Risk In:Review #61 - 16 June 2024
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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Perspectives
This week’s Perspectives focuses on three unique headlines from across the Asia Pacific region.
First, following Narendra Modi’s failure to secure a majority in the Indian elections, ?India’s main opposition party has accused the ruling party of orchestrating a major stock market scam linked to the polls.
Unusually, the opposition is not challenging the outcome of the election, but focusing on the unexplained rise in the stock market on 31 May 2024, followed by a steep crash on 4 June after Narendra Modi’s party did not secure a majority.
Retail investors lost an estimated USD 359.3 billion from the crash, with the opposition seeking a probe into whether the exit polls were inflated, describing it as “the world’s first exit poll stock market scam.”
If proven this would likely be a world first. While the release of exit poll data in the US’s 2000 and 2016 elections led to volatility in the stock market, no direct charges were laid linked to insider trading or market manipulation.
The second headline of the week relates to South Korea’s Financial Services Commission (FSC) issuing new guidelines to determine whether non-fungible tokens (NFTs) can be treated as regular cryptocurrencies.
Governments and regulators have struggled with this issue, because while NFTs are generally non-fungible and used to represent ownership, they can be securitised and issued in sufficient volume that they can serve as a quasi-digital currency.
The FSC’s new rulebook may classify an NFT as a cryptocurrency if it is issued in bulk, has a high probability of fungibility, or can be exchanged for virtual assets. The FSC may also regulate an NFT as a virtual asset if it can be used as a direct or indirect means of payment for specific goods or services.
The FSC will review each case individually, meaning NFTs will not be subjected to an absolute classification standard, and it will be interesting to see whether other governments adopt a similar approach.
Finally, with government support, Taiwan has established a crypto industry association to help self-regulate the market. The Taiwan Virtual Asset Service Provider Association (TVASPA) follows in the footsteps of the Korea Blockchain Association (KBA) and the Japan Virtual Currency Exchange Association (JVCEA).
The government has mandated the association to formulate self-supervisory guidelines to ensure the sector's healthy development, with the first set of guidelines likely to be focused on classifying and grading VASPs in Taiwan.
I anticipate that the TVASPA will help bolster the credibility of the industry in Taiwan, but first the association will need to demonstrate that it can balance the interests of both the large and small exchanges in the Taiwan market.
This Week In:Review
Australia
China
Hong Kong
India
Korea
Singapore
Best of the Rest
Australia In:Review
Australia's regulators have provided updates on their plans for the digital assets sector, revealing their intention to introduce a draft framework for stablecoins and increase enforcement against unlicensed entities.
Australia's Treasury had previously stated plans to release draft legislation for licensing and custody rules for crypto asset providers by the end of 2024. This draft may now also include a framework for regulating stablecoins.
Chris Adamek, director of the Australian Treasury's digital asset policy unit, mentioned that the digital asset platform reforms have been given a drafting slot with the Office of Parliamentary Counsel, with an exposure draft expected before the end of the year.
The Australian Securities and Investments Commission (ASIC) is actively involved, providing advice to the Treasury and holding regular meetings with international peers to discuss cases against digital asset firms.
Dr Rhys Bollen, senior executive leader of digital assets at ASIC, highlighted their collaborative efforts, including recent discussions with the SEC.
Bollen also warned that ASIC would appeal recent judgements favouring crypto entities like Block Earner and BPS Financial Pty Ltd.
The Australian government has enforced a ban on using credit cards and digital currencies for online betting. This ban includes credit cards linked to digital wallets, cryptocurrencies such as Bitcoin, and other novel forms of credit.
The new regulation aligns online betting with the regulations governing land-based gambling, though it does not affect payment methods for online lotteries, which can still accept credit card transactions.
Kai Cantwell, CEO of Responsible Wagering Australia, has urged the government to extend this ban to include these exempted forms of gambling, emphasising the need for consistent consumer protection measures.
Cantwell expressed concerns that inconsistencies in protection measures might drive vulnerable Australians towards less regulated gambling options, increasing their risk of harm.
