Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Regtech, Compliance, Governance
CSA Extends Deadline for Crypto Platforms’ VRCA Compliance
Crypto Regulation | Sep 26, 2024
CSA Extends Compliance Deadline for Crypto Platforms Trading VRCAs
The Canadian Securities Administrators (CSA) has published an update for crypto asset trading platforms (CTPs) and those with pre-registration undertakings (PRUs) on complying with requirements for value-referenced crypto assets (VRCAs), such as stablecoins. While Canada doesn't have specific stablecoin regulations, the CSA is enforcing existing securities laws to protect investors. The compliance deadline for platforms has been extended to December 31, 2024, giving CTPs more time to meet the requirements or offer alternatives that address investor protection concerns.
Compliance Deadline Extended
CTPs were originally given until April 30, 2024 to stop trading non-compliant stablecoins. But because of compliance difficulties the platforms were having, the deadline was initially extended to October 31, 2024, and then again to December 31, 2024. This extension gives CTPs additional time to comply with CSA regulations or offer substitute solutions to investor protection issues.
While stablecoins (a form of VRCA) are widely traded in Canada, the CSA emphasizes that there is not currently a specific stablecoin regulatory framework. Instead, the CSA is relying on existing securities regulations to ensure any VRCAs provided by CTPs meets the appropriate requirements of investor protection, financial transparency, and disclosure.
See: Regulatory Updates for Crypto Asset Trading Platforms
By December 31, 2024, all CTPs registered or with PRUs must ensure that any VRCAs issued to customers comply with their registration terms or PRUs. Platforms that were previously obligated to stop enabling customers to buy or hold non-compliant VRCAs (except for specific fiat-backed assets) by December 29, 2023, and the deadline extension does not change that.
Open to Exemptions for Specific Use Cases
The CSA is open to exemptions for particular VRCA use cases that do not raise investor protection concerns. CTP and VRCA issuers are urged to contact regulators about viable alternatives or unusual use cases to discuss.
Conclusion
The CSA's extended deadline allows CTPs more time to comply with VRCA-specific securities requirements.
See: CSA’s 2024 Investor Index. What Fintechs Need to Know
Establishing clear standards for the treatment of VRCAs would promote transparency and security for investors who trade in these assets.
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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Prager Metis Pays $1.95 Million for FTX Auditing Failures
Governance | Sep 25, 2024
Image: Freepik
Prager Metis Settle $1.95M SEC Fine Over FTX Audits
The collapse of FTX in November 2022 exposed major supervisory and governance gaps in what is now known as the biggest crypto fraud in history. An important participant in this fiasco was the auditing company Prager Metis CPAs who agreed to pay a $1.95 million fine to resolve allegations of audit failures in FTX and breach of auditor independence regulations that the Securities and Exchange Commission (SEC) had issue with.
Audit Failures and Negligence
From February 2021 to April 2022, Prager Metis was responsible for auditing FTX according to the Generally Accepted Auditing Standards (GAAS) but the SEC took enforcement action and a court judge raised the following issues:
- Prager Metis did not adequately assess the risk between FTX and Alameda Research which was controlled by FTX's CEO Sam Bankman Fried and led to the misappropriation of billions in customer funds.
- Prager Metis put together an audit team without the skills or experience required to audit a fast changing crypto company like FTX. As a result, the Prager Metis failed to recognize significant warning signs, such as FTX's substantial holdings in illiquid tokens and its close relationship and financial links to Alameda.
See: Which Companies Were Affected by FTX’s Collapse?
- Prager Metis's audit reports misled investors into believing that FTX's financial statements were accurate and followed Generally Accepted Accounting Principles creating a false sense of security.
- The judge emphasized that Prager Metis's inclusion of indemnity clauses in their engagement letters was a violation of auditor independence regulations. This hurt their ability to stay unbiased when reviewing over 200 companies from 2017 to 2020, including FTX. As a result, the reliability of their audits was questioned.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement:
"Prager Metis fell short in all of these areas. Because Prager’s audits of FTX were conducted without due care, for example, FTX investors lacked crucial protections."
