Risk In:Review #17 - 21 May 2023
Anthony Hope
Risk & Compliance Executive | Fintech Founder & Innovator | Strategic Leader | Expert Speaker
Welcome to Risk In:Review, your weekly newsletter curating the best of the week’s news stories from the crossroads between risk management and technology in Asia Pacific.
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This Week In:Review
Australia
China
Hong Kong
India
Korea
Singapore
Best of the Rest
Australia In:Review
Westpac, one of Australia's largest banks, has announced a ban on customer transfers to various cryptocurrency exchanges including Binance, the world's largest, in an effort to mitigate losses from scams. According to the bank's data, around half of all scam losses come from investment scams, with a third of all scam payments transferred directly to cryptocurrency exchanges. The move is expected to save millions in losses. Binance, with 128 million customers globally, has faced scrutiny recently, with the Australian Securities and Investments Commission cancelling its Australian financial services license for misclassifying retail customers as wholesale investors. The ban comes as the Australian Competition and Consumer Commission reports that investment scams accounted for AUD 1.5bn out of over AUD 3.1bn in total reported losses, with bank transfers and cryptocurrency reported as the most common payment methods.
The Australian Banking Association (ABA) has launched the Fraud Reporting Exchange (FRX) platform, a tool that allows bank customers to report fraudulent payments in near real-time, increasing the chances of freezing and returning funds. The tool aims to provide a rapid response to scammers, curtailing the loss of money overseas or to cryptocurrency platforms. The launch comes in response to a rise in scams, with the Australian Competition and Consumer Commission estimating billions of dollars were stolen from bank accounts in 2022. The platform, which has been welcomed by consumer rights groups, aims to expedite the scam reporting process and make reimbursement more efficient. However, critics argue that the focus should be on preventing scams and making reimbursement mandatory by law.
Binance Australia has suspended its Australian dollar fiat services following a decision by its third-party payment service provider, Cuscal. Cuscal, in a non-specific statement, emphasised its dedication to identifying and implementing detection services to combat scams, fraud, account fraud, ID theft, and crypto activity. The financial services company also affirmed its commitment to terminating any clients or their customers and/or merchants not complying with its onboarding and compliance requirements. While Cuscal did not specify why it ended its support for Binance Australia, a Zepto spokesperson revealed that Cuscal had instructed them to offboard Binance. In response, Binance Australia is currently seeking an alternative payments partner, and has assured that Zepto and Cuscal are still supporting users who wish to withdraw Australian dollars.
The Reserve Bank of Australia's central bank digital currency (CBDC), the eAUD, has successfully been used in its first foreign exchange (FX) transaction. The trade of eAUD to the USDC stable coin was conducted by ASX-listed DigitalX and TAF Capital, facilitated by blockchain fintech Canvas. The transaction was part of a CBDC pilot programme led by the Reserve Bank of Australia and the Digital Finance Cooperative Research Centre. Canvas Digital's CEO, David Lavecky, touted the benefits of using CBDCs for FX transactions, highlighting improved transaction times, reduced fees, and greater access. The successful test marks a significant step towards transforming financial and capital markets, offering solutions to traditional FX markets known for their inefficiency and high costs.
China In:Review
China's State Cyberspace Administration (CAC) has initiated a campaign to combat fake news, targeting news providers such as short video platforms and popular search lists. To date, the CAC has eliminated 107,000 fake news accounts and fake anchors, and removed 835,000 pieces of false information. Last week, Chinese police detained an individual who used the AI model ChatGPT to create a false news article about a fatal train crash, marking the first application of China's AI media law in Gansu province. The law, effective since January 10, 2023, mandates "deep synthesis service providers" to prevent misuse of their AI algorithms for illegal activities. The clampdown could pose challenges for service providers like Tencent, which recently launched a Deepfakes-as-a-Service product.
