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Category Archives: Cyber Security, Hacks, Fraud Alerts, Risks

SEC’s Escalating Crypto Enforcement

Crypto Report | Jan 24, 2024

Cornerstone Research Crypto enforcement 2023 Update - SEC's Escalating Crypto Enforcement

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SEC Intensifies Crypto and Digital Asset Oversight in 2023

As highlighted in a comprehensive report by Cornerstone Research (view release), in 2023, the U.S. Securities and Exchange Commission (SEC) intensified its regulatory oversight and enforcement of crypto reflecting a strategic prioritization of digital asset market regulation under the leadership of Chair Gary Gensler.

See:  CSA Consultation on Public Investment Funds and Crypto Assets

  • The SEC executed 46 enforcement actions against various digital asset market participants in 2023, a 53% increase from the previous year and the highest number since 2013.
  • These actions comprised 26 litigations in U.S. federal courts and 20 administrative proceedings, indicating a broad scope of regulatory reach.
  • Of the 46 enforcement actions, 26 cases (57% of the total) involved allegations of fraud.
  • 28 of these actions (61% of the total) were related to claims of violations concerning unregistered securities offerings.
  • The SEC levied a cumulative total of approximately $2.89 billion in fines and penalties against participants in the digital asset market.

Outlook

Gary Gensler's enforcement trend is likely to continue as the SEC maintains its focus on investor protection and market integrity. Crypto entities and investors must adapt to the emerging regulatory landscape to mitigate risks and ensure compliance.

Download the 29 page PDF --> here


NCFA Jan 2018 resize - SEC's Escalating Crypto EnforcementThe 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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ASC Sanctions Devon Christopher Edwards & KB Crypto

Crypto Enforcement | Jan 22, 2024

ASC Sanctions Devon Christopher Edwards and KB Crypto Inc. for Securities Misconduct

CALGARY, AB, Jan. 16, 2024 - The Alberta Securities Commission (ASC) has recently taken decisive action against Devon Christopher Edwards and KB Crypto Inc. for violating Alberta's securities laws. The case, which has drawn significant attention in the financial community, highlights the ongoing efforts of regulatory bodies to maintain the integrity of the capital markets.

  • Edwards and KB Crypto Inc. admitted to distributing securities without a prospectus and operating as a dealer without registration, contravening the Securities Act.
  • From February 2021 to November 2022, they raised nearly US$450,000 from 75 investors through investment contracts. These contracts involved using investors' funds to purchase and trade in contracts for difference (CFDs), without filing a prospectus or relying on any exemptions.

See:  Canadian Regulators Set Expectations for Crypto Asset Investment Funds: A Comprehensive Overview

  • The ASC panel ordered Edwards to pay a $40,000 administrative penalty and $10,000 in costs. He is also required to resign from any director or officer positions in any issuer.  For five years or until the penalty is fully paid, Edwards is barred from acting as a director or officer in any issuer, advising in securities and derivatives, and from trading or purchasing any security or derivative (with limited exceptions).
  • The company is permanently prohibited from trading, purchasing, or advising in securities or derivatives. All trading or purchasing of its securities or derivatives must cease.

Conclusion

The Alberta Securities Commission's decisive action against Devon Christopher Edwards and KB Crypto Inc. underscores the importance of adhering to securities laws and the serious consequences of non-compliance. This case highlights the regulatory body's commitment to protecting investors and maintaining the integrity of the financial markets.


NCFA Jan 2018 resize - ASC Sanctions Devon Christopher Edwards & KB CryptoThe 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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Evolving Banking Landscape: Asset Shift, Interest Rates, Distribution

Report Insights | Jan 18, 2024

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In a recent episode of The McKinsey Podcast, senior partners Alex Edlich and Reinhard Hüll, along with editorial director Roberta Fusaro, delve into the findings of McKinsey's 2023 Global Banking Annual Review. The discussion centers on the evolving landscape for banks, highlighting the profitable yet challenging period for the global banking industry.  Below we highlight the key trends on the changing landscape for banks have significant implications for fintechs and investors.

Key Trends and Insights

1. More than half of the $402 trillion in global financial assets is not on bank balance sheets

The report underscores a major asset shift in the banking sector: a substantial portion of assets, over $402 trillion globally, now resides outside traditional bank balance sheets. This transition, largely towards mutual funds, insurance, pension funds, and private capital, marks a significant change in the financial ecosystem.

