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Category Archives: Regtech, Compliance, Governance

EU Grants Final Approval of AI Act, Effective 2026

AI Regulation | May 24, 2024

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The Council of the European Union greenlights the first Artificial Intelligence (AI Act) Regulation

The Artificial Intelligence Act (AI Act) was given final approval on May 21, 2024 by the Council of the European Union, possibly setting a new global standard for AI regulation.  This regulation aims to protect the fundamental rights of the EU citizens while supporting innovation and the development of AI technologies.  The Act exclusively applies under the EU legal framework with some exemptions for military, defence, and research applications.

Here's the timeline of events...

Risk-Based Approach in AI Regulation

The AI Act is based on a 'risk-based' approach and classifies AI systems in three groups, considering the potential harm they could cause to society.

See:  Australia to Regulate High-Risk Artificial Intelligence

  1. If an AI System is determined to be a 'Limited Risk', limited transparency obligations will apply.
  2. If the AI System is categorized as 'High-Risk', it will be able to operate but under strict requirements and obligations.
  3. The AI system will be considered falling into one of the 'Prohibited AI Practices' if in other words, the practice will result in banning and the same is causing unacceptable risks, including cognitive-behavior manipulation, social scoring, predictive policing rooted in profiling, and systems that classify users based on race, religion, or sexual orientation using biometric data.

Governance and Enforcement

  • AI Office representing the European Commission where the rules get applied
  • A Scientific Panel of independent professionals who will provide enforcement support
  • An AI Board to advise and assist the Commission and the Member States on the consistent application of the AI Act
  • An Advisory Forum comprised of technical experts who will advise the AI Board and the Commission

Penalties for Non-Compliance

Fines for non-compliance will be either the maximum value of a percentage of the company's annual global turnover (for the previous financial year), or a predetermined amount, whichever is higher.

See:  EU: MiCA, DORA, Open Finance Framework, and Digital Euro

Fines are meant to be a serious deterrent, especially for larger organizationsSmaller companies and startups will receive proportional fines and relatively to their financial capacity.

Next Steps

After the assent, the AI Act still needs to be signed by both the presidents of the European Parliament and Council, and to be published in the EU's Official Journal with the regulation taking effect twenty days after its publication in the journal and with implementation starting two years later in 2026, except for a few provisions.  This is global regulatory milestone that will hopefully result in responsible AI development and innovation to the benefit of society worldwide.


NCFA Jan 2018 resize - EU Grants Final Approval of AI Act, Effective 2026The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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EU: MiCA, DORA, Open Finance Framework, and Digital Euro

Regulation | May 23, 2024

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Key Digital Finance Legislation in the European Union

Digital finance in the EU refers to all financial services and instruments that rely on new Information and Communications Technology (ICT) from digital payment services and instruments to new market infrastructure for crypto assets using distributed ledger technologies. Below is an overview based on the European Parliament's briefing update on 'Digital Finance Legislation:  Overview and State of Play".  It is quite essential for the regulation and framework set upon by the EU to find a balance between innovation and digitization that will in turn provide an environment that is safe both for risk management and the consumers' protection.

2020 Digital Finance Package

Collectively, the digital finance regulations are called, "The 2020 package" and they are a foundational regulatory framework focusing on:

  1. Tackling market fragmentation
  2. Facilitating digital innovation
  3. Promoting a financial data space
  4. Addressing new digital finance challenges

See:  EU Lawmakers Approve Historic AI Regulation Act

Overall, the package aims to improve market efficiency, strengthen consumer protection and support innovation by:

  • Streamlining digital finance regulations
  • Providing clear regulatory frameworks for digital finance innovations
  • Providing a supportive regulatory environment, fostering new financial technologies

Four (4) Key Digital Finance Regulations

1. Markets in Crypto-assets Regulation (MiCA)

MiCA regulation is set out in such a way that it safeguards consumers and firms using crypto-assets and facilitates innovation.  The regulation will secure a sound and transparent legal basis for crypto-assets market, harnessing the potential of innovation while ensuring financial stability.

