as investment minimums steep, making it impossible for small investors to self-diversify across many asset classes. Those days are long gone. Today, technology has significantly reduced the cost of financial transactions, making micro-investing a reality. Even the top discount brokerage firms have gone so far as to eliminate commission trading for conventional asset classes altogether. At the same time, technology has made it both simple and economically feasible for issuers to accommodate a sizeable number of micro-shareholders.”

Albright said that “investor-base diversification” is a topic that is rarely discussed.

“Not enough companies see the advantages in possessing a widely diverse cap table,” said Albright alluding to the fact that expanding the definition will make it more possible for issuers to have a more diverse cap table.

Albright’s comment letter is available here.

On the other side of the polemic is a group of individuals that focus more on the risk affiliated with private securities as opposed to the opportunity of investing in early-stage firms, debt, and real estate.

See:  U.S. SEC proposes letting firms raise more via crowdfunding before needing to register

Barbara Roper, Director of Investor Protection, and Micah Hauptman, Financial Services Counsel, at the Consumer Federation of America (CFA), worried that expanding the defintion will undermine public markets. The duo said the Commission’s “limited analysis is shockingly superficial.”

“While financial sophistication seems like a natural addition to the accredited investor definition, for decades after enactment of the ’33 Act both the SEC and courts insisted that financial sophistication alone, absent access to information, was not sufficient to satisfy the private offering exemption. In 1977, for example, the Fifth Circuit ruled on this question directly, stating that “there must be a sufficient basis of accurate information upon which the sophisticated investor must be able to exercise his skills. Just as a scientist cannot be without his specimens, so the shrewdest investor’s acuity will be blunted without specifications about the issuer.”

The CFA letter may be viewed here.

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NCFA Jan 2018 resize - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What? 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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State of the Markets – Speech by Mark Steward

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WilmerHale W.I.R.E. UK | David Rundle and Anna Gaudoin | March 11, 2020

 

mark stewart ED enforcement and market oversight FCA - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What?On 6 February 2020, Mark Steward, Executive Director of Enforcement and Market Oversight at the Financial Conduct Authority (“FCA”), spoke at the 19th Annual Institute on Securities Regulation in Europe.1 His speech, summarising the state of market integrity, sets out the FCA’s strategic approach to cleaning up the markets and questions whether the FCA’s role in surveilling market activity and taking enforcement action has had a deterrent effect.  View the transcript

Steward opened his speech by underlining the importance of international co-operation in tackling market abuse, acknowledging that common principles form the bedrock of laws and practices across the UK, EU and US. These comments, made a mere week after the UK exited the European Union, no doubt served as a reminder to his European counterparts of the significance of co-ordination and co-operation in tackling market integrity issues. Thereafter, his speech covered the increased availability of market data; measurements of market cleanliness; the impact of enforcement actions; and the FCA’s recent pivot towards market manipulation cases.

See:  An IOSCO report highlights crypto trading issues, but stops short of setting standards

Market Data

The FCA’s increased use of, and reliance on, data points was a key theme throughout Steward’s speech. He highlighted the importance of three such data points:

  • MiFID II transactions reports, of which the FCA received 9.8 billion in 2019. MiFID II increased the scope of transaction reporting to include any transaction relating to cash equities, security derivatives, FX, commodities and interest rate derivatives;
  • the FTSE 300 order book, which generates 150 million order reports per day; and
  • a database of Suspicious Order and Transaction Reports, which are required to be lodged by a trading venue if it suspects that orders and transactions, including cancellation and modifications, could constitute insider dealing, market manipulation or attempts thereof.

In light of this consolidation of data, Steward appears to believe that the FCA has full visibility and, consequently, increasingly sophisticated tools for monitoring the markets, prompting him to observe that, “Little in the cash market is now unobservable or undetectable”.

Market Cleanliness

After touching on the sources of data that the FCA now relies on, Steward moved on to discuss how the FCA measures market cleanliness. He gave an overview of the annual market cleanliness metric (the “MC metric”) which is based on the percentage of abnormal movements in price in the two days preceding a takeover announcement and is perceived to be a proxy for insider dealing. Acknowledging that the small sample size – given that takeovers represent only a small fraction of market activity – and potential for legitimate market speculation ahead of expected takeover announcements were limitations to the MC metric, he went on to describe an additional metric, developed in 2018, known as the Abnormal Trading Volume ratio (“ATV”).

