Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Category Archives: Regtech, Compliance, Governance
CZ Pleads Guilty. Fined $4.3 Billion in DOJ Settlement
Crypto | Nov 23, 2023
Image by Racool_studio on Freepik
Changpeng Zhao, Binance CEO steps down following $4.3 billion settlement with U.S. regulatory agencies.
- Changpeng Zhao (CZ), the CEO of Binance, has stepped down and pleaded guilty (federal court in Seattle) to breaking U.S. anti-money laundering laws as part of a $4.3 billion settlement resolving a years-long probe into the world's largest crypto exchange.
- Binance broke U.S. anti-money laundering and sanctions laws and failed to report over 100,000 suspicious transactions, including those linked to terrorist groups and illegal activities.
- The settlement includes a $3.4 billion penalty to the Financial Crimes Enforcement Network (FinCEN) and $968 million to the Office of Foreign Assets Control (OFAC), along with compliance requirements and monitoring for five years.
See: SEC Files Charges Against Binance for Mishandling Funds and Deceiving Regulators
- Reuters reported the settlement includes a $1.81 billion payment within 15 months and a further $2.51 billion forfeiture.
- Zhao will personally pay $50 million as part of the settlement, which is described as one of the largest corporate penalties in U.S. history.
- Per Coindesk and details in a legal document, he is arranging a $15 million deposit in a trust managed by Davis Wright Tremaine, distinct from the bond amount. This is to ensure compliance with the conditions of his release, with an agreement to surrender these funds in case of any violation.
- Additionally, he is securing the backing of two guarantors, who are committing $250,000 and $100,000 each.
Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.
Binance is no longer a baby. It is…
— CZ 🔶 Binance (@cz_binance) November 21, 2023
"These resolutions acknowledge our company’s responsibility for historical, criminal compliance violations, and allow our company to turn the page" -- Binance statement
What's Next?
- The date for his sentencing has been set for February 23, 2024, at 9 a.m. Pacific Time.
- Zhao will remain the majority shareholder of Binance and will serve as a consultant on historical areas of the business.
- Richard Teng will succeed him as CEO.
See: SEC Files Lawsuit and Accuses Kraken of Commingling
- The case against Zhao and Binance highlights the increasing regulatory scrutiny on cryptocurrency exchanges globally. The settlement is seen as a significant step towards greater compliance and regulatory oversight in the crypto industry.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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SEC Files Lawsuit and Accuses Kraken of Commingling
Crypto Enforcement | Nov 21, 2023
Image: Unsplash/Bryan Burgos
The SEC has filed a lawsuit accusing Kraken of operating as an unregistered platform and improperly mixing customer funds with corporate assets.
This move echoes previous actions taken by the SEC against other major exchanges like Coinbase and Binance. Kraken, a prominent crypto exchange, has become the latest target of the U.S. Securities and Exchange Commission (SEC).
SEC Allegations
According to the SEC, Kraken has not only operated as an unregistered broker, clearing agency, and dealer but has also commingled up to $33 billion in customer crypto with its corporate assets. The SEC's lawsuit seeks to permanently ban Kraken from operating as an unregistered exchange and demands a fine along with the return of any ill-gotten gains.
Kraken Stands Firm and Criticizes SEC
Kraken stands firm in its disagreement with the SEC's allegations. The exchange asserts that it does not list securities and plans to vigorously defend its position. Kraken emphasizes the lack of regulatory clarity in the U.S. and criticizes the SEC's approach of "regulation by enforcement," which it believes harms American consumers, stifles innovation, and undermines U.S. competitiveness globally.
See: Kraken’s Strategy for Canadian Market Growth
In its blog post, Kraken outlines its stance, highlighting that the SEC's complaint does not allege fraud, market manipulation, customer losses due to hacking, compromised security, or breaches of fiduciary duty. Kraken argues that the SEC's claim of "commingling" is a misrepresentation, as it merely involves the use of fees already earned by the exchange.
Kraken also points out the legal precedents where courts have rejected the SEC's theory that digital assets traded on platforms are securities transactions. The exchange believes that the current lawsuit will fail for similar reasons. Kraken emphasizes that there is no legal framework for registering as an exchange, broker-dealer, or clearing agency for investment contracts, as demanded by the SEC.
Committed to Accelerating Crypto Adoption
Amidst this legal battle, Kraken remains committed to its mission of accelerating cryptocurrency adoption and ensuring financial freedom and inclusion.
