Category Archives: Legal Issues and Regulation

New regime needed to take on tech giants

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Competition Markets Authority | Release | Jul 1, 2020

big tech and competition - New regime needed to take on tech giantsThe CMA is calling on the government to introduce a new pro-competition regulatory regime to tackle Google and Facebook’s market power.

The dynamic nature of digital advertising markets and the types of concerns identified by the Competition and Markets Authority (CMA) in its market study are such that existing laws are not suitable for effective regulation. It is therefore recommending a new pro-competition regulatory regime to govern the behaviour of major platforms funded by digital advertising, like Google and Facebook.

This recommendation to government is the result of a year-long examination of the markets. The CMA used its statutory information gathering powers to lift the lid on how advertising revenue drives the business model of major platforms.

The CMA’s concerns

UK expenditure on digital advertising was around £14bn in 2019, equivalent to about £500 per household. About 80% of this is earned by just 2 companies: Google and Facebook. Google enjoys a more than 90% share of the £7.3 billion search advertising market in the UK, while Facebook has a share of over 50% of the £5.5 billion display advertising market. Google’s revenue per search has more than doubled since 2011, while Facebook’s average revenue per user has increased from less than £5 in 2011 to over £50 in 2019.

See:  Big Tech takes aim at the low-profit retail-banking industry

The services provided by Facebook and Google are highly valued by consumers and help many small businesses to reach new customers. While both originally grew by offering better services than the main platforms in the market at the time, the CMA is concerned that they have developed such unassailable market positions that rivals can no longer compete on equal terms:

  • Their large user base is a source of market power – it means that Facebook is a “must-have” network for users to remain in contact with each other, and enables Google to train its search algorithms in ways that other search engines cannot.
  • Each has unmatchable access to user data, allowing them to target advertisements to individual consumers and tailor the services they provide.
  • Both use default settings to nudge people into using their services and giving up their data – for example Google paid around £1.2bn in 2019 to be the default search provider on mobile devices and browsers in the UK, while Facebook requires people to accept personalised advertising as a condition for using their service.
  • Their presence across many different markets, partially acquired through many acquisitions over the years, also makes it harder for rivals to compete.

Each of these factors individually presents a potential barrier to new competition, but together they work to reinforce each other and are extremely difficult to overcome.

These issues matter to consumers. Weak competition in search and social media leads to reduced innovation and choice, as well as to consumers giving up more data than they would like. Further, if the £14bn spend in the UK last year on digital advertising is higher than it would be in a more competitive market, this will be felt in the prices for hotels, flights, consumer electronics, books, insurance and many other products that make heavy use of digital advertising. The CMA found that Google’s prices are around 30% to 40% higher than Bing when comparing like-for-like search terms on desktop and mobile.

See:  FFCON20 Week 1: Scaling Fintech Funding, Innovation and Competition – July 9th Agenda Now Posted

Google and Facebook’s market positions also have a profound impact on newspapers and other publishers. The CMA has found that newspapers are reliant on Google and Facebook for almost 40% of all visits to their sites. This dependency potentially squeezes their share of digital advertising revenues, undermining their ability to produce valuable content.

The need for a new regime

The scale and nature of these issues mean that a new pro-competition regulatory regime is needed so that users can continue to benefit from innovative new services; rival businesses can compete on a level playing field and publishers do not find their revenues unduly squeezed. The CMA’s proposals are consistent with those made by Professor Jason Furman in his report for the government.

The CMA has proposed that within the new regime a ‘Digital Markets Unit’ should have the ability to:

  • enforce a code of conduct to ensure that platforms with a position of market power, like Google and Facebook, do not engage in exploitative or exclusionary practices, or practices likely to reduce trust and transparency, and to impose fines if necessary.
  • order Google to open up its click and query data to rival search engines to allow them to improve their algorithms so they can properly compete. This would be designed in a way that does not involve the transfer of personal data to avoid privacy concerns.
  • order Facebook to increase its interoperability with competing social media platforms. Platforms would need to secure consumer consent for the use of any of their data.
  • restrict Google’s ability to secure its place as the default search engine on mobile devices and browsers in order to introduce more choice for users.
  • order Facebook to give consumers a choice over whether to receive personalised advertising.
  • introduce a “fairness-by-design” duty on the platforms to ensure that they are making it as easy as possible for users to make meaningful choices.
  • order the separation of platforms where necessary to ensure healthy competition.

Whilst this recommendation is UK-focused, many of the problems that the CMA has identified are international in nature. It will therefore continue to take a leading role globally in relation to these issues as part of the CMA’s wider digital strategy.