See:  FCA Report (Feb 2020): Sector Views – Key Areas of Harm Identified

The ATV draws on the sources of data highlighted above, covering not just takeovers but over 1,000 price-sensitive market announcements, including products such as contracts for difference and spread bets, known to have been used by insider dealers and not previously considered in the MC metric. The ATV also accounts for changes in volume, not only price.  It is calculated by observing movements in the trading volumes of relevant securities which are the subject of unexpected price sensitive announcements. While this undoubtedly makes better use of the breadth of new data to which the FCA has access, it also highlights how the scope of surveillance is an unending game of “cat and mouse”. Any and all metrics for market cleanliness are only useful if there is, to begin with, an awareness of how the market is being manipulated and what the resulting indicative market behaviour looks like. Nonetheless, Steward notes that the MC metric has shown improvements in market cleanliness in the past decade, with a 20% improvement between 2008’s result of 30% and 2018’s result of 10%. He considers this trend to be supported by 2019’s initial ATV result of 6.4%.

Impact of Enforcement Actions

Given the apparent improvement in market cleanliness, what then may have caused it? Steward attributes the improvement, in large part, to the FCA’s increase in enforcement activity, pointing to increased investment in tackling market abuse and successful prosecutions resulting in substantial custodial sentences and financial sanctions. However, he also offers a more holistic view of how the FCA may have brought about the reduction in insider dealing, pointing specifically to collaborative efforts between Supervision and Enforcement to ensure that market participants properly control information to prevent leakage and report suspicious activity.

See:  SEC wants big data tools for monitoring and enforcing cryptocurrency market compliance

Steward concludes this topic by speculating that the FCA’s increased capability to detect market abuse, and the industry’s knowledge of such increased capability, is a significant deterrent in itself. The suggestion that potential market abusers may reconsider whether the risk is worth it in light of the ever-growing likelihood of being caught is nothing new – indeed, one of the main drivers of robust enforcement has long been its usefulness as a deterrent. It will be interesting to see whether, as the FCA gets to grips with its ever-increasing data sources, this translates into fewer instances of potential market abuse.

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NCFA Jan 2018 resize - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What? 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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Canadian securities regulators provide update on COVID-19 and potential filing delays by reporting issuers

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CSA | Release | March 16, 2020

CSA image - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What?Montreal – The Canadian Securities Administrators (CSA) encourages reporting issuers to contact their principal regulator to discuss any potential effect of the current COVID-19 outbreak on their ability to comply with their obligations under securities legislation, including filing deadlines or delivery of meeting materials.

Issuers that foresee not being able to file their annual or interim financial statements by their prescribed deadline because of the current COVID-19 outbreak should consider applying for a management cease-trade order (MCTO). Under normal circumstances, applications for an MCTO should be filed at least two weeks before the due date for the required filings, however we will work to accommodate shorter periods where necessary.

An MCTO restricts certain officers and directors from trading and may be issued by a regulator instead of a failure-to-file cease-trade order. Conditions for granting an MCTO are provided in National Policy 12-203 Management Cease Trade Orders (NP 12-203). If an MCTO is issued, the issuer must comply with alternative information guidelines as provided in NP 12-203 until the required documents are filed. MCTOs issued in these circumstances will not be considered required disclosure in future documents.

See:

 

The CSA is continuing to monitor the impact of COVID-19 on Canadian capital markets and may issue further guidance in due course.

A staff contact list for issuers is included below.

The CSA, the council of the securities regulators of Canada’s provinces and territories, co- ordinates and harmonizes regulation for the Canadian capital markets.

For industry inquiries, please refer to your respective securities regulator.

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NCFA Jan 2018 resize - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What? 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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Comparison of UK banking providers’ fraud controls

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FCA | March 9, 2020

Fraud protection - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What?Reducing fraud is a priority for the FCA. This page contains information about banks’ fraud controls.

It is intended to enable consumers and consumer groups to compare how banks protect their customers against fraud, and to help consumers to make better informed choices about their banking providers.

The information was provided by UK Finance in March 2020.

What is the firm's approach to fraud protection?