See:
Kraken Agrees to $30 million Settlement with SEC and Stops U.S. Customer Staking Program
Kraken (Payward Inc.) in Advanced Stages of SEC Unregistered Securities Probe
The exchange continues to advocate for practical and effective rules for digital assets and stresses the importance of comprehensive Congressional action to avoid the U.S. falling behind in the global crypto and Web3 advancements.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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OSC’s New Financial Advisory Reforms
Regulation | Nov 15, 2023
Image: Unsplash/frame harirak
Latest OSC draft statement of priorities reveal new course in the financial advisory landscape for discount brokers and robo-advisors
Lifting Limitations on Financial Advice
- The OSC in collaboration with CIRO is contemplating a significant change by allowing Order Execution Only (OEO) firms, like discount brokers and robo-advisors, to offer non-tailored financial advice such as risk warnings and guidance to enhance the safety net for investors. This move addresses a critical gap in the current financial ecosystem, where DIY investors often resort to unreliable sources like social media for guidance, especially regarding complex products like leveraged investments and meme stocks.
See: Consultation: OSC Wants to Increase Fees for Crypto Firms
- This OSC initiative is part of a larger strategic overhaul over the next six years, influenced by its recent reorganization and recommendations from various authoritative bodies.
- These changes represent a broader commitment to ensuring that the Canadian financial market remains dynamic, transparent, and trustworthy. This approach is crucial for maintaining a robust financial ecosystem that supports both investor interests and market growth.
Feedback Opportunity
Stakeholders are invited to contribute their views on the OSC's draft statement of priorities until December 18.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Christine Lagarde Advocates for a European SEC
Regulation | Nov 20, 2023
Image: Unsplash/Christian Lue
Christine Lagarde, President of the European Central Bank (ECB) calls for the establishment of a European equivalent to the U.S. Securities and Exchange Commission (SEC).
The Need for a Unified Regulator
Lagarde's proposal came during her speech at the European Banking Congress in Frankfurt. She emphasized the urgent need for a strong, single regulator to foster the development of a unified capital market in the region. The fragmentation of Europe's capital market has been a longstanding barrier to the continent's economic progress, and Lagarde believes that a European SEC could be the solution.
See: European Central Bank Preparing for Digital Euro
Europe faces a myriad of challenges, including deglobalization, demographic shifts, and the imperative of decarbonization (See: Climate fintechs getting funded 2023). Addressing these issues requires massive investment and a concerted effort across the continent. The current patchwork of national watchdogs has been insufficient in mobilizing the necessary capital and resources.
Christine Lagarde, President of the European Central Bank (ECB):
[It] is clear that the conditions for capital markets to develop in Europe have not yet been satisfied. Most importantly, we have lacked a unifying project around which [Capital Markets Union] can be anchored.
Until now, the strategy of policymakers has been focused on eliminating obstacles within local markets. However, Lagarde pointed out that this approach has fallen short in offering adequate motivation for stakeholders to develop a pan-European market.
See: European Regulators Condemn US ‘incompetence’ in SVB Collapse
The Vision
The European Securities and Markets Authority (ESMA) currently performs some regulatory functions, but its powers are limited and fragmented at the national level.
Lagarde contends that the current moment calls for a shift to a more centralized, 'top-down' strategy. This approach mirrors the establishment of the U.S. Securities and Exchange Commission (SEC) in the 1930s, which was instrumental in curbing state-level attempts to fragment the securities markets.
Lagarde envisions a regulatory body with a broad mandate, including direct supervision to mitigate systemic risks posed by large cross-border firms and market infrastructures. This body would not only streamline oversight but also enhance the efficiency of capital markets across Europe, making it a stronger player on the global stage.
See: European Union: Capital Markets Union Action Plan
A critical component of this vision is the creation of a single rulebook, enforced by a unified supervisor. This approach would mitigate fragmentation and empower private entities to expand their ambitions in fostering high-growth private investments.
Conclusion
Christine Lagarde's bold call for the creation of an equivalent to the European SEC and a unified regulatory framework could be the key to unlocking the potential of European capital markets, driving investment, and fostering economic growth.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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OpenAI’s Shakes Up Leadership. Altman Out. Murti In.
AI | Nov 20, 2023
Image: Unsplash/Andrew Neel
Sam Altman, a co-founder of OpenAI, was removed from his position as CEO by the company's board, and Mira Murati has been appointed as interim CEO.
OpenAI Shakeup
- The unexpected removal of CEO Sam Altman and the subsequent appointment of Mira Murati as interim CEO have sent ripples through the tech community. This development highlights the complexities of AI governance and the critical role of leadership in steering AI's future.
- This decision, rooted in concerns over Altman's communication style and strategic direction, has sparked a contentious debate among investors and stakeholders.
See: OpenAI’s First Developer Day: A New Chapter in AI
- Mira Murati, previously the CTO, has been appointed as the interim CEO. Murati, known for her impressive tenure at Tesla and her commitment to AI safety, brings a fresh perspective to OpenAI's leadership. Murati's leadership style, emphasizing responsible innovation, could guide OpenAI towards a future where AI is developed with a keen eye on societal impact and ethical considerations.
