Daily Dash: EU Extends Russian Sanctions And Proposes New Cybersecurity Safeguards

September 16, 2022
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The European Council announces that Russia sanctions will continue, while the European Commission proposes a new cybersecurity trustmark for software and connected products in its fight against ransomware. Elsewhere, Uruguayan policymakers propose a bill to regulate crypto.

EU Leaders Extend Russia Sanctions

The European Council, made up of EU member state leaders, has agreed to prolong current punitive measures against Russia, which have been in place since its invasion of Ukraine in February. 

The existing restrictive measures, now in place until at least March 15, 2023, provide for travel restrictions for natural persons, the freezing of assets, and a ban on making funds or other economic resources available to the listed individuals and entities. 

Sanctions will continue to apply to 1,206 individuals and 108 entities, which include a prohibition on transactions with the Russian central bank and the Central Bank of Belarus.

In addition, certain banks have been shut out of the SWIFT network by the sanctions imposed by the EU and allies. 

During her State of the Union address, Ursula von der Leyen, the European Commission’s president, said that “Europe's solidarity with Ukraine will remain unshakeable”.

“Russia's financial sector is on life-support. We have cut off three quarters of Russia's banking sector from international markets,” the former German defence minister said. “This is the time for us to show resolve, not appeasement.”

European Commission Proposes New Cybersecurity Measures

The European Commission has presented a proposal for a new Cyber Resilience Act to protect consumers and businesses from products with inadequate security features. 

“Just as we can trust a toy or a fridge with a CE marking, the Cyber Resilience Act will ensure the connected objects and software we buy comply with strong cybersecurity safeguards,” said the European Commission’s digital chief, Margrethe Vestager. “It will put the responsibility where it belongs, with those that place the products on the market.”

The first ever EU-wide legislation of its kind, it introduces mandatory cybersecurity requirements for products with digital elements, throughout their whole lifecycle.

One of the goals of the new proposal is to reduce the risk of ransomware attacks. According to the commission, ransomware attacks are hitting an organisation every 11 seconds around the globe and the estimated global annual cost of cybercrime reached €5.5trn in 2021.

It will ensure that wired and wireless products that are connected to the internet and software placed on the EU market are more secure and that manufacturers remain responsible for cybersecurity throughout a product's lifecycle.

Brussels’ desire is that new rules will rebalance responsibility towards manufacturers, who must ensure conformity with security requirements of products with digital elements that are made available on the EU market.

Uruguay Introduces Bill To Regulate Crypto

Uruguay’s executive power has introduced a bill to create a regulatory framework for virtual assets in the country.

The bill would task the Central Bank of Uruguay’s (BCU) Superintendence of Financial Services with supervising virtual asset service providers, which include crypto custody service providers, crypto exchanges and lenders whose services are connected to the sale of a virtual asset.

It would also change the country’s securities market law to treat crypto-assets as book-entry securities and establish that only registered entities can issue crypto securities.

The bill was sent to the General Assembly of Uruguay by the Ministry of Economy and Finance and originally prepared by the BCU. 

Coinbase Unveils New 'Sentiment' Feature To Rank US Lawmakers

Coinbase has revealed that it is working on a “sentiment score” feature that will allow users to see which US lawmakers are crypto friends or crypto foe.

The new feature will be integrated into the Coinbase app, and aims to help the platform’s 103m verified users educate themselves on the crypto positions held by lawmakers where they live.

This will include information from public speeches and statements, voting records and other scorecard details pulled from Crypto Action Network, a similar service supported by Coinbase.

Coinbase CEO Brian Armstrong said that, over time, he hopes to expand the service to cover candidates as well as incumbents, and expand it beyond the US.

“Crypto advocacy is very important for our mission of increasing economic freedom in the world, and Coinbase will do its part to help,” he said. “Hopefully we can all rally to engage elected leaders and drive sensible policies.”

BNPL Should Provide Same Consumer Rights As Credit Cards, US Consumer Group Tells Congress

Buy now, pay later (BNPL) products should provide the same level of consumer protection as credit cards do, Rachel Gittleman, financial services outreach manager at the Consumer Federation of America (CFA), told Congress on Tuesday (September 13).