See:  To Support Disruptive Technologies, Take Bigness Seriously

CMA Chief Executive Andrea Coscelli said:

Through our examination of this market, we have discovered how major online platforms like Google and Facebook operate and how they use digital advertising to fuel their business models. What we have found is concerning – if the market power of these firms goes unchecked, people and businesses will lose out. People will carry on handing over more of their personal data than necessary, a lack of competition could mean higher prices for goods and services bought online and we could all miss out on the benefits of the next innovative digital platform.

Our clear recommendation to government is that a new pro-competitive regulatory regime be established to address the concerns we have identified and regulate a sector which is central to all our lives.

 

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NCFA Jan 2018 resize - New regime needed to take on tech giants 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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Bank of Canada partners with the Bank for International Settlements to launch innovation centre

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Bank of Canada | Release | Jun 30, 2020

Bank of Canada building - New regime needed to take on tech giantsThe Bank for International Settlements (BIS) and the Bank of Canada announced today they will be launching a BIS Innovation Hub centre to advance fintech innovation within the central banking community. The centre will open in Toronto within two years and is one of four locations scheduled to open in North America and Europe.

This partnership will advance the Bank’s understanding of the digital economy and the technological transformation of financial services. It builds on the Bank’s existing research and collaboration with partners in the central bank and technology communities on digital currencies and fintech.

“We’re proud to host a BIS innovation centre in Toronto and to strengthen our collaboration with other central banks and the private sector on digital technologies,” said Bank of Canada Governor Tiff Macklem. “This partnership will allow the Bank to continue its work on behalf of Canadians to explore how technology will shape the future of our economy and financial system.”

See: 

 “Toronto is an ideal location for a regional BIS innovation centre,” said Eric Santor, Advisor to the Governor on Digitalization. “The centre will be well-placed to identify key technology trends and contribute to the development of innovative solutions to benefit and enhance the global financial system.”

Notes

  • The BIS announced on June 30, 2020 its expansion of the BIS Innovation Hub to four new locations in Europe and North America.
  • The BIS Innovation Hub was established in 2019 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.

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NCFA Jan 2018 resize - New regime needed to take on tech giants 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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5 Trends to Watch in Fintech Regulation

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Finance Magnates | Matthew Unger | Jun 20, 2020

regulatory tech fintech trends - New regime needed to take on tech giantsWhat will have the biggest impact?

During the last decade, financial technology has improved dramatically, moving from mainframe trading computers and COBOL to mobile banking and blockchains. Never before have we been at such a critical inflection point as money, contracts, and regulations are combined into almost infinitely scalable code. Remote operations and contactless procedures are becoming the new normal, those financial services providers who previously resisted digitization now find themselves in a race for survival.

As with any “gold rush”, this frenzy brings new opportunities for exploitation, fraud, theft, etc. One only has to review the Wild West scenarios that played out in the cryptocurrency sector to recognize the potential for fintech to be used to either create or extract value. While some made fortunes in the early crypto days, others lost a lot. Hotter than the cryptocurrency and ICO wave of 2015-2017, fintech platforms are growing faster than ever before.

See: 

Within the realm of fintech exist neo-banks, challenger banks, incumbents, and disruptors, each with unique threats, opportunities, and unit economics. From a technology perspective, fintech today has the capacity to perform nearly all core operations – yet, few financial services providers have been able to fully digitalize the front office experience, much less mid and back office operations. For example, most institutions cannot open a new bank account for a new SPV of an existing client.

While incumbents, tech giants, and startups race towards 100% digital delivery of nearly all financial products and services. New technologies, such as blockchain powered digital assets, have received constant media coverage but still only account for less than 1% of the addressable market. Registered financial services providers need clear regulatory guidance in order to take advantage of the benefits of blockchain technology.

Beyond blockchain technology, we are at the forefront of major shifts in regulation on virtual assets, data governance, privacy, custody, exchange, payments, KYC, and AML. The “new normal” has captured the attention of regulators, law societies, and governments globally. Digital delivery is contactless delivery.

As new technology such as e-signatures, blockchain, artificial intelligence, and cloud computing are only now being accepted by regulators, law societies, and governments we are going to revolutionize what is possible for digital finance. On a global scale, regulations change constantly – however, these five trends are likely to have the biggest impact.

3. Virtual Assets Service Providers Join the FATF

Last year, the FATF published new guidance that included definitions of both virtual assets and virtual asset service providers (VASPs). Around the world, financial intelligence units (FIUs) – such as FinCEN in the USA – have local

updates of their interpretation of the FATF definitions with most coming into effect as of June 2020.