Implications
- The reaction from OpenAI's investors to Altman's departure has been notably intense. Some investors are reportedly considering leveraging their relationship with Microsoft, a major investor in OpenAI, to reinstate Altman.
- Reportedly, Sam Altman plans to launch a new AI startup if he isn't reinstated as CEO.
- The leadership change at OpenAI is more than just a corporate reshuffle; it's a reflection of the broader challenges in AI governance. As AI technologies become increasingly influential in various sectors, the need for transparent, responsible, and ethical leadership becomes paramount. The situation at OpenAI serves as a case study in how swift changes in leadership can impact the direction and perception of AI development.
So Why Was Sam Ousted?
- According to an internal memo from COO Brad Lightcap, Altman's departure was not due to malfeasance or issues related to the company's financial, business, safety, or security practices. Instead, it was attributed to a breakdown in communication between Altman and the board.
- This clarification dispels earlier speculations about the reasons behind the firing, which included concerns about the premature commercialization of OpenAI's research.
See: OpenAI Faces FTC Scrutiny Over Consumer Harm Allegations
- The incident led to the resignation of OpenAI president Greg Brockman and several engineers, highlighting the profound internal impact and the challenges in maintaining employee morale and trust during major leadership transitions.
- In a letter addressed to OpenAI's board, reported by Wired, over 500 OpenAI employees have stated that Microsoft has guaranteed jobs for all OpenAI staff at a new subsidiary, should they opt to join. The letter declares that these employees will depart unless the board reinstates Altman and Brockman, after which they will resign.
Brad Lightcap, COO, OpenAI:
Our collective responsibility right now is to our teammates, partners, users, customers, and the broader world who shares our vision of broadly beneficial AGI.
The Road Ahead for OpenAI and AI Governance
The decisions made now will not only shape the future of OpenAI but also set precedents for how AI companies address the complex interplay of innovation, ethics, and leadership in the AI era.
See: What Startup Rules Did Sam Altman Break During OpenAI’s Path to Its $30B Valuation?
The focus now turns to how Murati will steer OpenAI amidst these challenges, balancing ambitious technological goals with the need for responsible governance and clear internal communication. The broader AI community is closely watching these developments, as they will likely influence the future trajectory of AI research and development, both within OpenAI and in the industry at large.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Canada’s New Retail Payment Regulations: Registration and Compliance
Payment Regulations | Nov 16, 2023
Image by Freepik
The Retail Payment Activities Regulations (Regulations) are set to be published on November 22, 2023.
BLG (Borden Ladner Gervais LLP) recently provided an insightful summary of the upcoming changes in Canada's payment industry titled "Canada’s Retail Payment Activities Framework to take off in November 2024". Here are the key points:
Registration and Compliance
- The Retail Payment Activities Regulations (Regulations) are set to be published on November 22, 2023. These regulations will bring Canada closer to regulating payment businesses, including paytechs and certain fintechs, under a formal retail payments supervisory framework overseen by the Bank of Canada.
- Payment Service Providers (PSPs) must submit a registration application to the Bank between November 1 and November 16, 2024. This window is crucial for PSPs to submit their registration applications to the Bank of Canada.
- By September 8, 2025, the compliance curtain rises, with the Bank notifying applicants of their registration status.The Bank will notify applicants of their registration status by September 8, 2025, which is also when compliance requirements begin.
- During the transition period, the Bank may request additional information from applicants, which will be shared with FINTRAC and the federal Minister of Finance. Registration can be refused for reasons such as non-registration with FINTRAC, providing false information, or national security concerns directed by the Minister of Finance.
See: Insights Into Canada’s Evolving Payments Landscape
- Compliance of the new regulations specify requirements for risk management, safeguarding end-user funds, reporting, registration, and record-keeping. These include annual reviews of risk management frameworks and safeguarding-of-funds frameworks by the business's board of directors.
- The finalized regulations have made some changes from the draft, such as reducing the frequency of independent reviews of the safeguarding-of-funds framework and limiting the application of requirements to third-party service providers.
Who is Caught in the Scope
It is estimated that approximately 2,500 PSPs will be impacted due to the Framework's broad scope.
The Framework applies to any retail PSP, regardless of their location (inside or outside Canada), when they perform one or more of the following payment functions in the context of an electronic funds transfer (EFT):
- Providing and maintaining a payment account.
- Initiating payments.
- Authorizing and transmitting EFTs, or facilitating instructions related to an EFT.
- Holding funds on behalf of end users.
- Providing clearing or settlement services.
See: The Transformative Impact of Instant Payments on Financial Crime Mitigation
Who is Excluded
To prevent regulatory and supervisory duplication, the Act empowers the Governor of the Bank to exempt certain entities or classes of entities from certain provisions of the Framework if they are already subject to substantially similar provisions in another Canadian federal or provincial law.