Barclays: 

  • We will protect our customers from fraud, to make it as easy as possible to use our services and when needed, to keep our customers fully informed. We have dedicated teams that are accessible 24/7 should customers need advice or help. We will get customers back up and running as quickly as possible.
  • Fraud PreventionWe will deliver flexible world-class fraud capabilities to prevent fraud. We will use the latest fraud technology to deliver the right outcomes.
  • OUR AMBITION - SHIELDING OUR CUSTOMERS & PROTECTING THEIR ASSETS FROM FRAUDSTERS.

See:  Did a family’s Desjardins data make it into the hands of this ‘prolific’ Toronto fraudster?

First Direct: 

  • Fraudsters are constantly becoming more intelligent with the ways they commit crimes. Therefore, protecting you and your money is an absolute priority for us.
  • To better defend you and the wider financial system from financial crime, we are making significant investments in technologies, processes and in our people.
  • We want to ensure that you feel secure and educated against one of the fastest growing types of crime in the UK. So, if you don’t feel sure when speaking to someone you don’t know, or you have received digital correspondence that you aren’t happy about, contact us.

What Fraud protection controls does the firm have in place?

Barclays:

  • Fraud detection systems which monitor transactions and payments on a real time basis. If something looks suspicious, we may try to get in contact and take action to protect the account while a review is carried out.
  • Biometric systems help us track your normal behaviour when you are viewing your account details online. This helps us to try to identify if a fraudster has accessed your account and is used strictly in compliance with our internet banking terms and conditions, to protect your privacy and information about you. We work with external vendors and companies to ensure the contact details you have provided have no unwanted interference before we check a transaction with you.
  • Industry Wide Support - Participation in industry schemes such as CIFAS and Hunter. Phone number checker via the Barclays website so you can check it’s us trying to contact you. Our Fraud teams are available to talk about your account 24/7. Whilst offering protection, we will always endeavour to eliminate interruptions to our genuine customers, enabling them to use their Barclays products freely.
  • Specialist vulnerable teams are in place to help if you have any specific needs or requirements that may affect you running your account and becoming a victim of fraud. We will notify you via SMS or letter when any changes are made to your account.* Warning messages when making online payments to confirm you are confident that you are sending money to the genuine payee.
  • Proactive Messaging which engage with you, notifying you of any changes and how we are actively protecting your account/card. Notification of data breaches from other organisations allows us to keep your data secure. If we are notified that your card details have been breached, we’ll be in touch to arrange a replacement but you’ll be able to use your card until the new one arrives. If any fraudulent activity occurs during this period, you’ll be covered by our fraud guarantee. *there are some exceptions please see the product terms and conditions.

See:

First Direct: 

  • 2 factor authentication for new payees – Our Secure Key gives you added protection against the threat of fraud. It generates a temporary code which you use to set up a new payee. You need your PIN or password, Touch ID, Face ID or Android Fingerprint. It means only you can setup new payees.
  • Real-time fraud detection system – As part of our digital security promise, we’ll safeguard your money by keeping a lookout 24/7 for unusual activity on your account. From time to time we may get in touch with you to check on anything suspicious.
  • One-time passwords – We use Verified by VISA or MasterCard Identity Check Service for online purchases. If we need to check that a purchase is genuine, we will send you a unique 6-digit SMS passcode. The passcode is only used as an identity check and you should never share it with anyone.
  • Transaction monitoring – We may send you a text message to confirm whether a card transaction has actually been made by you or to ask you to contact us regarding possible unusual activity on your account. If you are unsure, please contact the number on the back of your debit or credit card.
  • Helpful hints – Our fraud and security centre on our website outlines key information on what we do to keep you safe and secure online and how to protect yourself.
  • Free Security Software – We recommend you have security software (such as IMB Trusteer Rapport) as well as additional anti-virus software on your PC.

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NCFA Jan 2018 resize - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What? 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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Your Insurance Checklist for Coronavirus Losses

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Cooley | March 13, 2020

covid 19 and insurance 1 - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What?With the constantly changing landscape and the obvious need for us all to prioritize the health and well-being of our employees, clients and business partners, it can be difficult to focus on the next steps businesses need to take to protect themselves.

Cooley recently published two blog posts on the possible insurance implications of the continuing spread of the coronavirus and on the more general commercial pressures that businesses are facing and will continue to face.

