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United Kingdom: Firms Ask FCA For Room On New Consumer Duty
Industry association UK Finance has argued against any rushed implementation by the Financial Conduct Authority (FCA) of its proposal for a new consumer duty.
UK Finance said it had “significant issues” around “the implementation period, retrospection and interpretation by the Financial Ombudsman Service”, as well as “significant misgivings about the FCA’s cost/benefit analysis”.
It said that an implementation period of nine months would be too short, “given the need for firms to review current products, prices, policies, systems, processes and documentation”.
Although the industry body appeared relatively positive about the proposed changes, stressing a desire for it to succeed, these concerns suggest what the FCA is asking firms to do is a tall order, particularly in the aftermath of COVID-19, which UK Finance also mentions pre-occupying both its members and consumers.
Additionally, the FCA has also been working on other consumer protection rules.
In February last year, the regulator published guidance for firms on the fair treatment of vulnerable customers. It proposed six steps that firms should take when dealing with vulnerable customers, such as evaluating consumer needs, product design and making communication understandable. A full analysis of this by VIXIO can be found here.
International: FSB Warns Crypto Could Be Threat To Global Financial Stability
Due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system, crypto-assets could become a threat to global financial stability, the Financial Stability Board (FSB) has said.
The FSB established a monitoring framework for crypto-assets in 2018. At that time, the FSB concluded that crypto-assets did not pose a material risk to global financial stability.
Since then, crypto-assets have grown tremendously, reaching more people and enhancing their linkages with the traditional financial system.
The report also highlights a number of vulnerabilities associated with crypto-asset markets, such as the opacity and lack of regulatory oversight, concentration risk of trading platforms, liquidity mismatch, sudden and disruptive runs on stablecoin reserves with the potential to spill over to short-term funding markets, and the increased use of leverage in investment strategies.
The FSB warns that financial stability risks could escalate rapidly and calls for timely and pre-emptive evaluation of possible policy responses.
“Currently, crypto-assets remain a small portion of overall global financial system assets and direct connections between crypto-assets and systemically important financial institutions and core financial markets, while growing rapidly, also remain limited,” the organisation said.
“Nevertheless, the rapid evolution and international nature of crypto-asset markets raise the potential for regulatory gaps, fragmentation or arbitrage,” it warned.
United States: Crypto Lending Platform Pays $100m In SEC, State Settlements
BlockFi has settled a case alleging it sold retail lending products without registering with the Securities and Exchange Commission (SEC).
According to the SEC order, from March 2019 on, the platform allowed investors to lend crypto-assets to BlockFi in exchange for the company’s promise to provide a variable monthly interest payment.
The order finds that the BlockFi interest accounts, used to lend crypto, are securities under applicable law, but the company failed to register its offers and sales of these interest accounts.
The order also finds that BlockFi made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity.
BlockFi agreed to pay a $50m penalty to settle the SEC case and an additional $50m in fines to 32 states over similar allegations.
"This is the first case of its kind with respect to crypto lending platforms," SEC chair Gary Gensler said. "Today’s settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940."
Commenting on the settlement, the only Republican SEC commissioner, Hester Peirce, said: “While penalties this size are intended to deter bad conduct, here there is no allegation that BlockFi failed to pay its customers the money due them or failed to return the crypto lent to it. BlockFi’s misrepresentations about over-collateralization are serious, but the combined $100 million penalty nevertheless seems disproportionate.”
United States: Crypto Romance Scams Rise 70 Percent To $547m
The rise of social media dating apps, as well as new scamming techniques, including wider use of cryptocurrency has fueled the rise of romance scams to an all time high of more than half a billion dollars.
In an article by the Federal Trade Commission (FTC), Emma Fletcher claimed that over the past five years, “people have reported losing a staggering $1.3bn to romance scams, more than any other FTC fraud category.” And that in 2021, using cryptocurrency had been the most popular method of romance scamming, earning $139m, followed by bank payment ($121m), wire transfer ($93m), and gift card or reload card ($36m).
As well as sending their own money, people may end up acting as money mules by unintentionally laundering criminal proceeds while under the impression they are helping their crush.
Despite the increased popularity of dating apps such as Tinder, Bumble and Match, as well as recent coverage of this phenomenon on Netflix, via the documentary The Tindler Swindler, this problem has been gathering pace for several years. Earlier data from the Federal Trade Commission shows the amount in dollars lost to romance scams has increased from just $75m in 2016, with the volume of money stolen rising more sharply in the last few years.
More generally, the use of gift cards, which can be traded for cryptocurrency on sites such as Paxful, has become a common way for people to scam others that is difficult to trace or refund. This has become so prevalent that there are now YouTube videos of people humorously denying scammers in their efforts to redeem gift cards.
Although this is unlikely to lead to direct regulatory action, particularly given how long this has been occurring for, regulators may try to remedy this issue with consumer duty legislation, as has been proposed generally in the UK. This would put a duty on issuers and merchants of gift cards to make sure they are not being used for scamming or money laundering purposes.
Additionally, these findings may focus regulators on monitoring the role of social media companies and the payments market. The FTC noted that more than a third of people who said they lost money to an online romance scam in 2021 said it began on Facebook or Instagram.
EMEA: Egypt Adopts Fintech Act
Egypt's President has signed the country’s new Fintech Act into law to regulate and facilitate the use of financial technology by non-bank financial institutions.
The act gives Egypt’s Financial Regulatory Authority the exclusive right to license and regulate fintech companies.
It is intended to attract more investments into the fintech and banking sectors, enable fintech companies to reach a larger base of customers; therefore, facilitating financial inclusion and reducing costs.
The new law also establishes standards for transparency and governance and consumer protection rights.
In addition to tech-enabled consumer financial products, the Fintech Act regulates various digital financial solutions such as robo-advisory, nano-finance, or insurtech.
Asia: Central Banks Of Indonesia And South Korea Sign MOU
The Bank Indonesia (BI) and the Bank of Korea (BoK) have signed a memorandum of understanding (MOU) to strengthen the cooperation between the two countries in the area of central banking.
The MOU is intended to provide a more structured and systematic framework for cooperation and to facilitate collaboration between the two central banks in various areas, including payment and settlement systems.
The collaborative efforts will focus on cross-border payments, digital payments, payments improvement and innovation, and market infrastructure.
The agreement will facilitate a more active collaboration between the two central banks via policy dialogue, technical discussions, capacity building, joint research and other forms of cooperation.
According to the release, the MOU is “an important milestone for a better and closer cooperation between the two central banks”.
Collaboration agreements and payment system linkages between Asian countries have become increasingly popular in the past years.
Most recently, the BI signed an MOU with the Monetary Authority of Singapore to enhance their collaboration in financial innovation and payment connectivity, while bilateral agreements to link the payment networks of Asian countries are also mushrooming.