The above regulation is going to achieve such factors:

  • A clear and robust legal framework of DLT-based crypto-assets.
  • Enhanced protections of consumers and investors' interests, and finally
  • Ensuring market integrity and promoting innovation

Status: Enforcement since June 2023

Key Dates: Measures under Level 2 should be applicable by December 2024

2. Digital Operational Resilience Act (DORA)

DORA regulation is designed to ensure the financial sector is resilient to ICT-induced disruptions and cyber-attacks.  It enhances operational resilience and cybersecurity in financial operations by requiring detailed documentation and management of risks.

DORA has the following objectives:

  • Effective ICT operation
  • Governance and control framework for ICT
  • Effective third-party risk management

Status: Enforcement by January 2023

Key Dates: The law will be applicable by 17 January 2025

3. Open Finance Framework

This is a framing of infrastructures that allow for access to financial data.  This will allow consumers and small and medium enterprises to share data securely with third-party service providers.  The legislation gives consumers control and access to their financial data, thereby enabling innovation in competitive financial services.

See:  Small Step Forward As Canada Publishs Straw-man Open Banking Framework

This framework has the following objectives:

  • Access to data for businesses and consumers from institutions without any hindrance
  • A visionary protection of data under GDPR

Status: The legislative proposal for the same was put forth in June 2021.

Key Dates: The process is at the state of being in the legislative process.

4. Digital Euro

Digital Euro is a project through which ECB seeks to acquire a form of the digital euro which they seek to supplement with what is already physical currency.  This will pave the way for modernizing the EU payment infrastructure to allow secure and efficient digital transactions.

As per the ECB, Digital Euro would serve the following purposes:

  • Reduce dependency on non-EU payment service providers
  • Adapt to the growth in digital payment trends
  • Strengthen strategic autonomy of the European Union in the financial sector

See:  Open Banking: Revolutionizing Financial Data Sharing

Status: It has the same status—legislative proposals introduced in June 2021.

Key Dates: The adoption of the legislative mandates is pending.

Conclusion

EU digital finance legislation will be a foundational building block for a secure, innovative, and competitive financial ecosystem. The regulations will enhance market efficiency, ensure consumer protection, and foster technological advancements in the financial sector.


NCFA Jan 2018 resize - EU:  MiCA, DORA, Open Finance Framework, and Digital EuroThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Uniswap’s Ready For SEC Battle. Responds to Wells Notice

DeFi Legal Battle | May 23, 2024

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Uniswap Legal War with the SEC: A DeFi Test Case

Concurrent to the recent passing of the FIT21 bill by the U.S. House, the ongoing legal battle between Uniswap and the U.S. Securities and Exchange Commission (SEC) is a monumental test case for decentralized finance (DeFi) with regulatory implications and challenges facing open-source financial systems globally.  The SEC has accused Uniswap of operating an unregistered securities exchange and claims that its UNI token constitutes an investment contract. On the other hand, Uniswap counters these allegations by emphasizing the decentralized nature of their protocol.

Uniswap argues that its software is autonomous, enabling peer-to-peer transactions without the need for intermediaries. This, they claim, exempts them from the definition of a securities exchange.  Uniswap’s protocol has demonstrated remarkable efficiency and security, facilitating over $2 trillion in trading volume without significant security breaches. This achievement highlights the potential for DeFi platforms to provide efficient, secure, and transparent financial services, potentially surpassing the capabilities of traditional financial systems.

Legal Precedents and Weak SEC Case

Uniswap’s legal team, which includes former high-profile SEC officials, is focused on the perceived weaknesses in the SEC’s case. They argue that historical court decisions have often favored technological innovation over restrictive regulations. This precedent suggests that the courts may lean towards supporting Uniswap’s position, recognizing the transformative potential of decentralized technologies.