See:  Open Banking: Revolutionizing Financial Data Sharing

  • There's a vast opportunity for fintechs to innovate in areas like asset management, insurance, pension funds, and private capital. Fintechs can leverage their agility and technological prowess to create solutions that cater to this shift.
  • Shifting assets across geographies suggests that fintechs and investors should consider a global perspective. Markets like the Indo-Crescent region are emerging as hotspots for banking performance, which could be fertile ground for fintech innovation and investment.

2. Rising interest rates have boosted banking sector profits by about $280 billion in 2022

While rapidly rising interest rates has resulted in the higher profits for the global banking industry (best period since 2007), it's crucial for banks to recognize and adapt to the ongoing structural and macroeconomic changes, and look to evolve with market dynamics. The rise in interest rates also presents an opportunity for fintechs.

See:  Minerva & Equifax Canada Partner on AML Solutions

  • They can develop financial products that capitalize on these higher rates, offering more attractive returns to their customers.  By integrating advanced technologies into their services, fintechs can enhance customer experience, improve operational efficiency, and offer innovative products.
  • "We’re talking about gen AI and stuff you can implement pretty quickly."

3. Up to 30 percent of distribution in retail banking going via third parties

The podcast also touches on the increasing role of consumer digital payments and embedded finance, indicating a shift towards more mobile and web-based banking interactions. This transition necessitates banks to rethink their distribution strategies, potentially leveraging third-party platforms and enhancing their technological capabilities.

  • The move towards digital payments and embedded finance, with a significant portion of retail banking distribution going through third parties, opens new avenues for fintechs. They can position themselves as key players in these channels, offering seamless and integrated financial services.
  • As the banking sector grapples with various risks, including those associated with technology and cyber threats, fintechs that offer solutions in risk management, cybersecurity, and compliance will be increasingly valuable. Investors should look for companies that are strengthening the financial sector's resilience to these challenges.

So What Should Banks Do?

Prioritize technological integration and innovation, focusing on digital transformation and customer-centric services. Embrace the shift towards digital and mobile banking, leveraging AI and data analytics to enhance customer experience and operational efficiency.

See:  Canadian Banks Face Scrutiny Over Sustainability Claims

Actively explore partnerships with fintechs to stay ahead in the rapidly evolving financial landscape, ensuring our bank remains competitive, resilient, and adaptable to the changing needs and behaviors of our customers. This strategic focus is not just about keeping pace; it's about leading the industry into its next chapter.

And What Should Fintechs Do?

Fintechs should focus on strategic collaborations and niche market innovation. Capitalize on your agility and technological edge to create solutions that address gaps in traditional banking, particularly in areas like digital payments, personalized financial services, and cybersecurity. Forge strategic partnerships with established banks to gain scale and market access, while maintaining your innovative spirit. This approach will not only enhance your value proposition but also position you as indispensable players in the evolving financial ecosystem, driving the future of finance through innovation and customer-centric solutions.

Outlook

With over half of global financial assets moving outside traditional bank balance sheets, rising interest rates boosting profits, and a significant shift towards third-party distribution channels, the landscape is rapidly evolving. These trends not only challenge the status quo of traditional banking but also open up unprecedented opportunities for fintechs and investors.

See:  Discover the Future of Finance with Michael King’s “Fintech Explained”

In conclusion, the future of banking and finance is being rewritten, with technology and innovation at its core. Both banks and fintechs have pivotal roles to play in this new era. For investors, this represents a landscape ripe with opportunities for those who can navigate these changes effectively. As the industry continues to evolve, the focus should be on adaptability, innovation, and strategic collaboration, driving the future of finance through customer-centric solutions and technological advancements.


NCFA Jan 2018 resize - Evolving Banking Landscape:  Asset Shift, Interest Rates, DistributionThe 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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Minerva & Equifax Canada Partner on AML Solutions

Partnership | Release | Jan 17, 2024

Minerva Launches Channel Partner Program with Equifax Canada to Enhance AML Solutions

TORONTO, January 17, 2024 - Minerva, a trailblazer in AML technology, has announced the initiation of its channel partner program. This strategic development includes Equifax Canada, a global leader in data, analytics, and technology, as its inaugural partner. This collaboration is set to expand the accessibility and capabilities of Minerva’s AML compliance technology.