SEC Settlement
- A $745 000 civil fine for fraud based on carelessness. This fine was imposed in response to the company's violations of auditing practices when working with FTX.
- $1.205 million penalty for violating auditor independence requirements involving incorrect indemnity arrangements in over 200 audit engagements between 2017 and 2020.
- Remedial action to hire an independent compliance expert who will review and improve its audit and quality control processes. Additionally, restrictions on Prager Metis's ability to take on new audit customers was restricted.
See: The Complexities of Auditing Digital Assets
Jorge G. Tenreiro, Acting Chief of the SEC's Crypto Assets and Cyber Unit:
“Cutting corners on obligations to comply with the law… does not pay for the entities who take them or for the multitude of victims that this misconduct leaves in its wake”.
Conclusion
The penalties against Prager Metis raise important questions about whether auditors are prepared to handle quickly evolving and risky industries like cryptocurrency. Auditors must stay independent, skilled, and skeptical to protect investors. In the case of FTX, failing to meet these standards led to major financial losses and damaged public trust in both the auditing profession and the markets.
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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Caroline Ellison Sentenced 2 Years for Role in FTX Fraud
FTX Saga | Sep 25, 2024
Image: Freepik/rawpixel.com
Ex-Alameda CEO Caroline Ellison Gets 2 Years for Covering Up One of Crypto's Biggest Frauds, FTX
Yesterday, a key figure in Sam Bankman-Fried's (SBF) cryptocurrency business and the former CEO of Alameda Research, Caroline Ellison received a two-year jail term for her involvement in the FTX scam, which caused consumer and investor losses of billions of dollars. Compared to SBF who received 25 years in prison, Ellison received a lighter sentence as a result of her cooperation with the police during the trial but the crypto sector will always be affected by her role in this well publicized drama.
Caroline Ellison:
"I participated in a criminal conspiracy that ultimately stole billions of dollars from people who entrusted their money with us. The human brain is truly bad at understanding big numbers. Not a day goes by [that I don't] think about all of the people I hurt.”
See: Key Moments Inside the SBF Trial: Days 1-12
Ellison played a unique role in what is now seen as one of the biggest bitcoin scams ever. More than $8 billion in consumer cash was lost in FTX's collapse as a result of Alameda Research's speculative and unlawful trading activities that used FTX's customer deposits under Ellison's direction. Ellison was facing a maximum term of 110 years of jail time but her sentence was lowered to only 2 years by cooperating with federal officials. She is also required to forfeit around $11 billion of her assets to the courts.
Bloomberg reported live on the sentencing. Signalling that the severity of the fraudulent activities warranted consequences, Judge Kaplan said:
A “literal get-out-of-jail-free card I can’t agree to.”
“I’ve seen a lot of cooperators in 30 years. I’ve never seen one quite like Ms. Ellison."
Conclusion
After months have gone by since SBFs 25 year sentencing, the FTX drama has resurfaced with Caroline Ellison's 2 year sentencing, raising more general concerns about accountability, governance, and legal safeguards in the crypto space.
See: SEC Enforcement Director Grewal On Crypto Regulation
When the dust settles, the case will probably force regulators in the U.S. and around the world to adopt stronger standards designed to stop fraud of this kind in the future to protect investors. Ellison will remain free on bail until November 7.
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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[CSA for Comment]: Modernizing Continuous Disclosure for Investment Funds
Regulation | Sep 19, 2024
Image: Freepik/pressfoto
CSA Proposes Key Amendments to Enhance Investment Fund Transparency
The Canadian Securities Administrators (CSA) have proposed key amendments to modernize the continuous disclosure framework for investment funds for 120 day comment closing Jan 17, 2025. The changes are meant to simplify reporting and reduce regulatory burden and improve the quality of disclosed information for investors while aligning with global standards.
Top Takeaways
- The proposal reduces the volume of repetitive information in the Annual Management Report of Fund Performance (MRFPs) and eases the burden on fund managers while still providing investors with relevant and concise updates.
- Use a simplified financial reporting statement that reducing regulatory duplication while ensuring investor information needs are still met.