See:  SEC Issues Wells Notice to Uniswap. Another Legal Showdown

Uniswap asserts on their most recent blog post 'the fight for DeFi continues' that the SEC accusations are weak:

"These assertions assume that value represented in a specific digital file format is a security – and that the SEC can unilaterally extend the definitions of exchanges, brokers and contracts to the point of meaninglessness. A token is a file format, like a PDF. The Protocol is a general purpose computer program that anyone can use and integrate, like TCP/IP. And the hundreds of thousands of users who received UNI tokens for their participation in the protocol’s early days received the token for free, with no contract, and without expectations of profit solely from the efforts of Uniswap Labs."

Response to SECs Wells Notice

Uniswap made several key arguments in their 43 page wells notice response defense against the SEC's allegations.

  • Uniswap argued that their protocol is decentralized, autonomous software enabling peer-to-peer transactions without intermediaries, which means it does not fit the definition of a securities exchange.
  • The UNI token is primarily a governance token that allows holders to vote on protocol changes, not an investment contract.

See:  Avi Eisenberg Trial: DeFi’s Legal Boundaries Tested

  • Uniswap Labs does not control or maintain the protocol, akin to how no single entity controls Bitcoin.
  • Uniswap does not solicit users to engage in trading activities or provide investment advice.
  • Uniswap does not take custody of user funds, which negates the claim of it being a clearing agency.
  • Citing previous court decisions that favored technological innovation, Uniswap argued that their protocol does not meet the statutory definitions of an exchange, broker, or clearing agency under the SEC's current regulations.
  • Uniswap asserted that the SEC lacks the congressional authority to regulate the protocol as an exchange under the major questions doctrine, which requires clear authorization from Congress for such significant regulatory actions.
  • They claimed the SEC failed to provide fair notice that their conduct could be considered unlawful, as required under due process principles.
  • Uniswap emphasized that an enforcement action would harm the public interest by stifling innovation, forcing companies offshore, and depriving U.S. investors of the benefits of decentralized finance.
  • They highlighted the economic impact and the protocol’s efficiency and cost-saving benefits for users, arguing that these innovations should be encouraged rather than penalized.

These arguments collectively aim to demonstrate that Uniswap's operations are fundamentally different from traditional financial intermediaries and should not be subject to the same regulatory framework.

Impact of FIT21 on Uniswap vs. SEC Case

The recently passed Financial Innovation and Technology for the 21st Century Act (FIT21) does have implications for the Uniswap vs. SEC case. Here’s how it might impact the case.

See:  SEC Issues Wells Notice to Robinhood Over Crypto

  • The FIT21 Act includes establishing criteria to determine the level of decentralization for blockchain networks and clarifying that an asset delivered pursuant to an investment contract is not necessarily a security itself​
  • There's also a provision for certifying the decentralization of blockchain networks, which involves public comments and SEC review.  The act’s emphasis on decentralization might favor Uniswap's stance that their operations do not fit traditional definitions requiring SEC registration.
  • Joint SEC and CFTC oversight could introduce a more balanced regulatory approach, potentially reducing the SEC’s unilateral enforcement power. Uniswap could benefit from this dual-agency oversight, leveraging CFTC’s more commodity-focused perspective on digital assets.
  • Additionally, the Blockchain Regulatory Certainty Act (BRCA), provides legal certainty for non-custodial entities so developers and infrastructure providers that do not custody or control user funds, ensuring they are not considered money transmitters​.

Conclusion

The Uniswap vs SEC battle is one for the ages that tests the application of traditional securities regulations to new and innovative technologies like DeFi.  The crypto world is watching and the outcome along with the potential enactment of FIT21 will establish significant precedents for the future of DeFi regulation and influence compliance strategies globally.


NCFA Jan 2018 resize - Uniswap's Ready For SEC Battle. Responds to Wells NoticeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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U.S. House passes FIT21 with Bipartisan Support

Crypto | May 23, 2024

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The U.S. House of Representatives has officially passed the Financial Innovation and Technology for the 21st Century Act (FIT21)

Now, crypto in America is one step closer to getting the bill that will regulate digital assets in the country. That passage of FIT21 with bipartisan support shows growing consensus of the need for clear regulatory frameworks that foster crypto innovation while protecting consumers.