The industry was given a six-month transition period, with the ban becoming effective on 11 June 2024. Companies failing to comply face fines of up to AUD 234,750.
Michelle Rowland, the Australian Communications Minister, stated that additional initiatives to prevent gambling-related harm would be forthcoming. She also noted that this ban complements the substantial progress made by the Albanese Government in reducing gambling harm over the past two years.
China In:Review
A court in China has sentenced members of a gang to prison and imposed fines for money laundering using the Chinese central bank digital currency (CBDC), the digital yuan.
The People’s Procuratorate of Yuecheng District, Shaoxing City, Zhejiang Province sentenced three individuals to prison terms ranging from seven to sixteen months.
The gang, identified only by their family names, laundered CNY 200,000 in digital form over four days in mid-September. A fourth person was arrested, but their status remains unknown.
The scheme began when Yuan, who had failed to find employment in Shaoxing, responded to an advertisement offering a 0.8% commission for cashing out digital yuan with local merchants. Yuan later recruited his girlfriend, Zhang, and their friend, Kuo, to help with the operations.
The gang offered merchants in Shaoxing, Jinhua, Hangzhou, Jiaxing, and other areas a commission of 1%–1.5% to convert digital yuan received from their “superior” into cash, using “overseas niche chat tools” for communication.
Zhang and Kuo earned a 0.5% commission. The privacy features of the digital yuan were exploited, though these features are intended to allow for crime prevention.
The People’s Bank of China officials have described the digital yuan’s privacy as “controllable anonymity.” Reports of digital yuan-related fraud are rare but not unprecedented.
In a similar case in Shanghai in May 2023, eight people were convicted and sentenced to between four and 54 months in prison, plus fines, for laundering USD 1.379 million. This scheme exploited the ability to open digital yuan accounts using only phone numbers.
Hong Kong In:Review
The Infocomm Media Development Authority (IMDA) of Singapore and Hong Kong’s Office of the Communications Authority (OFCA) have signed a Memorandum of Understanding (MOU) to combat scams.
The agreement was finalised during their annual bilateral meeting in Singapore on 11 June 2024.
The MOU focuses on mutual assistance and cooperation regarding scam telephone calls and text messages through the exchange of information.
Additionally, it aims to facilitate research and education on scams and to develop a coordinated approach to regulatory issues and consumer protection across both jurisdictions.
IMDA’s international collaborative efforts extend beyond this partnership, with similar agreements established with Malaysia, the United States, New Zealand, and Australia.
India In:Review
领英推荐
The Congress, India’s main opposition party, has accused the ruling party of orchestrating a major stock market scam linked to the polls.
The controversy centres on a significant and unexplained rise in the stock market on 31 May 2024, followed by a steep crash on 4 June, after it became clear that Prime Minister Narendra Modi’s party did not secure a majority. On 4 June, retail investors lost an estimated USD 359.3 billion as the stock market crashed.
The Congress has called for a Joint Parliamentary Committee (JPC) probe into the matter, suggesting that foreign investors, who were net sellers, suddenly bought a significant amount of shares on 31 May, accounting for 58% of all buying.
The exit polls released the following evening predicted a landslide victory for the BJP, but the actual results saw the BJP’s tally at 240 seats, 32 short of a majority.
Praveen Chakravarty, head of the Congress’s data analytics wing, described this as “the world’s first Exit Poll Stock Market Scam,” claiming that foreign investors had prior knowledge of the exit poll results.
The Congress has accused Modi and his close confidante, Amit Shah, of being involved, highlighting their media interviews where they advised buying stocks before 4 June.
The BJP has dismissed these allegations, with senior leader Piyush Goyal accusing Rahul Gandhi of misleading investors. However, the Congress’s call for a JPC probe is supported by other opposition parties, including the Trinamool Congress, which has requested the Securities and Exchange Board of India (SEBI) to investigate.
In a landmark judgment, the Orissa High Court in Odisha, India, ruled that transacting in cryptocurrencies does not amount to illegal activities and refused to classify crypto as “money” under existing financial laws.