See: CSA’s 2024 Investor Index. What Fintechs Need to Know
- Instead of semi-annual portfolio updates, funds are to provide enhanced quarterly updates to provide investors more timely insights, greater transparency, and more data access.
- Align Canadian regulations with global to nurture cross border investment opportunities and ensure Canadian funds remain competitive globally.
Why It Matters?
The CSA changes are timely given the growth and diversification of Canada's investment fund market. They prioritize efficiency and openness and will lessen the regulatory burden while improving investor safety at the same time.
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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Sam Altman Leaves OpenAI’s Safety Committee
AI Governance | Sep 17, 2024
Image: Freepik
More Independent Safety Governance With Power to Halt Releases
In a recent OpenAI post titled 'An update on our safety and security practices', it was announced that CEO Sam Altman has resigned from the Safety and Security Committee, presumably to give the committee greater autonomy in the face of mounting criticism of the company's safety procedures by U.S. lawmakers and former executives.
Safety Committee
The committee was established in May 2024 to assess the potential safety risks associated with OpenAI's artificial intelligence models, such as GPT-4 and the latest LLM, Strawberry (with PhD -level reasoning). Critics are concerned about Altman's outsized influence over the company's direction as CEO and the claim of prioritizing faster development over AI safety. This comes as regulatory scrutiny is ramping up. In July, a group of U.S. senators wrote a letter pressuring OpenAI to make safety and transparency a top priority.
See: Worldcoin Launches ‘World Chain’ for Human ID.
Also, early this year, several OpenAI employees in charge of AI safety, especially those who deal with long term risk reduction just 'quit' saying safety concerns were losing priority. There's also an August 2024 'Letter from OpenAI Whistleblowers' written by members of the technical and policy teams. Having said all this, skeptics are still concerned about the independence of the newly shaped committee, and concerns over the company's ultimate goals given the recent surge in lobbying activities that has increased it's budget almost 3x since the start of the year.
The restructured Safety and Security Committee will now be led by Zico Kolter (professor from Carnegie Mellon University) with additional members including Adam D’Angelo (CEO of Quora), and Paul Nakasone (retired U.S. Army General). The revamped committee will have more independence, and perhaps more importantly, more power. It now has the authority to delay or halt the release of AI models if safety concerns arise, a significant shift in OpenAI’s internal governance.
More Independent Safety Oversight
With Altman’s departure from the SSC, the committee is now chaired by Zico Kolter, a professor at Carnegie Mellon University, alongside other external members like Quora CEO Adam D'Angelo, a retired U.S. Army General Paul Nakasone, and Nicole Seligman a former EVP and General Counsel of Sony Corporation. The redesigned committee will arguably be more independent. It also has now powers with the authority to delay or halt the release of AI models if safety concerns arise.
See: Whistleblowers Accuse OpenAI of Illegally Restrictive NDAs
Blog post quote:
The Safety and Security Committee will be briefed by company leadership on safety evaluations for major model releases, and will, along with the full board, exercise oversight over model launches, including having the authority to delay a release until safety concerns are addressed.
Outlook
Altman leaving the Safety committee is a step in the right direction but how truly independent the revamped committee will be has yet to be seen.
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 AI Laws Delayed? Québec Leads Ethical Innovation
AI Regulation | Sep 17, 2024
Image: Freepik/jcomp
Federal Election Could Delay or Change Canada's AI Regulation under AIDA
Canada's AI regulations are still developing but they seek to combine federal and provincial initiatives to create a balance between promoting innovation and responsible AI. Quebec is at the forefront of ethical governance with the Montréal Declaration for Responsible AI and 10 Principles for Public Bodies, while other provinces are aligning frameworks to comply with the proposed federal regulations known as the Artificial Intelligence and Data Act (AIDA), consistent with global AI regulatory standards. This article provides an overview of the developments in Canadian AI regulation.