Vote Stats

FIT21 passed with a notable majority with bipartisan collaboration:

  • Total Votes in Favor: 279
  • Democratic Support: 71 Democrats voted in favor
  • Republican Support: 208 Republicans voted in favor
  • Votes Against: 136, most by the Democrats due to some reservations that they hold about some of the bill's regulatory provisions

Key Features of the FIT21 Bill

  • Remove the confusion between the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) regarding which regulator is actually in charge. The current confusion leaves users vulnerable to fraud and stifles innovation in the sector.

See:  Responsible Development of Digital Assets (Crypto): Decoding Biden’s Executive Order

  • It ensures the appropriate consumer protections are in place to help prevent scenarios like the collapse of FTX, safeguarding customer funds.
  • With a clear regulatory framework, it will make the U.S. more attractive for digital asset innovation and stop the exodus of talent and firms to other, more cryptocurrency-friendly, jurisdictions.

Next Steps

The passing of the FIT21 in the House is a significant milestone, but it is not the end of the road. It will now go to the Senate for further consideration. Meanwhile, President Joe Biden has earlier expressed doubts regarding the enactment of pro-crypto legislation, constituting a possible challenge​.


NCFA Jan 2018 resize - U.S. House passes FIT21 with Bipartisan SupportThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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FINTRAC Guidance on Bitcoin ATMs and Money Laundering

Bitcoin ATM Guidance | May 16, 2024

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The Role of Crypto ATMs in Laundering Proceeds of Crime

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has issued a Sectoral and Geographic Advisory "The Role of Virtual Currency Automatic Teller Machines in Laundering the Proceeds of Crime" to highlight the risks and provide guidance to businesses, financial institutions, and the public.  Cryptocurrency has revolutionized the financial landscape, offering unprecedented accessibility and anonymity. However, these advantages also attract illicit activities. One growing concern is the use of virtual currency automated teller machines (ATMs) in laundering proceeds of crime.

Understanding Crypto ATMs

Virtual currency ATMs, also known as Bitcoin ATMs, are internet-linked terminals allowing users to exchange fiat currency, such as Canadian dollars, for cryptocurrencies. Unlike traditional ATMs, these machines do not require a bank account, directly connecting users to the virtual currency exchange. While most transactions are legitimate, the ease of converting cash to crypto makes these ATMs an attractive tool for money laundering.

Geographic Hotspots

FINTRAC's advisory identifies significant risks associated with virtual currency ATMs. Based on suspicious transaction reports, key hotspots include the Greater Toronto Area, Greater Montréal Area, and Metro Vancouver, with notable volumes of suspicious activities also in Edmonton, Calgary, Winnipeg, Nelson, Abbotsford, Victoria, Ottawa, and Hamilton.

See:  Tornado Cash Developer Sentenced 5 Years Prison

These machines are pivotal in the "placement stage" of money laundering, where illicit cash is converted into virtual currency, making the source of funds difficult to trace. Criminals use various techniques to obscure the identity of those controlling the funds, including falsified identities and money mules.

Emerging Trends and Techniques

The advisory highlights several trends and techniques used by criminals:

  • Structured deposits is a red flag.  Depositing funds in amounts just below reporting thresholds, often using multiple virtual currency ATMs and different phone numbers to avoid detection.
  • Utilizing channels that are more complicated to track such as private wallet addresses, darknet markets, online gambling platforms, high-risk exchanges, peer-to-peer exchanges, and mixers to launder funds.
  • Fraudsters coaching and manipulating victims over the phone to complete transactions, often seen in video monitoring footage from ATMs.

Compliance and Due Diligence

FINTRAC emphasizes the importance of compliance. Virtual currency ATM operators must implement robust policies, procedures, and internal controls, including client identification and ongoing monitoring of high-risk transactions.

See:  Metacrime in the Metaverse

Failure to comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) can result in severe penalties, including fines up to CAN $2,000,000 and imprisonment.