According to Gittleman, BNPL firms should be subject to the same fee disclosures, ability-to-repay requirements, reasonable and proportional penalty fees, chargeback protections, dispute rights, standard statement requirements, and appropriate and helpful credit reporting practices that apply to credit cards.

“These protections would ensure that consumers have the same basic protections they do when using other forms of credit” and “have recourse should they run into a problem with their purchase.”

The consumer group made the recommendations at the Senate hearing discussing new financial products, such as BNPL and earned wage access (EWA).

“Innovative financing products should be viewed and regulated as credit,” Gittleman said, urging Congress to adopt a national interest rate cap to protect consumers from predatory interest rates.

Qatar Central Bank Unveils Plans For New Instant Payments System With Built-In BNPL

The Qatar Central Bank (QCB) has revealed new plans to develop an instant payments and settlements system, complete with integrated credit services for buy now, pay later (BNPL) applications.

The QCB said the new system will enable instant, 24/7 transfers between bank accounts, alongside an electronic bill payment service and a direct debit management and authorisation service.

A new unified address service will also allow users to send and receive payments based on simple identifiers, such as a phone number.

The QCB said the system will be interoperable with digital wallets, allowing “ease of integration” for fintechs and financial institutions.

Bahrain Central Bank To Test OpenNode Bitcoin Payments Solution

OpenNode, a US-based provider of bitcoin payments infrastructure, has partnered with the Central Bank of Bahrain (CBB) to test its processing and payouts solution.

Under the CBB’s Regulatory Sandbox Framework, the central bank intends to study the feasibility of adopting the bitcoin lightning network as a payments option.

“Financial services is an important sector within our economy, and fintech platforms such as the one to be tested by OpenNode are essential to ensure we continue to innovate while adhering to the best regulatory measures,” said Dalal Buhejji, an executive at the the Bahrain Economic Development Board (EDB).

The move is in line with Bahrain’s push to attract foreign investment from fintech firms that are looking for a venue to pilot new products and services.

In 2017, the CBB launched the Regulatory Sandbox Framework, and in 2019 the Bahrain EDB introduced a new fast-track set-up process for fintechs and start-ups.

FATF Praises Japan In Latest Assessment

Japan has been given a stamp of approval by the Financial Action Task Force in its latest review.

The island country has “largely addressed” most of the deficiencies identified by the financial crime watchdog in its 2021 assessment, it said. 

For example, the country has moved from being "partially compliant" to "largely compliant" on FATF’s Recommendation 2, which encourages national cooperation and coordination between authorities.

Japan is now compliant with four FATF Recommendations and largely compliant with 25. The country remains partially compliant with nine recommendations.

UK Fintech Investment In Freefall Due To Recession Fears, Says KPMG Report

A new report has found that UK fintech investment has all but collapsed during the first half of 2022.

In its Pulse of Fintech report, KPMG said UK fintech investment fell 66 percent in the first half of this year compared to the same period last year — down from $27.8bn to $9.6bn.

“The optimism that permeated the fintech market at the end of 2021 quickly transformed into concerns about a potential recession in H1 2022,” said Anton Ruddenklau, global leader of fintech at KPMG.

“As uncertainties related to the Russia-Ukraine conflict, ongoing supply chain challenges, and rising inflation and interest rates took their toll on public and private companies alike.”

Globally, both total investment and total number of fintech deals fell slightly between H2 last year and H1 this year.

Fintech investment dropped in both the Americas and EMEA, but in Asia-Pacific it hit a new record high, primarily due to large M&A deals, including there completion of Block’s $27.9bn acquisition of Australia-based Afterpay.

On the bright side, payments firms accounted for the largest share of fintech investment during H1 2022 ($43.6bn) followed by crypto ($14bn).

Democrat Senators Sound Alarm About Crypto Scams

Mark Zuckerberg is again facing questions from US lawmakers, as senators write to him looking for answers on how Meta (formerly Facebook) intends to deal with crypto scams on its network. 

US Senator Bob Menendez, a member of the Senate Banking Committee, was joined by, others including the Senate’s chair, Sherrod Brown, and former presidential candidates, Bernie Sanders, Elizabeth Warren and Cory Booker in writing the letter. 