See: Executive Perspectives on Top Risks 2020

But when it comes to maximizing returns from a company’s insurance portfolio, every business should be thinking about two critical steps:

  1. Evaluating your insurance policies. Depending on the nature of the problems faced, a number of classes of insurance may be available to protect businesses, including event cancellation or other contingency insurance, political risk insurance, business interruption cover, directors & officers insurance, credit insurance or specialized insurance protections such as trade disruption cover and some types of performance bonds. With insurers already expecting to cover some of the losses, now is the time to think about how insurance might be useful in the coming months.

There are a number of key questions businesses should be considering when evaluating coverage under their existing insurance policies.

    • Event cancellation insurance: Are there exclusions for disease? Is government action covered? Are insureds required to mitigate their losses? Are there sublimits that may apply?
    • Political risk insurance: What event(s) trigger coverage? How long is the waiting period before coverage is activated?
    • Business interruption insurance: Is coverage triggered only by physical property damage, or are there other coverage triggers?
    • Civil authority coverage: What government action is necessary to trigger coverage? Are there waiting periods or time limits on coverage?
    • General liability insurance: Have your operations caused or exacerbated the amount of bodily injury to others? Are there exclusions for disease?
    • Trade credit insurance: When and how is coverage triggered? Does it require insolvency by a contracting party? 

See:  UK banks prop up SMEs with £7bn amid coronavirus outbreak

  1. Understanding what a company needs to do to preserve insurance coverage. Insurance is often a two-way street, with insurance companies requiring insureds to be proactive and appropriately mitigate and provide notice as soon as possible. Here are a number of additional steps companies may want to take:
    • Mitigating losses: Ensure any steps that can be taken to mitigate your losses are put in place. Failure to do so may result in a reduction in any ultimate insurance claim.
    • Give timely notice: Give careful consideration to the notice requirements in both your general contractual arrangements and in your insurance policies. Questions to consider when reviewing the notice provisions of your insurance policies include whether there have been any threats of a lawsuit or complaints by customers, and whether contractual counterparties have issued termination or force majeure notices. It is also important to bear in mind that notice provisions vary from policy to policy, and a failure to properly consider under what circumstances an insured must notify the insurer has the potential to compromise an entire claim. Finally, depending on your policy language, it may be appropriate to issue a notice of circumstances to preserve coverage.

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NCFA Jan 2018 resize - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What? 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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Unstable coins: cryptoassets, financial regulation and preventing financial crime in the emerging market for digital assets

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FCA | Speech:  Therese Chambers | March 6, 2020

Therese Chambers - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What?Speaker: Therese Chambers, Director of Retail and Regulatory Investigations
Event: The Advancement of Digital Assets and Addressing Financial Crime Risk, New York University School of Law
Delivered: 5 March 2020
Note: this is the speech as drafted and may differ from delivered version

Highlights

  • Cryptoassets such as Bitcoin, present different financial crime risks from traditional FinTech apps, as they enable digital value transfer without a financial intermediary.
  • Money laundering using cryptoassets is a real danger, but the application of robust AML controls combined with international cooperation can help reduce the risk.
  • Robust regulation to prevent financial crime supports financial innovation in new markets such as cryptoassets.
  • The FCA’s AML regime for cryptoassets presents the FCA with unique supervisory and enforcement powers that are tailored to meet international standards.

See:  South Korea Passes One of the World’s First Comprehensive Crypto Laws

How we enable innovation while cracking down on financial crime

Sometimes the relationship between promoting financial innovation and tackling financial crime is posed as a zero-sum game. However, at the FCA, we believe that the relationship between taking a tough stance on financial crime and enabling world-leading financial innovation to benefit consumers, is complementary. This is because it is hard to see how any financial innovation can achieve scale without tackling illicit use cases – if an innovation’s only use is to launder the proceeds of crime, then it’s difficult to see a pathway forward for mainstream adoption.

Without the right checks in place the open, public access of cryptoassets can lead them to become vehicles for global money laundering.

Criminals are generally the earliest adopters of new technology. From the initial use case of automobiles as 'getaway cars' or malware to steal personal information in the early days of the internet, criminals were there first. This is because they are always on the hunt for new ways to commit old crimes and evade regulatory authorities using a new technology or methodology. However, this 'catch me if you can' phase of any technological development, where many of use cases are nefarious, is hindered once a comprehensive regulatory framework to tackle the risks is implemented.