Consumer Awareness and Protection

Consumers are urged to be cautious of scams involving virtual currency investments. Fraudulent schemes often solicit investments through social media or impersonate government agencies to extort payments. Individuals should thoroughly research any virtual currency exchange or investment opportunity and be wary of offers that seem too good to be true.

How to Report Suspicious Activities

If you encounter suspicious transactions or suspect money laundering or terrorist financing activities, report them to your financial institution and FINTRAC. In urgent cases, contact local law enforcement. Victims of fraud are encouraged to report to the Canadian Anti-Fraud Centre.

Download the 9 page PDF Guidance on Crypto ATMs and Money Laundering --> here


NCFA Jan 2018 resize - FINTRAC Guidance on Bitcoin ATMs and Money LaunderingThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Balancing Fintech Innovation and Regulation

Regulating Innovation | May 16, 2024

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Balancing Innovation and Regulation in Financial Services. Key Messages and Insights from Governor Michelle W. Bowman's Speech

In a recent speech at the Digital Chamber DC Blockchain Summit 2024, Governor Michelle W. Bowman of the Federal Reserve provided a comprehensive view on the balance between innovation and regulation in the financial services sector. This article delves into the key messages from her speech, exploring the implications for financial institutions and the burgeoning fintech industry.

1. Emphasizing the Importance of Understanding Innovation

Governor Bowman underscores the necessity of a thorough understanding of financial innovations, suggesting that effective policy-making hinges on regulators' and financial institutions' deep comprehension of new technologies. She said:

"Before we craft a useful public policy around innovation in banking, we need to understand the various dynamics involved with particular innovations."

See:  Insights from the UK’s Pro-Innovation Regulation Review

This approach demands that both regulators and financial institutions invest in knowledge and frameworks that can accurately assess the impact and scope of new technologies, such as blockchain and digital currencies. It's a call for a more informed regulatory process that recognizes and accommodates the fast-paced evolution of financial technologies.

  • Regulators should invest in continuous education and training programs to keep their teams updated on technological advancements.
  • Encourage partnerships between regulatory bodies and fintech companies to foster a mutual understanding of technological impacts.
  • Governments and private entities should fund collaborative research into new financial technologies to better understand their implications before they reach the market.

2. The Dual Role of Innovation and Regulation

Bowman discussed the intrinsic dual nature of innovation—its potential to improve efficiency and competition, and its ability to introduce new risks:

"Innovation can lead to greater efficiency, and it can promote competition in the market... [but] innovation is inevitably accompanied by risk."

For fintechs and financial institutions, this confirms the need for a balanced approach that does not stifle innovation with overly rigid regulations, while still protecting consumers and maintaining systemic stability.  She points out that innovation can greatly enhance efficiency and competition but also brings new risks that must be managed thoughtfully.

See:  Balancing AI Innovation and Intellectual Property Rights: Key Insights from the U.S. Senate Subcommittee Hearing

  • Develop regulatory frameworks that are flexible enough to accommodate new innovations but robust enough to safeguard systemic stability.
  • Regularly update risk assessment protocols to include new risks brought about by technological advancements.
  • Increase efforts to educate consumers on the benefits and risks of new financial products and services.

3. Openness to Innovation

Emphasizing the need for regulatory bodies to be open to innovation, Bowman pointed out the typical initial resistance against new technologies and methodologies in the financial sector:

"The use of emerging technology and innovation may require a change in policy or supervisory approach."

This openness is crucial for fostering an environment where new financial technologies can thrive. Regulatory bodies need to be agile, adapting their frameworks to facilitate advancements rather than obstruct them.

See:  Challenges in Global Crypto Regulations – Lessons from Dubai

  • Create environments where fintechs can test new products under regulatory supervision.  So adopt open regulatory sandboxes that support innovation.
  • Hold frequent stakeholder forums that bring together regulators, fintechs, and traditional financial institutions to discuss innovation.
  • Establish clear and accessible channels for businesses to provide feedback on regulatory practices that affect innovation.
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4. Promoting Innovation Through Regulation

Bowman proposed that regulatory frameworks should not only manage but actively promote innovation:

"Regulators can do more than simply tolerate innovation, they can promote it through transparency and open communication."