A subsidiary of Greenland Holdings, Greenland Financial Technology Group, is applying for a virtual asset trading license in Hong Kong, marking the first instance of a state-owned Chinese company doing so. The firm already holds two licenses from the Securities and Futures Commission (SFC) for securities advising and asset management and was granted a digital banking license in Singapore in 2020. Under new SFC rules coming into effect on 01 June, virtual asset trading platforms will require a license to operate or advertise within the region. The proposed new Greenland unit aims to trade cryptocurrencies, non-fungible tokens, and products associated with carbon emissions. James Geng Jing, the CEO of Greenland Financial Technology Group, expressed confidence in the move, citing the company's experience in digital banking in Singapore and digital business expansion in mainland China over the past five years.
The Supreme People's Procuratorate of China, the nation's highest legal supervisory body, has issued a warning about the risks associated with investing in non-fungible tokens (NFTs). In a recent report, it outlines concerns about unauthorised fundraising, scams, and price manipulation, advising consumers to exercise caution. It also highlighted the industry's lack of regulation, with some NFTs reportedly being counterfeits, or not minted on distributed ledgers. While recognising the potential of NFTs for intellectual property protection and digital economy enrichment, the report stresses the need to distinguish genuine innovation from criminal activity. It calls for a crackdown on NFT-related criminal activities and recommends close cooperation between law enforcement and other bodies. Despite a ban on digital currencies in 2021, China's NFT market has grown, leading to a sharp rise in complaints related to NFTs, which reached 59,700 in 2022, up from less than 1,000 in 2021.
Hong Kong In:Review
领英推荐
The Hong Kong Monetary Authority (HKMA) has initiated the trial run of a digital version of the local currency, the e-HKD, engaging 16 banks and payment firms to test its potential applications. These include online payments, in-store transactions, government payouts, tokenised deposits, tokenised asset settlements, and Web3 trading and clearing. The digital currency will be tested in a controlled experimental environment to evaluate its infrastructure, security, and other operational aspects. The HKMA joins several central banks worldwide exploring digital currencies, and this initiative is seen as a step towards strengthening Hong Kong's digital economy. The results of the pilot are expected to be reported in November, though a complete rollout date has not been confirmed. The e-HKD is the retail component of Hong Kong's central bank digital currency (CBDC), while on an international level, the HKMA is studying its use in settling international payments through the "mBridge" project.
San Francisco-based Ripple Labs has partnered with Fubon Bank, the Hong Kong unit of Taiwan’s Fubon Financial Holding Co., to launch a new platform for a central bank digital currency (CBDC) as part of the new e-HKD (electric Hong Kong dollar) pilot program. This program aims to investigate e-HKD use cases and implementation hurdles. Ripple's new CBDC platform will enable central banks, governments, and financial institutions to issue and manage their own digital currencies. Ripple and Fubon Bank will test the tokenisation of real estate assets using e-HKD, demonstrating how CBDC can be leveraged for real estate equity asset release. This pilot program will involve 16 banks, payment firms, and blockchain companies exploring e-HKD use cases in six categories, with Ripple leading in real estate asset tokenisation.
Crypto firms in Hong Kong are struggling to open bank accounts, despite the city's efforts to reestablish itself as a crypto hub. Around 80 applications are currently being processed by just eight officers at the Securities and Futures Commission (SFC). Even licensed firms are encountering difficulties with banks. While Hong Kong's de facto central bank, the Hong Kong Monetary Authority (HKMA), has reminded banks that they are not prohibited from offering accounts to crypto firms, the issue persists. Last month, the HKMA organised a roundtable to ease banking access for firms already holding or applying for licenses. Nevertheless, banks' responses to these efforts remain uncertain. Some crypto firms disguise their true nature to facilitate bank account opening, while others resort to purchasing expensive insurance or investment products to enhance their value to the banks. However, even successful account holders face uncertainty regarding the continued availability of their accounts.