Among the issues raised, the senators requested information on the company’s efforts to combat such scams and hold bad actors accountable for crypto fraud. 

“Data from the Federal Trade Commission (FTC) shows that scams involving cryptocurrency are becoming increasingly prevalent on social media. From January 1, 2021 through March 31, 2022, 49 percent of fraud reports to the FTC involving cryptocurrency specified that the scam originated on social media,” wrote the senators.

The senators also pointed out how Meta’s websites are particularly popular hunting grounds for scammers looking to defraud consumers. 

For example, of those who have reported being scammed out of cryptocurrency on a social media website, 32 percent identified the scam as having originated on Instagram, 26 percent on Facebook, and 9 percent on WhatsApp.

Meta has previously acknowledged the potential for crypto scammers to operate on its platforms. In January 2018, Facebook banned crypto ads, claiming that “there are many companies who are advertising binary options, ICOs and cryptocurrencies that are not currently operating in good faith.”

At the time, Meta said that this policy was meant to make it harder for scammers to profit from a presence on Facebook.

“This ban clearly shows that you understand the risks posed by this type of content to users,” wrote the senators. “You later partially reversed the ban on crypto ads, and more recently expanded the list of regulatory licences accepted in order to advertise cryptocurrency on Facebook and Instagram. A higher level of scrutiny is needed for this type of content.”

Argentina Cracks Down On Crypto Miners

The Argentine tax authority, AFIP, has carried out a series of searches at crypto miners, looking for potential tax evaders that failed to pay in taxes resulting from gains obtained via their mining activities.

The raids, carried out between last Tuesday (September 6) and Friday (September 9) at locations in the cities of San Juan, Córdoba and Lisandro Olmos, were the first ones focused on uncovering hidden crypto mining activities by the tax agency.

As part of the first operation, tax agents visited a fruit storehouse in San Juan whose owner had imported specific equipment that is typically used to mine cryptocurrencies. 

Following the initial refusal of the owner, tax agents got access to a supposed refrigerated chamber where, instead of fruit, they found a cryptocurrency mining farm.

In the third raid in Lisandro Olmos, AFIP agents found 142 devices and 1,355 video cards used to mine cryptocurrencies. 

According to the agency, the property was declared for “other commercial purposes” and its documentation could not justify the equipment found there.

The tax authority will now examine whether the individuals declared the correct amount of the assets to the AFIP, the origin of the funds for their purchase and the income derived from the activity.

Due to its skyrocketing level of inflation, Argentina has experienced a large uptake in the use of cryptocurrencies, as reported by VIXIO.

UPDATE: Visa, Mastercard, Amex Give In To Tracking Gun Purchases

The card networks have confirmed that they will adopt a merchant code for purchases made at firearm and ammunition stores after the international standard setting body gave the green light to a new code.

Last Friday, the International Organization for Standardization (ISO) approved a new rule that creates a new merchant category code for gun stores. Gun stores were previously categorised as “miscellaneous and specialty retail stores”, which also include products such as atlas stores, silk flower shops, or ice dealers.

Throughout the weekend, American Express (Amex), Mastercard and Visa announced they would all adopt the new code, a huge win for advocates of the measure, which include lawmakers from New York, Congress and pension funds that hold stakes in the card giants worth hundreds of millions.

Amex said in an emailed statement that they will work with third-party processors and partners to implement the code.

"We are focused on ensuring that we have the right controls in place to meet our regulatory and fiduciary responsibilities, as well as prevent illegal activity on our network," the company wrote.

"Following ISO's decision to establish a new merchant category code, Visa will proceed with next steps, while ensuring we protect all legal commerce on the Visa network in accordance with our long-standing rules," the payment network said in a statement.

Similarly, Mastercard said: “We now turn our focus to how it will be implemented by merchants and their banks as we continue to support lawful purchases on our network, while protecting the privacy and decisions of individual cardholders.”

Original story: Card Networks Pressed To Track US Gun Purchases

SEC To Open New Office Focused On Crypto-Asset Filings

The US Securities and Exchange Commission (SEC) has announced plans to open a new office dedicated to handling filings that involve crypto-assets.