See:  FATF Travel Rule interview with iComply: Cryptocurrency is Meant to be Trustless, Not Anonymous

Combined with the “Travel Rule”, as well updates to payments and custodial regulations, VASPs that implement compliance by design into their platforms stand to earn billions. A recent analysis of Facebook’s Whatsapp payment service in Brazil estimated first year revenues of $8.7B, and $17B by year two.

No doubt, VASP regulation is a tool that Facebook will leverage to bring Libra to market. Currently operational VASPs, such as Binance now earn billions per quarter. With virtual asset regulation now in effect, more traditional financial service providers will be able to explore the use of virtual assets in their businesses.

2. Digital Reporting

Many new fintechs underestimate the cost of the regulatory burden in their business model. Whether it is filing securities registration or exemption forms, documenting and reporting suspicious activities, managing know your customer, or maintaining cybersecurity compliance – regulatory reporting has traditionally been an onerous and manual process.

Many regulators, such as FinTRAC in Canada, have recently rolled out enhanced digital reporting systems that support REST APIs and batch reporting. Government agencies and law societies are recognizing that physical documents and face to face meetings now present health risks, liability, and business continuity threats.

3. Increasing Pressure on Compliance in Communications

As regulators themselves upgrade their toolkits they are also better able to supervise their markets digitally. Regulators such as MAS in Singapore or BCSC in British Columbia are actively targeting businesses that offer their services digitally, without maintaining local licensing or reporting requirements.

See:  Singapore Poised to Allow Crypto Derivatives on Approved Venues

As more regulators enhance their capabilities beyond digital reporting, they are becoming more efficient and better able to focus their efforts. This not only reduces regulatory burden for financial services providers, it makes life a whole lot easier for their clients.

Technologies such as natural language processing, big data, machine learning, etc are able to go well beyond analyzing inbound data feeds and with greater digital adoption can monitor the market at scale. While it is still early for the “Suptech” sector, regulators are starting to be equipped with the tools that enable them to separate signals from the noise.

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NCFA Jan 2018 resize - New regime needed to take on tech giants 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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New York to relax cryptocurrency rules

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Finextra | Jun 15, 2020

New York City - New regime needed to take on tech giantsNew York's financial regulator is preparing to remove a number of regulatory hurdles impeding the development of cryptocurrency businesses in the US state.

Virtual currency firms wanting to conduct business in New York currently have to apply for a BitLicence, which can take years to process.

Under the new regime, firms will be able to apply under a new 'conditional licensing framework' that makes it easier for start-ups to enter the New York market by piggy-backing on the licences already authorised by DFS.

Superintendent Linda Lacewell, says: “The DFS actions announced today in consultation with numerous industry participants and the public will boost responsible innovation and help get New York’s economy back on its feet. DFS is proud to foster accessibility and will continue to blaze a trail in the virtual currency marketplace.”

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As part of the initiative, the financial regulator has signed an MoU with State University of New York (Suny) to launch a new Suny-related virtual currency program, under which participating startups will also be able to apply for a conditional licence. Once licensed by DFS, Suny Block will be able to support nascent virtual currency entities from local communities, including those started or run by students or alumni.

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NCFA Jan 2018 resize - New regime needed to take on tech giants 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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OSC announces leadership of new Office of Economic Growth and Innovation

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OSC | Release | June 17, 2020

OSC open door - New regime needed to take on tech giantsOSC’s Pat Chaukos to lead the Office; entrepreneur and financial industry veteran Doug Steiner joins the OSC in senior advisory role

TORONTO - The Ontario Securities Commission (OSC) today announced the leadership of its newly-established Office of Economic Growth and Innovation (Office). A central part of the Ontario Government’s five-point capital markets plan, the new office focuses on accelerating innovation, bolstering capital formation and reducing regulatory burden in Ontario’s capital markets.

The Office is led by Pat Chaukos as Director, who will work in collaboration with Doug Steiner, who joins the OSC in the unique role of Executive Advisor, Innovation.

As Director, Pat Chaukos will lead the Office in the development, implementation and maintenance of programs that focus on innovation and economic growth and will ensure that market participants’ input is appropriately considered in all OSC policy making and operational programs.

See:  How regulatory collaboration transformed markets

Pat has both a legal and accounting background, with nearly 20 years of progressively senior regulatory experience, most recently leading the OSC LaunchPad team from its start as a pilot program to its current integral role in supporting Ontario’s innovation community. LaunchPad was the first dedicated team by a securities regulator in Canada to help innovative businesses navigate securities law requirements and accelerate time-to-market.