A cryptocurrency scam has defrauded users of over $15 million by cloning the user interface of prominent Hong Kong-based exchange HitBTC. The scam, which has been operational for nearly a year, utilises phishing contracts to deceive users into depositing assets. Once the transaction is confirmed, the scammer empties the user's wallet. The scheme operates on the Bitcoin, Tron, and Ethereum networks. Crypto compliance expert SlowMist discovered that the perpetrator also impersonates several other web3 tools, Dapps, and exchanges, including South Korean Coinone and former FTX subsidiary LedgerX. According to cybersecurity firm Kaspersky, phishing attacks like this have surged by 40% between 2021 and 2022, driven by the allure of getting rich quickly with cryptocurrencies.
India In:Review
The Indian government and the central bank have received proposals to reinstate the access of the Unified Payments Interface (UPI) for the cryptocurrency industry, according to CoinDesk's sources. The UPI, a real-time payment system widely used in India, was suspended for crypto use last year. Since then, UPI usage has surged with approximately 74 billion transactions totaling $1.5 trillion in 2022. The cut-off was allegedly triggered by Coinbase's India launch in April 2022, after which the National Payments Corporation of India (NPCI) tweeted that it was unaware of any crypto exchange using UPI. Now, the Bharat Web3 Association, a new crypto policy advocacy group, and other stakeholders are lobbying for policy changes to regain UPI access for the crypto sector.
Bureau, a no-code decisioning platform, released a study titled "The Anatomy of Fraud 2023," revealing digital fraud trends in India and Southeast Asia. According to the report, 55% of reported digital payment fraud in these regions is related to the Unified Payments Interface (UPI), but these attacks generally involve low amounts. Account-related fraud, such as account takeovers and fake registrations, are the most common fraud types, constituting around 65% and 54% of fraud in financial services and e-commerce, respectively. The study notes that rapid digitalisation, internet penetration, and an increase in online micro businesses and fintech startups are factors making India a prime target for fraudsters. Investment in fraud detection and prevention is projected to increase by 400% by 2027, with the market reaching $7.6 billion. Fraudsters are leveraging easy-to-use tools and artificial intelligence available on dark web marketplaces, prompting urgent action from businesses and proactive government regulations.
Korea In:Review
South Korea is set to regulate digital assets including cryptocurrencies, leading to a power struggle between financial authorities. The Financial Services Commission (FSC) oversees the local crypto market, but the central bank wants authority to access data from crypto platforms. After debates, the FSC agreed to have this included in upcoming legislation to hasten the legal framework's creation. Around 10% of South Korea's population has invested in cryptocurrencies, and the nation's exchanges accounted for over 9% of the global crypto trading volume in August 2021. While the digital asset industry welcomes regulatory clarity, there are concerns over disputes between financial authorities. The proposed regulatory framework, expected to be passed in 2023, aims to provide consumer protection, standardise crypto tokens issuance, and ensure information disclosure to investors, ultimately establishing a transparent landscape for South Korea's crypto industry.
Singapore In:Review
Singapore is leading a digital transformation in its financial services, motivated by the Monetary Authority of Singapore's (MAS) support of fintech startups and digital-only banks. The three major banks, Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB) have launched digital strategies to compete with emerging fintechs after the pandemic-induced surge in digital adoption.
DBS has invested significantly in cloud technology and collaborative models, fostering in-house tech development and adopting a startup mindset. Despite challenges with service disruptions, the bank has forged ahead with initiatives like the DBS Digital Exchange and a partnership with JP Morgan for a blockchain-based cross-border clearing and settlement provider.
UOB has focused on emerging technologies, investing in big data, artificial intelligence, cloud, and robotic process automation. While they have experienced service interruptions and system delays, UOB has launched AI-powered tools and an AI-driven chatbot, incorporating blockchain technology into their customer onboarding process.
OCBC is utilising open-source technology, adopting a hybrid cloud model, and updating its IT infrastructure. They are focusing on core banking channels and the Enterprise Data Science Platform (EDSP) for AI deployment. After dealing with cyber phishing scams, OCBC has prioritised cybersecurity measures, including an instant ‘kill switch’ feature for customers.