In a statement published last Friday, the SEC said the Office of Crypto Assets will fall under the Division of Corporation Finance's Disclosure Review Program (DRP).

The new office, which is expected to launch this year, will join the seven existing offices that provide review of filings and are grouped by industry expertise.

The SEC said the Office of Crypto Assets will further the Division’s work to promote capital formation and protect investors following the rapid growth of the crypto-asset class.

The news follows a speech given by SEC Chair Gary Gensler reiterating his view that most crypto-assets are securities and will continue to be regulated as such, despite objections from many crypto firms.

Digital Currencies On The Agenda At Post-Summer EU Meeting

Eurogroup, the informal meeting of finance ministers in the Eurozone, said that it “looked to the future” in its first meeting back after the summer recess. 

“We looked at the resilience of our currency and the work that is underway regarding whether and how it could have a digital future,” said Paschal Donohoe, Ireland’s finance minister and Eurogroup president in his remarks after the meeting.

The Eurogroup’s position is very much in favour of the European Central Bank’s digital euro project, with Donohoe stating that the digital euro project is of strategic importance and has the potential to strengthen the EU’s financial and monetary sovereignty, while also improving the functioning of the euro area. 

“That is why, despite the many pressing matters that we have on our agenda today, we felt it was important to continue our engagement in this project and to work with our colleagues, the ECB and the Commission,” he said.

Finance ministers beyond the Eurogroup also joined the call for a discussion related to work on digital currencies in general, as well as an update on Sweden’s e-krona project. 

Fintechs Could Cause A Crisis, Warns US OCC

Michael Hsu, acting Comptroller of the Currency, warned a conference in New York that the rise of fintech services and digital banking could spur financial risks and potentially a crisis over the long term.

Speaking at the Clearing House and Bank Policy Institute’s annual conference, Hsu said that while crypto has “grabbed the headlines”, fintechs and big techs are having a large impact and warrant much more attention. 

“Banks and tech firms, in an effort to provide a seamless customer experience, are teaming up in ways that make it challenging for regulators to distinguish between where the bank stops and where the tech firm starts,” he said.

Meanwhile, Hsu, who previously worked at the Federal Reserve, said that fintech valuations are falling due to the rise in costs, meaning banking partnerships are rising.

This could create IT risks around information security and resilience, and also raises customer protection issues.

“I worry increasingly about the 'unknowns' and am concerned that the less familiar risks of this digital transition are unlabeled and thus unseen,” he said, referencing the 2008 financial crash. “Risks that are unseen have a tendency to grow and later to be the source of nasty surprises.”

Egypt Set To Join Russia’s Mir Payment System

Egypt is set to become the first Arab nation to join Russia’s Mir card payment system, as the two countries focus on building closer ties through trade and tourism.

According to an Egyptian central banker quoted by Al-Monitor.com, the country’s commercial banks are already connecting with Mir ahead of a proposed launch by the end of September.

This has partly been made possible by new rules introduced this month that will allow Egyptian banks to accept payments made in roubles to hotels and other tourism businesses.

However, the central banker was keen to point out that “all commercial and industrial activities” with ties to Russia are expected to benefit, not just tourism.

At present, Mir payments are accepted in ten jurisdictions outside of Russia: Armenia, Uzbekistan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Turkey and Vietnam.

The partially recognised autonomous states of South Ossetia and Abkhazia (both located in Georgia) also accept such payments. 

PEXA Completes UK’s First Digitised Remortgaging Transaction

A UK building society has completed the country’s first digitised remortgaging transaction thanks to technology provided by PEXA, an Australia-based property exchange network.

Hinckley & Rugby Building Society (HRBS), completed the transaction at its head office before an audience of staff and guests, including representatives of PEXA.

In August this year, HRBS entered into a new partnership with PEXA that would allow it to design and test its digitised property exchange technology ahead of a full launch in the UK.

PEXA’s paperless exchange platform is designed to cut costs and streamline lodgement and settlement processes, saving time and tightening security for consumers, lenders and conveyancers.

PEXA, a trading name of Digital Completion UK, was launched in 2010 in Australia, where it is now used by more than 10,000 legal and conveyancing firms.

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