This ruling, delivered on 12 June 2024, has significant implications for the Indian crypto landscape, which has faced skepticism from the central bank and government.
The court granted bail to two individuals arrested for allegedly running a Ponzi scheme involving investments in Yes World Token through a trust wallet. Justice Sasikanta Mishra, who led the single bench, noted that encouraging people to invest in cryptocurrencies does not constitute illegal activity.
The police had accused the individuals of promising high returns to investors, but the court found no evidence of dishonest inducement or money transfers.
The observation that there was no evidence of property being dishonestly induced to be delivered to the accused was crucial in dismissing charges under Section 420 of the Indian Penal Code (IPC), which deals with cheating and dishonest motives.
The court also found no basis for charges of forgery under Sections 467, 468, and 471 of the IPC, as no falsification of documents was proven.
This ruling is seen as a potential turning point for the crypto community in India, which has been hopeful for regulatory relaxation under Prime Minister Narendra Modi's third term and Finance Minister Nirmala Sitharaman's second term.
The Enforcement Directorate (ED) of India announced on Friday that it conducted raids across multiple states as part of a money laundering investigation against the Kerala-based company HighRich Online Group.
The company is accused of duping depositors out of Rs 1,500 crore through a Ponzi scheme. The searches, initiated on 11 June, targeted the premises of the company's promoters in Kerala, Maharashtra, and Chhattisgarh.
The investigation began following multiple FIRs filed by the Kerala Police. The raids led to the freezing of approximately Rs 32 crore in various bank accounts belonging to the company, its promoters, and their family members.
The ED’s statement revealed that immovable properties worth Rs 15 crore, acquired through the proceeds of crime, were traced to the promoters and leaders of HighRich Online Group.
The company and its promoters were also found to be involved in cryptocurrency trading and had issued their own digital currency, HR Crypto Coin. This coin was exchanged for Indian rupees and USDT, and it was part of the Ponzi scheme offering a 15% annual return on investments.
The scheme incentivised members to introduce new customers, promising a 30% direct referral income. The memberships were sold in the form of digital IDs, which provided user credentials to access the company’s website. Members would earn commissions by selling these digital IDs to others, a classic multi-level marketing strategy typical of Ponzi schemes.
Korea In:Review
South Korea’s Financial Services Commission (FSC) has issued new guidelines to determine whether certain non-fungible tokens (NFTs) can be treated as regular cryptocurrencies.
This development precedes the implementation of the Virtual Asset User Protection Act on 19 July 2024, South Korea’s first regulatory framework specifically targeting the crypto market to combat illicit activities.
According to local media reports, the FSC’s new rulebook may classify an NFT as a cryptocurrency if it is issued in bulk, has a high probability of fungibility, or can be exchanged for virtual assets.
The FSC may also regulate an NFT as a virtual asset if it can be used as a direct or indirect means of payment for specific goods or services.
An FSC official explained, "For example, if 1 million NFTs were issued, there would be a lot of transactions and there is a possibility that they would be used for payment purposes."
Digital tokens that cannot be traded or transferred and have minimal economic value or function may still be considered general NFTs rather than virtual assets. This category includes digital tokens used as transaction proofs (receipts) or issued as tickets for exhibitions.
The FSC will review each case individually, meaning NFTs will not be subjected to an absolute standard to determine their classification.
Singapore
Starting 1 July 2024, Singapore will send almost all government text messages from the single sender ID gov.sg to combat scams and increase trust in government communications.
This initiative, led by Open Government Products (OGP) within GovTech Singapore, aims to mitigate scams where malicious actors impersonate government officials. In 2023, nearly 900 impersonation scams led to losses of SGD 13 million in December alone.
OGP’s Assistant Director of Policy, Hygin Fernandez, explained that standardising all government messages will help citizens identify legitimate communications.
The team is using Postman, a government alert system, and has collaborated with regulatory bodies and telecommunications companies to prevent spoofing of the sender ID. The initiative leverages the recognisable gov.sg branding already familiar to Singaporeans.