1. The Artificial Intelligence and Data Act (AIDA) - Federal AI Regulation
The most significant attempt at AI regulation in Canada federally is the Artificial Intelligence and Data Act (AIDA), which is a part of Bill C-27 that was introduced in 2022. AIDA is intended to control the development and commercialization of AI, especially for 'high impact' systems. Once enacted, AIDA will impose regulatory requirements on businesses including risk assessment, bias reduction, and transparency, and would be overseen by a newly appointed AI and Data Commissoner with non-compliance resulting in penalties. AIDA is aligned with emerging global AI standards including the Organization for Economic Co-operation and Development (OECD) and the European Union's Artificial Intelligence Act.
However, Bill C-27 is progressing slowly through Parliament and has faced delays. Combined with a federal election now on the table, there is growing uncertainty that legislative disruptions and changing policy priorities may result in the bill either being amended or shelved. In either case, it means that Canada's approach to AI regulation could fall further behind compared to other jurisdictions.
In September 2023, the Honourable François-Philippe Champagne, Minister of Innovation, Science and Industry announced a voluntary code of conduct for the responsible development and management of advanced GenAI systems, providing a voluntary common standard to follow until formal regulations are in place.
See: Canada launches public consultation on artificial intelligence computing infrastructure
So, depending on the results of the election and the goals of the next administration, a federal election may create uncertainty about the direction of AI legislation in Canada, which might postpone or change AIDA's future.
2. Québec Leads AI Governance
Québec is a pioneer in AI governance in Canada, a stark contrast to the federal government's snails pace. The province has actively created ethical frameworks and guiding principles to influence the application of AI across sectors.
Montréal Declaration for Responsible AI
In 2018, Québec introduced the Montréal Declaration for Responsible AI, a groundbreaking document that outlined ten key ethical principles for the responsible development of AI. The AI declaration statement was a collaborative effort between industry stakeholders, researchers and human rights/ethics experts. It serves as a template for commercial ventures to use when developing their AI initiatives.
- Well-being
- Autonomy
- Privacy and intimacy
- Solidarity
- Democracy
- Equity
- Inclusion
- Prudence
- Responsibility
- Sustainability
Over 277 organizations dedicated to ethical AI have signed the Montréal Declaration for Responsible AI across a range of industries from healthcare to academia. Currently, there are over 277 organizations that have signed the declar, demonstrating the broad support for Québec's leadership in ethical AI research. Below are a few notable signatures:
See: Primer on Quebec’s New Data Portability Law
- Ville de Montréal
- Mila (Quebec’s leading AI research institute)
- IVADO (Institute for Data Valorization)
- Université McGill
- Centre hospitalier de l’Université de Montréal
- Montreal AI Ethics Institute
- OpenNorth
- Imagia
Québec’s Ten Principles for Public Bodies
In February 2024, a new Statement of Principles for the Responsible Use of Artificial Intelligence by Public Bodies (French only) was adopted by the Ministère de la Cybersécurité et du Numérique (MCN), providing comprehensive guidelines on how public entities should use AI properly. These 10 guidelines highlight a number of fundamental ideas and are in line with both international standards and AIDA's goals:
- Respect for individual rights and the rule of law
- Inclusion and equity
- Reliability and robustness
- Security
- Efficiency and effectiveness
- Sustainability
- Transparency
- Explainability
- Responsibility
- Competence
3. Ontario, British Columbia, Alberta
British Columbia, Ontario, and other provinces are all moving closer to regulating AI but are more the consultation phase compared to Quebec's more established frameworks.
Ontario is focusing on developing a framework for consultation on Trustworthy AI. Transparency in autonomous decision making and making sure the public is informed when AI is engaged in choices that impact them are two primary areas of concern. Ontario has also stressed the freedom to challenge judgments made by AI and is pursuing legislative changes that would probably comply with federal AIDA regulations.
See: A Look Inside Canada’s AI Commercialization Challenge
BC and the Yukon are researching the application of AI in public sector services with regards to justice, accountability, and openness. Similar to Ontario, BC has emphasized the importance of informing individuals when AI is used in decision making and allowing individuals to question or dispute AI judgments.
Alberta has not yet developed any specific AI policy equivalent to Montreal's declaration, however Alberta is home to the Alberta Machine Intelligence Institute (Amii), which encourages responsible AI development and study, and is a key player in Canada's artificial intelligence ecosystem (prioritizing research over regulation).