“I am excited to bring together my regulatory experience and insights from working with the fintech community to further our progress in making regulation more efficient, removing pain points, and supporting Ontario’s economic growth,” Chaukos said.

Doug Steiner joins the OSC in the role of Executive Advisor, Innovation, effective June 22, 2020. Working closely with Pat, the Office and executives across the OSC, Doug will advise the OSC Chair and other senior leaders on opportunities to support innovation in Ontario’s capital markets, and on ways the OSC can use innovative applications and technology in its regulation and operations.

“The basis of change in finance comes from many places, and embracing new approaches is critical to Ontario’s economic competitiveness,” Steiner said. “I couldn’t pass up an opportunity to work with an organization like the OSC where there is both a desire and mandate to champion innovation.”

Doug has an extensive career in Canadian financial services, with a focus on innovation and entrepreneurship. He has started, run and sold several businesses, and been involved in early-stage funding for technology startups and providing advisory services for firms in finance, media and technology. He has extensive experience helping companies develop systems and products to lower the cost of investing and saving. Doug is also a past member of the OSC’s Chairman’s Advisory Board.

See:  Lagging regulation, consumer trust inhibiting FinTech adoption in Canada

The Office will expand the work of OSC LaunchPad through deeper engagement with businesses and support for a strong Ontario innovation ecosystem. It will be accountable for driving the implementation of the initiatives set out in the OSC’s 2019 Reducing Regulatory Burden in Ontario’s Capital Markets report, and for driving other changes to its rules, regulatory operations or processes to reduce burden. In addition, the Office will conduct extensive outreach with the market, innovation hubs, other regulators and government to identify opportunities for the OSC to champion innovation and economic growth.

It will take some time to build the new Office to its full capacity, and in the current circumstances related to the COVID-19 pandemic, the building of the core components of the team will begin once the OSC resumes its normal business operations.

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in the capital markets, and to contribute to the stability of the financial system and the reduction of systemic risk.  Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at http://www.osc.gov.on.ca

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NCFA Jan 2018 resize - New regime needed to take on tech giants 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 Fed Chair Says Private Entities Should Not Help Design Central Bank Digital Currencies

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Coindesk | Nikhilesh De | Jun 17, 2020

jerome powell on CBDC - New regime needed to take on tech giantsPrivate entities aren’t needed to build central bank digital currencies, said the head of the U.S. central bank on Wednesday.

Federal Reserve Chairman Jerome Powell, speaking before the House Financial Services Committee, said the idea of a digital dollar – referring to a blockchain-based version of the current world reserve currency in response to a line of questioning from Rep. Tom Emmer (R-Minn.) – is complex, and one that the Fed takes seriously, but also that the idea needs to be studied further before one can be created and implemented.

Powell said he believed private entities did not have a role in designing a digital dollar. “I do think this is something that the central banks have to design,” he said. “The private sector is not involved in creating the money supply, that’s something the central bank does.”

Emmer was asking specifically about a recommendation from the Digital Dollar Project, which was launched earlier this year by former Commodities Futures Trading Commission Chairman J. Christopher Giancarlo, Chief Innovation Officer Daniel Gorfine and Accenture Director David Treat. The project suggested a digital dollar be issued by the Fed but designed in partnership with the private sector and accessible through a two-tiered banking system similar to the one in place in the U.S. today.

See:

Powell said the general public may not be receptive to the idea of private employees being responsible for the money supply because they’re not accountable to “the public good.”

Still, the idea is apparently being examined. A group of central banks have gotten together to discuss and better understand the concept as well as evaluate the implications on financial inclusion and concerns around cybersecurity, he said.

“If this is something that is going to be good for the United States economy and for the world’s reserve currency, which is the dollar, then we need to be there and we need to understand it first and best,” Powell said. “So we’re working hard on it.”

“It’s our obligation to understand it well and not wake up one day and realize that the dollar is no longer the world reserve currency because we just missed a technological change,” he said. “So we’re not going to let that happen but at the same time there’s some very serious questions that have to be answered before we would want to implement a central bank digital currency.”