See:  Financial Institutions and Regulators Alike are Showing Growing Interest in Fintech and Regtech Solutions.

Minerva, renowned for its proactive AML platform, is instrumental in identifying client risks from the initial onboarding stage through to exit, aiding top compliance teams in preempting financial crime. The company's clientele spans prominent financial organizations and enterprises across the US and Canada, including names like MOGO, SBI Canada Bank, and Coinbase.

The channel partner program is designed to provide partners and their customers with direct access to Minerva’s state-of-the-art AML risk assessment solutions. These solutions are crucial for ensuring compliance with evolving regulations and for proactive protection against financial crime. The program is tailored for organizations that aim to resell, cosell, integrate, or refer Minerva’s AML solutions, enhancing their customer relations and market presence.

Equifax Canada, the first partner in this program, is a powerhouse in providing unique data and analytics solutions, powered by advanced cloud technology. This partnership will enable Equifax Canada’s customers to leverage Minerva’s advanced AML solutions, furthering their commitment to combat financial crime.

See:  OSC Publishes TestLab 2022 Report: Exploring Innovations in RegTech with Participate Solutions

Jennifer Arnold, co-founder and CEO of Minerva:

“After a year of meticulous planning and collaboration to provide best in class solutions for our customers, we have now formalized our partnership with Equifax Canada.  Together, we are poised to deliver an unrivaled AML compliance and fraud protection offering. By coupling Equifax Canada’s robust customer relationships and fraud expertise with our sophisticated AML compliance solutions, Canadian businesses will now be even more empowered to thrive in a secure financial environment.”

About Minerva

Minerva stands as a RegTech leader, founded by AML industry experts, aimed at transforming AML compliance. The company’s proactive platform employs advanced deep learning models and neural networks to analyze data across multiple languages, aiding compliance teams in staying ahead of financial crime. Minerva’s platform is adept at creating detailed customer profiles and predictive risk analyses in real-time, making it a trusted partner for financial institutions seeking swift and accurate risk assessment results.  For more information, visit gominerva.com.


NCFA Jan 2018 resize - Minerva & Equifax Canada Partner on AML SolutionsThe 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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Celsius Creditors to Return Funds Withdrawn Pre-Bankruptcy

Crypto News | Jan 10, 2024

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Celsius Asks Creditors to Return Funds Withdrawn Within 90 Days Pre-Bankruptcy

Celsius, a cryptocurrency lending platform, is in the midst of a major financial restructuring following its bankruptcy declaration. The company is now requesting certain creditors who withdrew large sums in the months leading up to the bankruptcy to return a portion of their funds. This move is part of a broader effort to manage the company's financial crisis and ensure equitable treatment of all creditors.

See:  CDPQ Posts $33.6 Billion Loss (H1 2022) After Writing Off US$150 Million in Celsius Network

  • Celsius is focusing on account holders who withdrew over $100,000 in the 90 days before their bankruptcy declaration on July 13, 2022. These individuals are being asked to return 27.5% of their withdrawn amount.
  • Those who fail to comply with the request may face legal action. The initiative aims to recover funds for equitable distribution among all creditors.  Compliance with the fund return request makes creditors eligible for future distributions under Celsius's reorganization plan.
  • Account holders who withdrew less than $100,000 are not required to return funds but must participate in the voting process regarding the reorganization plan.
  • The company, along with its founder and CEO Alex Mashinsky, faces lawsuits from regulatory bodies like the SEC, FTC, and CFTC for allegedly misleading customers. Mashinsky is charged with fraud, and Celsius has agreed to a $4.7 billion settlement with the FTC.

Read:  Bank of Canada Publishes Analytical Notes on DeFi

The outcome of this situation could set a precedent for how similar cases are handled in the future, impacting investor confidence and the stability of the cryptocurrency market.


