Risk In:Review #8 - 19 Mar 2023

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

• Coinbase met with Australian banking regulators over local crypto regulations
• NAB’s stablecoin, the AUDN, deployed for instant cross-border payments

China

• Chinese businessman with ties to Steve Bannon arrested and charged with fraud, including $500m crypto scam
• More than 59,000 NFT-related complaints in 2022, claims regulator
• Baidu's Hong Kong shares rebound as users test ChatGPT-like Ernie bot

Hong Kong

• Banking challenges grow for Hong Kong’s crypto firms after Silvergate and Signature closures, despite city’s push to become hub
• Signum Digital says it won first approval to offer security tokens in Hong Kong

India

• Truecaller and Delhi Police tackling cybercrime
• India’s CBDC pilots see over $15m Digital Rupee in circulation
• India’s crypto industry finally sees lawmakers engaging

Singapore

• Coinbase opens local bank transfers for Singapore users at no cost
• The light is flashing yellow for crypto in Singapore

Best of the Rest

• Seoul: sanctions may be ineffective against North Korea’s crypto hacks
• Crypto's brush with disaster after SVB collapse
• US Treasury poised to release view on how DeFi is used in illicit finance

Australia In:Review

Coinbase met with Australian banking regulators over local crypto regulations

The Reserve Bank of Australia (RBA) and Treasury have been in private meetings with Coinbase, discussing the future of cryptocurrency regulation in Australia. An RBA spokesperson confirmed the meetings and stated that they were part of the bank's "ongoing liaison with industry." Tom Duff Gordon, the Vice President of International Policy at Coinbase, confirmed that the meetings took place and that they discussed the government's token mapping efforts and shared insights on global best practices for licensing and custody. The Australian Treasury's token mapping exercise was announced in August 2022 and is aimed at categorising digital assets in a way that fits within existing regulatory frameworks. The Treasury released a consultation paper in February 2023 and sought feedback from the crypto industry. Gordon praised the efforts of the Treasury, noting that their token mapping exercise is one of the most detailed and thoughtful papers encountered on the topic. However, Coinbase CEO Brian Armstrong has been critical of the approach to regulation in the US, claiming that the Securities and Exchange Commission is regulating by enforcement.

NAB’s stablecoin, the AUDN, deployed for instant cross-border payments

National Australia Bank (NAB) has tested cross-border foreign exchange transfers using the Ethereum blockchain and its own stablecoin, the AUDN. The transfers point to a future of instant and cheap cross-border payments compared to the current system, known as SWIFT. NAB became the second of the major banks to create its own stablecoin, after ANZ, and intends to offer the AUDN to corporate and institutional clients by the end of 2023. This would allow them to start trading in digital assets regardless of whether a central bank digital currency (CBDC) is created by the Reserve Bank of Australia (RBA). The RBA has announced a pilot of 14 use cases for a central-bank-issued digital Australian dollar, but insiders say it may take at least five years for a CBDC to come to fruition in Australia.

China In:Review

Chinese businessman with ties to Steve Bannon arrested and charged with fraud, including $500m crypto scam

Exiled Chinese businessman Guo Wengui was arrested in New York and charged with fraud for allegedly orchestrating four fraudulent schemes that defrauded retail investors out of a total of $1.4b. Three of the schemes were related to GTV Media Group, a Chinese social media company formed by Guo and Steve Bannon, a former advisor to former US President Donald Trump. These three schemes raised an estimated $857m. The fourth scheme, called H-Coin or Himalaya Coin, raised $500m from retail investors in the crypto venture. Guo filed for bankruptcy protection in February 2022, claiming assets valued between $50,000 and $100,000 and liabilities of up to $500m. Despite his claims of poverty, the Department of Justice seized over $630m of alleged fraud proceeds from 21 different bank accounts controlled by Guo. Guo's luxurious lifestyle, which was reportedly funded by unsuspecting investors, was revealed by prosecutors, who seized a 50,000 square foot mansion, a $3.5m Ferrari, two $36,000 mattresses, and a $37m luxury yacht. Guo is wanted by the Chinese government and filed an application for political asylum in the US in 2017, which remains pending.

More than 59,000 NFT-related complaints in 2022, claims regulator

The State Administration for Market Regulation of China received more than 59,000 complaints related to non-fungible tokens (NFTs) in 2022, marking a 30,000% increase from the previous year. The majority of the complaints dealt with market manipulation, high transaction fees, non-delivery, issues with refunds, and random ban of customer accounts. The report was released ahead of World Consumer Rights Day, which is often used by Chinese authorities and media to address market malpractices. Despite the ban on crypto-trading in China, the NFT market remains a gray area. The lack of regulation and regulatory clarity has led to the migration of Chinese NFT platforms to Hong Kong's more liberal digital asset market.