It has been over a decade since Satoshi Nakamoto published the Bitcoin Whitepaper, and today the cryptoasset market and the regulation around it looks quite different. First of all, there are many more cryptoassets, exchanges and businesses operating in this space, which has grown into an industry measured in billions, rather than millions.

See:  An IOSCO report highlights crypto trading issues, but stops short of setting standards

As the value and use of cryptoassets have grown, so have the risks for financial crime. As cryptoassets enable digital value transfer across the globe, they enable a unique set of potential money laundering risks. As such, in HM Treasury’s three-year Economic Crime Plan, cryptoassets are identified as a growing conduit for global money laundering alongside the UK’s National Risk Assessment (NRA) and widespread concern about this typology among our Law Enforcement Agencies (LEAs).

Working hands-on with firms via the Regulatory Sandbox

When discussing financial innovation, regulation and cryptoassets it’s difficult not to mention an area in which we are different to every other financial services regulator. The FCA was the first to launch a 'Regulatory Sandbox'. Provided that firms are able to satisfy us that they meet several eligibility criteria, which includes showing proposition has a clear 'benefit' and is a 'genuine innovation'. In practice, this means showing our team that users of the service stand to receive a benefit beyond what’s possible in the market today, by using new technology or a novel business model. If they are successful, they are admitted to a cohort to test it in a controlled environment. So far, cryptoassets in regulated financial activities have been used in around 40% of tests and are the single most popular technology for testing.

In the first few cohorts, firms would primarily use cryptoassets like Bitcoin and Ethereum as an intermediate currency for money remittance. They would transfer fiat currency for crypto and then back into fiat currency in another jurisdiction, thereby bypassing the restrictive fees currently in place for money remittance and processing it faster than when using traditional remittance services – sending payments in minutes rather than days.

However, as the cryptoasset networks struggled to scale and transaction fees increased without commensurate growth in performance, firms stopped using cryptoassets for money remittance. Instead, we found them utilising the technology to explore the issuance of securities – debt and equity instruments – using cryptoasset networks (such as Ethereum) and using their 'smart contract' functionality.

See:  3 Ways Digital Assets Will Reshape The World

For example, in the sandbox, a firm tested settling a short-term debt instrument using a cryptoasset network to potentially streamline the traditional approach by removing the need for registrars and nominees. The test demonstrated that it was possible to meet legal and regulatory requirements. Benefits we observed were that it was cheaper and more transparent for investors and issuers as information was stored on a public network.

However, the cost savings from automation can lead to immutable transactions which are impossible to reverse if there’s a problem creating a new kind of risk. Also, the transparency provided by most cryptoasset networks can lead to front-running and new forms of market abuse and risk. However, overall for a regulator, it’s helpful to see these tests up close as they help to identify the various benefits and risks of new technology and our broader regulatory approach, including enforcement activity.

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NCFA Jan 2018 resize - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What? 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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FCA Publishes TechSprint Report

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The National Law Review | March 6, 2020

FCA TechSpring evolution report - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What?On March 3, the UK’s Financial Conduct Authority (FCA) published a report entitled, “Fostering innovation through collaboration: The evolution of the FCA TechSprint Approach” (the Report).

In the Report, the FCA explained that since April 2016 they have been holding TechSprints, which are also known as “Hackathons,” which involve bringing together computer programmers, interface designers and other experts to collaborate intensively over a short period of time on a software project. The purpose of this is to take advantage of the FCA’s “convening powers,” both as a regulator and RegTech thought leader.

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The seven TechSprints held so far ranged in size (from 40 to 200 participants), location (the most recent TechSprint was held in London and Washington DC, in parallel) and subject matter but were consistent in their application of the following “working principles”:

  • The solution or approach should enhance a firm’s regulatory compliance outcomes or promote enhanced outcomes for consumers;
  • The initiative is led by industry and characterized by multi-firm collaboration and participation;
  • The solution is developed in an open and transparent manner;
  • The initiative is made public, ensuring that other participants with genuine interest and contributions to make can be involved;
  • The FCA can participate in the discussion but are not being asked to endorse the solutions developed; and
  • Experimentation and the learnings this provides are of value and should be facilitated where possible.

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Download the PDF (34 pages):  Evolution of FCA TechSprint Approach Report -> here

 


NCFA Jan 2018 resize - Comment Period Ends on Proposal to Update the US Definition of an Accredited Investor. So Who Said What? 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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