NCFA Jan 2018 resize - Celsius Creditors to Return Funds Withdrawn Pre-BankruptcyThe 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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Federal Judge Rules Against Terraform labs

Crypto | Jan 2, 2024

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A New York judge has granted the SEC a summary judgment over the claim that Terraform sold unregistered securities

  • Judge Jed Rakoff ruled that four crypto tokens offered by Terraform Labs, including UST and LUNA, wLUNA, and MIR were unregistered securities based on the Howey test, a Supreme Court precedent for defining investment contracts.
  • Terraform Labs, during the crypto bull run of 2021, was a significant player in the crypto space, but faced a dramatic downfall with the collapse of UST in 2022.  The SEC has sued Terraform Labs and co-founder Do Kwon in February 2023 for orchestrating a multibillion-dollar securities fraud.
  • The jury trial is scheduled to begin in January 2024.
  • The decision diverges from a separate ruling in the Southern District of New York regarding the XRP token.

Terraform Labs spokesperson in an email to The Block:

"We strongly disagree with the decision and do not believe that the UST stablecoin or the other tokens at issue are securities.  Further, the SEC’s fraud claims are not supported by evidence, and we will continue to vigorously defend against those meritless allegations at trial."

Outlook

The divergence in legal interpretations between different courts, as seen in the Ripple case and now Terraform Labs, adds complexity to the regulatory environment for crypto assets.  The Terraform Labs summary judgment strengthens the SEC's approach to treating certain crypto assets as securities, potentially setting a precedent for future cases.

See:  Moody’s Analytics on Stablecoin Depegging

The case puts a spotlight on algorithmic stablecoins, a relatively new and complex type of crypto asset, and their regulatory treatment.  The denial of summary judgment on fraud claims suggests a protracted legal battle ahead, with significant implications for Terraform Labs and its stakeholders and possible precedent that could shape the future of digital asset regulation.  It is imperative for regulators, companies, and investors to engage in constructive dialogue to establish a regulatory framework that balances innovation with investor protection.


NCFA Jan 2018 resize - Federal Judge Rules Against Terraform labsThe 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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China Intensifies Cracksdown on Tether in Forex Trading

Crypto | Jan 2, 2024

Unsplash DrawKit Illustrations Tether USDT - China Intensifies Cracksdown on Tether in Forex Trading

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Chinese authorities have intensified their crackdown on the use of cryptocurrencies, particularly Tether (USDT), in illegal foreign exchange trading

China's Supreme People's Procuratorate, in conjunction with the State Administration of Foreign Exchange, has issued a stern directive on Dec 27, 2023 against the use of Tether (USDT) as an intermediary in trading yuan with other fiat currencies.

See:  China’s CBDC: Offline Digital Yuan Payments via Super SIM Cards

This crackdown is a continuation of China's stringent regulatory stance on cryptocurrencies, which includes a major ban on cryptocurrency activities like trading and mining imposed in 2021 and comes as part of China's ongoing efforts to mitigate financial risks and maintain control over its financial system.

The Focus on Tether

The Chinese authorities have declared the conversion of yuan to cryptocurrency and vice versa as illegal, including indirect involvement such as technical support or offering exchange services. This includes using cryptocurrencies as a medium to convert yuan into foreign currencies or the reverse.  Tether, a stablecoin pegged to the US dollar, has been specifically targeted due to its role in facilitating illegal forex transactions.

Recent Cases

The prosecutor’s office cited several cases of illegal foreign exchange crime involving Tether. One notable case from 2019 involved a crypto trader who received over 22 million UAE dirhams (approximately US$6 million) from a Chinese gambling syndicate in Dubai and converted it to yuan using Tether. The trader was sentenced to seven years in jail and fined 2.3 million yuan (US$322,000).

Another case involved Zhao Dong, the founder of the over-the-counter crypto trading desk RenrenBit, who facilitated crypto and local currency trading using Tether. He was also jailed for seven years and fined a similar amount.

Outlook

Despite the ban, cryptocurrencies like Tether have remained popular in China, indicating the challenges in enforcing such regulations. Mainland China continues to be a significant market for cryptocurrencies, with underground traders often using them to exchange currencies and circumvent regulation.

See:  What’s the latest surrounding USDT (Tether) risks about?

China's crackdown on the use of Tether in illegal forex trading is a clear indication of its commitment to controlling financial risks and illegal activities within its borders.


NCFA Jan 2018 resize - China Intensifies Cracksdown on Tether in Forex TradingThe 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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