Baidu's Hong Kong shares rebound as users test ChatGPT-like Ernie bot

Shares of Baidu, China's largest search engine company, rebounded by 15.7% on Friday after some users began to post and livestream tests of the company's new chatbot, Ernie. The previous day, the company's presentation of Ernie was criticised for lacking a live demonstration and a public launch, compared unfavorably to the free-to-use launch of OpenAI's ChatGPT. However, as a few users received invite codes to try Ernie, they began to compare it to US chatbots such as Microsoft's Bing chatbot, which is powered by ChatGPT technology. One user described how Ernie had answered a question accurately, while another said that there was a gap between Ernie and Bing, but Ernie performed better in certain questions. Analysts also said that the market's initial disappointment was tempered by the realisation that Baidu was still best placed to build China's strongest rival to ChatGPT. Baidu Cloud has received over 75,000 corporate user applications for a trial of Ernie API.

Hong Kong In:Review

Banking challenges grow for Hong Kong’s crypto firms after Silvergate and Signature closures, despite city’s push to become hub

Hong Kong's cryptocurrency-related companies are facing difficulties in opening local bank accounts as the city's banks are not keen on serving them. This situation has arisen after the closure of Silvergate Bank and Signature Bank, which were previously considered to be among the world's largest crypto-friendly financial institutions. The closure of these banks has left many crypto firms in Hong Kong scrambling to find ideal banking partners in the city or around the world. Despite the city's recent push to make Hong Kong a virtual asset hub, banks in the city still have stringent requirements when dealing with crypto businesses. The Hong Kong Monetary Authority requires banks to perform due diligence and ongoing monitoring of these clients, and many virtual asset service providers (VASPs) are not licensed in Hong Kong, which poses a significant hurdle for them to open bank accounts. Some firms are looking for alternatives in Switzerland, the UK, and the UAE, where some remaining crypto-friendly banks are based. However, many firms are concerned that these banks are relatively small and they are hoping that local banks in Hong Kong could expand their services and develop solutions fit for crypto companies.

Signum Digital says it won first approval to offer security tokens in Hong Kong

Signum Digital, a Hong Kong-based technology firm, has received preliminary approval from the city's Securities and Futures Commission (SFC) to launch a security token platform. The platform, named "CS-Pro", will allow professional investors to trade security tokens, or STOs, which are linked to various asset classes such as real estate, private equities, art, and collectibles. The approval makes Signum the first firm to receive approval to launch an STO platform in Hong Kong. The city has been actively exploring new initiatives for the cryptocurrency and digital asset sector, and last year invited firms to pitch proposals for providing STO services. The launch of the CS-Pro platform is expected to provide a new investment option for professional investors in Hong Kong.

India In:Review

Truecaller and Delhi Police tackling cybercrime

Truecaller, a popular caller ID and spam blocking app, has signed a memorandum of understanding (MoU) with the Delhi Police to combat cybercrime in the city. Under the agreement, Truecaller will offer technical support to the police in investigating and resolving cybercrime cases, and also help identify and block fraudulent numbers, spammers, and malicious actors. The app will also assist the Delhi Police in organising cyber safety training programs for vulnerable sections of society such as women, college students, and first-time internet users. The MoU comes at a time when cybercrime is on the rise in India, particularly in Delhi, which has recorded the highest number of cybercrime cases among all states and union territories in 2020.

India’s CBDC pilots see over $15m Digital Rupee in circulation

The Reserve Bank of India (RBI) has launched a pilot program for the digital rupee, both in the wholesale and retail segments. Nine banks are currently participating in the digital rupee wholesale pilot: State Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC. During the pilot, the digital rupee retail is being tested in select locations, with on-boarded merchants from various segments like tea vendors, fruit sellers, street-side and sidewalk vendors, small shopkeepers, and institutional merchants such as retail chains and petrol pumps. Feedback received during the pilot will be used to determine further steps and expansion of use cases in a phased implementation strategy. As of 28 February 2023, digital rupee worth over $15.8m is in circulation on a pilot basis, according to Finance Minister Nirmala Sitharaman.

India’s crypto industry finally sees lawmakers engaging

India's crypto industry held a conference in New Delhi on Saturday, where lawmakers and members of India's ruling party were brought together to discuss Web3. The event was organized by Indian exchange CoinDCX, backed by Bharat Web3, and media outlet Forbes. The conference was a rare occasion where government officials publicly showed up and gave the event a sense of legitimacy. During the conference, former Law Minister Ravi Shankar Prasad said, “Web3 is important with a caution... come out of the shadow of crypto”. He added that Web3 needs to find its own ways of separating itself from crypto. Abhishek Manu Singhvi, a member of the opposition, said that Web3 can be one of the biggest factors in helping India reach its goal of becoming a $5 trillion economy. However, India's crypto industry remains heavily restricted by a 30% tax on profits and a 1% tax deducted at source, which has decreased volumes.