Conclusion
With Québec setting the example with its ethical principles and the Montréal Declaration, Canada is heading toward a more organized approach to AI governance. AIDA is a major step forward for the federal government, but its future is questionable because of legislative delays. As AI becomes more integrated into the public and business sectors, there is growing support to harmonize AI governance across Canada.
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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DLA Piper’s Tech Index 2024 – Highlights for Fintechs
Tech Report | Sep 12, 2024
Image: Tech Index 2024 (DLA Piper)
DLA Piper Technology Index 2024 Highlights for Fintech Innovators and Investors
Last week, DLA Piper dropped "The Tech Index 2024 - Riding the Next Big Wave" based on responses from over 1,200 industry experts, investors, and policy makers worldwide. This years report takes a outlook beyond Europe to explore regions such, as North America, Latin America, Africa, the Middle East and Asia Pacific for the first time. Below we cover the highlights.
1. Staying Positive During Times of Uncertainty
The global IT Index score for 2024 reached a record high of 71 indicating strong optimism for the future of the IT sector especially for fintech participants in North American and Latin American. For investors and entrepreneurs, this means it's not too late to enter the market and there are still many of opportunities for development and growth despite the unpredictability of the world economy. Having said that, it's now or never for fintech businesses, especially those in the payments and digital banking sectors to take advantage of venture capital momentum and market confidence.
2. AI's Transformative Role in Fintech
Many experts consider Artificial Intelligence to be the catalyst for business expansion with 63 percent of those surveyed viewing it as the leading opportunity. AI is transforming fintech products, such as automated customer support services, real time fraud prevention, predictive data analysis, and investment management.
See: 5 Fintech Failures and Lessons to Learn From
For fintech founders, AI powered solutions can boost efficiency and provide an edge in offering personalized financial services, thus improving customer satisfaction. AI can even help strengthen security measures. It's no wonder that investors are lining up with FOMO to back the latest innovative AI startups. Companies should also remain focused on the emerging AI guardrails and risk frameworks (see: Canadian guide on the use of Generative AI) being developed around the world to protect the public and ourselves from existential risks and more.
3. The Growing Priority of Cybersecurity
The threat of cybersecurity is constantly growing as fintech organizations embrace digital-first strategies. AI is a key part of both innovative security solutions and also sophisticated cyberattacks. Cybercriminals use of AI to automate phishing and produce deepfakes, which are serious threats for fintech companies that handle sensitive financial data. Strong security architectures must be prioritized due to tightening regulatory frameworks, such as the Digital Operational Resilience Act (DORA) in the EU. Companies looking to stay ahead of the curve and satisfy regulatory requirements while building trust, must have security professionals on staff to perform regular stress tests, and resolve any gaps expeditiously.
4. Unlocking the Value of Data
Data is frequently compared to the 'new oil' but only one third of participants in the Tech Index survey are actively engaging in data monetization tactics. Fintechs should be harnessing data to enhance understanding of customers, fine tune services and even generate new sources of revenue and user satisfaction.
See: Ilya Sutskever’s AI Startup SSI Secures $1 billion
There is significant opportunity for companies with vast amounts of high quality data. Companies must comply with various data protection laws, such as GDPR when developing monetization strategies. Solutions should optimize data without compromising privacy safeguards.
5. Stay On Top of Geopolitical Risks
The Tech Index highlights a concern about how global geopolitical uncertainties are slowing down growth momentum in various sectors like fintech due to conflicts in different regions and trade tensions between countries such, as the United States and China. It is crucial for investors to evaluate risks before expanding internationally or engaging in cross border transactions. Entrepreneurs should concentrate on developing adaptable solutions that can sustain market disruptions and adapt to changing regulatory environments.
Outlook
Fintechs and investors should be integrating AI technologies and developing data monetization strategies while remaining cognizant of complex geopolitical and regulatory environments globally. Remaining adaptable, resilient, and sustainable will set some fintech companies apart from others looking to grow long term.
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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