Engagement sessions, user-testing, and focus groups ensured the public understood the change, with positive feedback from pilot programmes. Efforts will also target less digitally savvy individuals, such as the elderly.
Exceptions to the single sender ID include agencies handling National Service and emergency services, but these are expected to reduce over time.
The full transition to the new sender ID will be completed by 1 July, with plans to improve authentication of government communications further.
In a stark contrast to Singapore's severe penalties for drug offences, Su Jianfeng has been sentenced to 17 months in prison for laundering USD 2.2 billion in illicit cryptocurrencies, cash, and luxury goods.
Su, the tenth defendant in Singapore's largest money laundering case, pleaded guilty to laundering proceeds from illegal gambling and providing banks with forged documents.
Despite the scale of his crimes, Su's sentence appears lenient compared to Singapore's harsh drug laws, which can impose up to 10 years in prison for smoking cannabis.
Su agreed to forfeit approximately USD 132 million of the USD 138 million in cash and assets seized. His arrest in August last year was part of a significant operation involving over 400 police officers, resulting in the seizure of over USD 747 million in cash and assets, including 94 properties, 50 vehicles, and numerous bank accounts.
The origins of the laundered money were traced back to gambling operations in Southeast Asia. The arrested individuals, originally from Fujian province in China, held passports from multiple countries known for "golden passport" schemes.
The lenient sentences have raised concerns among Singaporeans about the effectiveness of the country's stance against financial crime, particularly as Singapore seeks to reassure the global financial industry of its rigorous enforcement.
Notably, only two out of the ten defendants have forfeited all their seized assets. Despite this, Chief Prosecutor Tan Kiat Pheng defended the prosecution's approach, stating that the swift prosecutions serve as a deterrent to future criminals.
The light sentences have been criticised by influential figures like Leong Mun Wai, a Non-Constituency Member of Parliament from the Progress Singapore Party, who argued that the penalties were insufficient. However, Home Affairs Minister K Shanmugam defended the court's decisions, citing early guilty pleas and asset forfeiture as mitigating factors.
Best of the Rest In:Review
The Securities and Exchange Commission (SEC) has requested a federal judge to approve a settlement requiring TerraForm and its founder, Do Kwon, to pay USD 4.47 billion.
This settlement aims to resolve civil charges linked to the collapse of the UST stablecoin. The SEC asserts that this judgment would ensure the maximal return of funds to harmed investors and permanently shut down TerraForm.
However, TerraForm is bankrupt, and it is doubtful whether Do Kwon has the USD 204 million he owes. Reports indicate Kwon is currently in a Balkan jail, awaiting potential extradition to the US or South Korea.
The likelihood of the SEC collecting the full amount is slim, as noted by the Wall Street Journal, which suggests the regulator may receive only a fraction of the penalty, if any.
Despite this, the SEC appears set to promote the settlement as a significant victory, although it occurred under Gensler's oversight, and the SEC did not prevent the fraud.
For investors affected by TerraForm’s collapse, this settlement might seem futile, akin to police announcing a thief must pay after the stolen goods are gone.
Taiwan’s cryptocurrency sector has established an industry association, moving closer to regulating the emerging market. The Taiwan Virtual Asset Service Provider Association (TVASPA) was formed under government guidance, with 24 crypto firms registered with the Financial Supervisory Commission (FSC) for anti-money laundering (AML) compliance joining the group.
Titan Cheng, founder and CEO of BitoPro, one of Taiwan’s major exchanges, will chair the association, while Winston Hsiao, co-founder and chief revenue officer of XREX, will serve as vice chair.
The creation of the TVASPA marks a significant step for Taiwan in enhancing its oversight of crypto trading platforms. The government has mandated the association to formulate self-supervisory rules to ensure the sector's healthy development.
Hsiho Huang, director of the securities firms division at the FSC, emphasised the importance of the virtual asset industry for societal and economic development during the association's launch meeting.
The primary task of the TVASPA will be to develop self-regulatory guidelines, focusing on the classification and grading management of Virtual Asset Service Providers (VASPs) to balance industry interests, meet government expectations, and protect consumer rights.
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