Singapore In:Review

Coinbase opens local bank transfers for Singapore users at no cost

Coinbase, a cryptocurrency exchange, has partnered with Standard Chartered Bank to allow customers in Singapore to transfer funds to and from their accounts through local banks. This will make it easier for customers to invest in digital assets. The transfers, in Singapore dollars, will be free of charge. Previously, users could only purchase cryptocurrency via a debit or credit card or transfer crypto in and out of their Coinbase account. The move is part of Coinbase's international expansion strategy, and the company is looking to increase its retail offerings in Singapore. The Monetary Authority of Singapore has given the company in-principle approval to offer payment services, but has been wary of encouraging retail involvement.

The light is flashing yellow for crypto in Singapore

Singapore has been seen as a hub for the cryptocurrency industry for a few years now, even though the city-state's government has been cautious in its approach. Crypto firms have been attracted to Singapore because of its business-friendly environment, which they hope will eventually translate into the type of regulatory regime they desire. However, the Monetary Authority of Singapore (MAS) has been 'judicious' about the number of licenses it issues, and the Financial Services and Markets Bill passed in April 2022 regulates virtual asset service providers for anti-money laundering and countering financing of terrorism purposes. Singapore has been clear that it does not want to be a hub for trading this volatile asset class, especially not for retail investors. As the crypto industry continues to face crisis, Singapore is expected to tighten scrutiny of relevant companies and may even hit the brakes on institutional investing if the situation deteriorates.

Best of the Rest In:Review

Seoul: sanctions may be ineffective against North Korea’s crypto hacks

The international sanctions imposed on North Korea may be ineffective in stopping the country's cryptocurrency hacking campaign, according to a South Korean government official. The official claims that North Korea earned $2.3 billion in illegal foreign currency earnings last year, with $700 million coming from large-scale crypto attacks. The FBI has accused North Korea of orchestrating the Ronin Bridge attack, and placed sanctions on Ethereum wallets linked to the suspected hackers. Meanwhile, security providers have predicted a surge in North Korean crypto hacks, with Binance and Huobi freezing wallets containing approximately $1.4 million in crypto assets linked to North Korea. The security providers and US government agencies have claimed that North Korean hacking groups use coin-mixing services to anonymise crypto transactions and launder the currency. However, North Korea has denied authorising any crypto hacking and accused both Washington and Seoul of fabricating reports.

Crypto's brush with disaster after SVB collapse

The banking crunch in the crypto industry has left it with even fewer options to connect with the established banking system. The disappearance of Silicon Valley Bank, Signature Bank, and Silvergate Capital has put pressure on the un-stable stablecoins. These tokens serve as a bridge between crypto and fiat currencies and are supposed to maintain their value one-for-one against the dollar. However, the recent exposure of Circle to SVB led to its USDC token briefly collapsing to 88 cents instead of its usual one dollar price. USDC is the second-largest stablecoin and widely used in decentralized finance. The collapse of USDC posed a threat to the crypto industry, but was quickly averted by Circle's promise of financial support and regulators' efforts to ensure deposits at SVB were safe.Circle has now moved $5.4bn of cash to BNY Mellon, a globally systemic bank, to ensure the money is secure. The incident has underlined the fact that crypto is as reliant on the health of the US banking system as everyone else, and that USDC is now "too big to fail." The industry has pointed out that the lapses in banking oversight are not their responsibility and crypto was being used as a scapegoat. However, the episode has also highlighted the need for basic risk management, not just from the company but also from its equity backers, to ensure billionszof dollars are safe.

US Treasury poised to release view on how DeFi is used in illicit finance

The US Treasury Department is close to releasing a risk assessment of criminal use in decentralised finance (DeFi). Assistant Secretary for Terrorist Financing and Financial Crimes, Elizabeth Rosenberg, stated that the illicit actors are always looking for ways to hide their criminal activities, which poses a threat to DeFi services and the virtual asset ecosystem. Rosenberg noted that the virtual asset industry often treats regulations and financial crimes compliance as an afterthought, leading to the potential harm from criminal use of virtual assets. Her team is working on the assessment, which will be released soon. The potential harms from criminal use of virtual assets have been demonstrated by groups affiliated with North Korea that have conducted ransomware attacks and stolen millions of dollars' worth of virtual assets, which were then laundered through mixers and virtual asset service providers.

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Anthony