Specific Exclusions
- Transactions already regulated (or exempted from regulation) under Canadian securities laws.
- Transactions involving SWIFT.
- Payment activities that are considered “incidental” to another service or business. The Bank has committed to providing further information on the meaning of incidental in the near future.
The Framework, therefore, includes a wide range of PSPs, particularly those involved in electronic funds transfers and related activities. However, it also provides for exemptions to avoid overlapping regulations and includes specific exclusions for certain types of transactions and activities. This approach aims to ensure comprehensive oversight of the payment services sector while avoiding unnecessary regulatory burdens on entities already governed by other laws.
See: McKinsey Global Payments On Cusp of ‘Decoupled Era’
Closing Thought
The Framework isn't just about registration. It demands a strategic rethink of your risk management, fund safeguarding, reporting, and record-keeping practices. Annual reviews and board-level approvals are now part of the playbook.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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PayPal’s Blockchain Vision As New Financial Rail
Blockchain and Payments | Nov 16, 2023
Image: Pixabay/raphaelsilva
PayPal Declares Blockchain the "New financial rail" as Regulators Scrutinize its Stablecoin PYUSD
Strategic Shift in Global Payments
- PayPal, a titan in the digital payment sector, recently endorsed blockchain technology as the new cornerstone of financial transactions. This is a strategic shift in global payments and part of PayPal's broader fintech strategy, as emphasized in their "Pay How You Want" initiative.
- With blockchain, PayPal aims to revolutionize how payments are processed, offering near-instant settlement times that stand in stark contrast to traditional financial systems.
- Stablecoin: PayPal recently introduced its own US dollar stablecoin, PayPal USD (PYUSD) which is designed to offer a more efficient transaction method, addresses the growing demand for faster and more cost-effective global payment solutions. PYUSD, pegged to the dollar and backed by solid assets like US dollar deposits and short-term Treasuries, has achieved a market capitalization of approximately $158 million reflecting a growing acceptance and trust in digital currencies.
See: PayPal Launches MetaMask Web3 Wallet Integration to Enable Ethereum Transactions
- Layer-2, NFTs, metaverse: beyond stablecoin innovation, PayPal's patent filings reveal plans to explore layer-2 networks and non-fungible tokens (NFTs) signalling interest to integrate blockchain technology across a range of digital transactions. The company's research and development efforts are focusing on blockchain validation, payments between network layers, and digital asset recommendation in the metaverse.
- With over 400 million active accounts, PayPal is uniquely positioned to bridge the gap between emerging blockchain technologies and widespread adoption, continuing its legacy as a pioneer in the payments industry.
PayPal's Compliance Challenges
As PayPal ventures into the realm of blockchain and stablecoins, it faces intense scrutiny from regulatory bodies like the SEC and the CFPB.
- SEC Subpoenas PayPal Over PYUSD Initiative (SEC filing): "On November 1, 2023, we received a subpoena from the U.S. SEC Division of Enforcement relating to PayPal USD stablecoin. The subpoena requests the production of documents. We are cooperating with the SEC in connection with this request." The SEC's action reflects concerns about the stability and regulatory compliance of stablecoins. SEC Chair Gary Gensler's suggestion that stablecoins might be classified as securities, subjecting them to more stringent investor-protection and disclosure rules.
See: PayPal and Venmo are Adopting Apple Pay and More
- CFPB Investigation investigating PayPal's Venmo service. PayPal also received a civil investigative demand from the CFPB in October, focusing on Regulation E, which governs electronic fund transfers. This investigation includes an examination of how PayPal's service Venmo manages transactions and resolves errors under this regulation. The CFPB's probe is particularly concerned with how PayPal and Venmo handle fraud issues, especially in scenarios where customers are misled into sending money to fraudsters.
Future Outlook
In the next two years, we anticipate PayPal to continue to progressively innovate in a couple of areas:
- Artificial Intelligence and Machine Learning
- PayPal is expected to heavily invest in AI and ML, revolutionizing personalized financial services and fraud detection. This could include AI-driven financial advising, automated customer service enhancements, and sophisticated algorithms for real-time fraud prevention, setting new standards in the fintech industry.
See: Autonomous IoT Transactions and Micropayments
- Internet of Things (IoT) Payments
- The integration of payment solutions with IoT devices. Imagine your smart car paying for its own parking or your refrigerator ordering and paying for groceries. PayPal's potential foray into IoT payments could redefine the concept of 'seamless transactions', making PayPal an integral part of the increasingly connected world.
PayPal is reshaping the global payment landscape, marked by the launch of its stablecoin PYUSD and ventures into advanced blockchain initiatives and future applications. However, these innovations have been met head on with regulatory challenges from the SEC and CFPB. What an exciting time to be a global payments pioneer.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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