See:  The Global Effort to Level the Playing Field with Tech Giants

This suggests a proactive role for regulators in the innovation process, which could include providing clearer guidelines and quicker feedback on new financial products and technologies. Such involvement could enhance the overall effectiveness and reach of financial services.

  • Regulators should provide clear, concise, and publicly accessible guidelines for compliance with new financial technologies.
  • Encourage and support pilot programs that allow financial institutions to explore new technologies in a controlled environment.
  • Improve communication channels between regulators and financial institutions to ensure that all parties are aligned on the expectations and benefits of new technologies.

5. Ensuring Safety and Compliance

The Governor stressed the importance of maintaining safety and compliance within innovative practices:

"Innovation and regulatory and legal requirements can coexist—providing both enhanced capability and regulatory compliance."

See:  FCA Speech: Adapting Culture to Meet Changing Societal Norms and Consumer Expectations

For financial institutions and fintechs, this means that while innovation is necessary, it cannot come at the expense of legal and regulatory obligations. Ensuring that new technologies adhere to these standards is essential for their sustainable integration into the financial landscape.

  • Ensure that new financial products are designed with compliance and safety in mind from the outset.
  • With the adoption of new technologies, reinforce and strengthen cybersecurity protocols to protect consumer data and financial assets.
  • Conduct regular audits and assessments of new technologies to ensure they meet regulatory standards and are safe for consumer use.

Conclusion

Governor Bowman's insights provide a roadmap for balancing innovation with regulation in a way that promotes growth and stability in the financial sector. The principles of understanding, openness, and proactive regulation, will likely shape the future of financial regulation, fostering an environment where both traditional financial institutions and fintechs can innovate responsibly and effectively.


NCFA Jan 2018 resize - Balancing Fintech Innovation and RegulationThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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FINTRAC Fines Binance $6M CAD for Compliance Failures

Enforcement | May 12, 2024

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Binance Faces $6M CAD Fine for Compliance Failures in Canada

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has fine Binance Holdings Limited $6M CAD for failing to adhere to Canada's financial regulations.  This fine is part of broader regulatory scrutiny that has seen Binance face legal challenges in several jurisdictions, including a significant $4.3 billion settlement with U.S. regulators for similar compliance failures.

See:  Canadian Investors Lead Class Action Against Binance Canada

The two violations that led to Binance being fined C$6 million by FINTRAC are:

  1. Binance did not register as a foreign money services business (FMSB) with FINTRAC, despite being given multiple opportunities to do so. This registration is crucial for entities engaging in money services within Canada to ensure compliance with the country's financial regulatory framework​.
  2. Binance failed to report 5,902 cryptocurrency transactions that each exceeded C$10,000, along with their necessary Know Your Customer (KYC) information. Such reports are mandatory under Canadian financial laws to monitor and prevent illegal activities such as money laundering​.

These breaches reflect issues with compliance and regulatory adherence by Binance in the Canadian financial environment.  More details can be found on the FINTRAC penalties page here.

Sarah Paquet, Director and Chief Executive Officer, Financial Transactions and Reports Analysis Centre of Canada:

“Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime is in place to protect the safety of Canadians and the security of Canada’s economy. FINTRAC will continue to work with businesses to help them understand and comply with their obligations under the Act. We will also be firm in ensuring that businesses continue to do their part and we will take appropriate actions when they are needed.”

Conclusion

Apart from Canada, Binance also faces legal issues in countries such as Nigeria and continues to be involved in investigations and lawsuits that could affect global regulatory frameworks for digital assets.  Also see:  Philippines SEC Blocks Binance for Failing to Secure License.

See:  SEC Enforcement Director Grewal On Crypto Regulation

These regulatory actions have a noticeable impact on Binance's operations, including its decision to exit certain markets like Canada, reflecting how regulatory pressures can influence business strategies.


NCFA Jan 2018 resize - FINTRAC Fines Binance $6M CAD for Compliance FailuresThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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