As a leading fintech hub, Singapore has mastered the balance between innovation and consumer protection through collaborative efforts between regulators and industry. According to Monetary Authority of Singapore’s (MAS) Chief Fintech Officer, Sopnendu Mohanty, the key to effective fintech regulation is understanding the technologies to be regulated. He shared three strategies for successful fintech governance during Dubai Fintech Summit 2023. Firstly, public-private partnerships are crucial for joint industry projects and establish trust and consumer adoption for emerging technologies. Secondly, putting in place key public infrastructure such as efficient systems for payment and digital ID is fundamental. Mohanty stressed that fintech firms should not build these core infrastructures but innovate and create business models on top of them. Lastly, he highlighted the need for active regulatory intervention, especially during market downturns, to understand and rectify flaws, thereby minimising volatility and fostering better industry engagement.
Best of the Rest In:Review
Pakistan's Minister of State for Finance, Aisha Ghaus, declared that cryptocurrency trading cannot be legalised in the country due to its recent removal from the Financial Action Task Force's (FATF) "Grey List" and the potential use of cryptocurrency for terror financing. The FATF's "travel rule" required nations to track and share information on cryptocurrency transactions to hinder money laundering and other illegal activities. The State Bank of Pakistan (SBP) had previously stated that cryptocurrency is neither legal tender nor government-backed, labeling it a complete fraud. The Senate Standing Committee has directed the SBP and the Ministry of IT & Telecom to ban cryptocurrency trading, which would involve blocking all cryptocurrency-related websites and services. Despite these restrictions, in 2022, Chainalysis ranked Pakistan among the top 10 countries with high crypto adoption.
The G7 committee met in Niigata, Japan, to discuss the global financial implications of central bank digital currencies (CBDCs) and cryptocurrency regulations. The committee reiterated its support for developing CBDCs, with further investigation needed to ensure they meet standards of transparency, rule of law, economic governance, cybersecurity, and data protection. The G7 also expressed support for the International Monetary Fund’s (IMF) development of a “CBDC Handbook”. The group discussed the "Travel Rule," which mandates financial institutions processing cryptocurrency transactions over $3,000 to disclose the sender's information. They supported initiatives by the Financial Action Task Force (FATF) to expedite global implementation of the rule and its work on emerging risks, including decentralised finance (DeFi) arrangements and peer-to-peer transactions.
North Korean hackers, associated with the state-sponsored Lazarus Group, have pilfered $497 million in cryptocurrencies from US businesses since 2017, as per an analysis sponsored by Nikkei and conducted by Elliptic. These cyber criminals also targeted other nations, such as Japan, Vietnam, and Hong Kong, amassing an overall total of $2.3 billion in stolen crypto assets over the past five years. Japan suffered the highest losses, with $721 billion, followed by Vietnam and Hong Kong with $540 million and $281 million respectively. The hackers typically used ransomware attacks and exploited vulnerabilities in cross-chain DeFi projects. The US Department of Justice (DOJ) is now increasing scrutiny of DeFi exploits due to the prevalence of North Korea-backed hackers.
The European Council has approved the eighth version of the Directive on Administrative Cooperation (DAC8), expanding tax reporting requirements to include crypto asset transfers. This follows the passage of the Markets in Crypto-Assets (MiCA) legislation and aligns with the Crypto-Asset Reporting Framework (CARF) and standards set by the Organisation for Economic Cooperation and Development (OECD). DAC8 mandates crypto asset service providers (CASPs) to record information on all crypto transfers to trace transactions and identify suspicious activity. This bolsters Anti-Money Laundering and Countering Terrorism Financing rules in the European Union, with proposals for a new European AML body. CASPs are now required to provide the beneficiary's details, including their distributed ledger address and account number if applicable, either before, during, or simultaneously with the transfer. The new DAC8 rules also entail stricter reporting obligations for high-income individuals and more robust requirements for sharing Tax Identification Numbers.
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