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NCFA Jan 2018 resize - New regime needed to take on tech giants 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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QuadrigaCX: A Review by Staff of the Ontario Securities Commission

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OSC | Staff | Jun 11, 2020

QuadricaCX OSC review - New regime needed to take on tech giantsExecutive Summary

The downfall of crypto asset trading platform QuadrigaCX (Quadriga) resulted from a fraud committed by Quadriga’s co-founder and CEO Gerald Cotten (Cotten). Clients entrusted their assets to Quadriga, which provided false assurances that those assets would be safeguarded. In reality, Cotten spent, traded and used those assets at will. Operating without any proper system of oversight or internal controls, Cotten was able to misuse client assets for years, unchecked and undetected, ultimately bringing down the entire platform.

Cotten was able to misuse client assets for years, unchecked and undetected, ultimately bringing down the entire platform.

The collapse of Quadriga caused massive losses for investors from Canada and around the world. On January 14, 2019, Quadriga announced that Cotten had died in India the previous month. By February 5, the Quadriga platform had ceased operations and filed for creditor protection. Over 76,000 clients were owed a combined

in assets. Approximately 40 per cent of these clients were Ontarians. Ernst & Young, the bankruptcy trustee, was able to recover or identify just $46 million in assets to pay out to clients. The people who trusted Quadriga with their money and crypto assets collectively lost at least $169 million.

See:  Unstable coins: cryptoassets, financial regulation and preventing financial crime in the emerging market for digital assets

Staff of the Ontario Securities Commission (OSC) undertook a review of Quadriga’s business operations to determine how the platform was run, what caused its collapse, and where the money went. Over a period of approximately ten months, a multi-disciplinary team of Enforcement Branch Staff analyzed trading and blockchain data, interviewed key witnesses and collaborated with numerous regulatory bodies in Canada and abroad.

It has been widely speculated that the bulk of investor losses resulted from crypto assets becoming lost or inaccessible as a result of Cotten's death. In our assessment, this was not the case. The evidence demonstrates that most of the $169 million asset shortfall resulted from Cotten's fraudulent conduct, which took several forms.

The bulk of the asset shortfall—approximately $115 million—arose from Cotten's fraudulent trading on the Quadriga platform. Cotten opened Quadriga accounts under aliases and credited himself with fictitious currency and crypto asset balances which he traded with unsuspecting Quadriga clients. He sustained real losses when the price of crypto assets changed, thereby creating a shortfall in assets to satisfy client withdrawals. Cotten covered this shortfall with other clients’ deposits. In effect, this meant that Quadriga operated like a Ponzi scheme.

Cotten lost an additional $28 million while trading client assets on three external crypto asset trading platforms without authorization from, or disclosure to, clients. He also misappropriated millions in client assets to fund his lifestyle. In its final months, Quadriga had almost no assets left and was operating like a revolving door—new client deposits were immediately re-routed to fund other clients’ withdrawals.

What happened at Quadriga was an old-fashioned fraud wrapped in modern technology. There is nothing new about Ponzi schemes, unauthorized trading with client funds and misappropriation of assets. Crypto asset trading platforms, however, are novel and the regulatory framework for these platforms is evolving. Quadriga did not consider its business to involve securities trading and it did not register with any securities regulator. This lack of registration facilitated Cotten's ability to commit a large-scale fraud without detection. So did the absence of internal oversight over Cotten. From 2016 onwards, Cotten was in sole control of a company that had hundreds of thousands of clients and transacted over a billion dollars of fiat currency-denominated assets and over five million crypto asset units. He ran the business as he saw fit, with no proper system of internal oversight or controls or proper books and records.

See:  QuadrigaCX Aftermath: The Bigger Picture

Similarly, Quadriga clients could not have known what Cotten was doing. Under the Quadriga business model, clients entrusted their money and crypto assets to Quadriga. Quadriga provided no meaningful insight into how those assets were being stored, moved and spent. To the contrary, Quadriga provided false assurances about asset storage. Clients had no means of verifying these claims or obtaining meaningful information about the handling of their assets. This lack of transparency also facilitated Cotten's fraud.

Under normal circumstances, these findings would likely have led to an enforcement action against Cotten and/or Quadriga. However, this is not practical given that Cotten is deceased and Quadriga is bankrupt, with its assets subject to a court-supervised distribution process. Nevertheless, we believe it is in the public interest to share our findings with the public to help investors understand what happened to Quadriga and hopefully prevent this type of situation from recurring.

The misconduct we uncovered in relation to Quadriga is limited to Quadriga and should not be understood as applying to the crypto asset platform industry as a whole. Properly conducted, crypto asset trading is a legitimate and important component of our capital markets. We remain committed to working with this industry to foster innovation. Financial innovation has always been critical to the health of our economy and the competitiveness of our capital markets.

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NCFA Jan 2018 resize - New regime needed to take on tech giants 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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