Risk In:Review #71 - 08 September 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
While it has been a quiet week for the region’s larger risk and technology markets, this week’s Perspectives picks-up on three key stories that highlight developing trends across Asia Pacific.
The first headline comes from China, where law enforcement faces difficulties retrieving illicit digital assets like Bitcoin and Ether.
The recent revision of legal definitions to include cryptocurrencies in anti-money laundering (AML) frameworks has moved things forward. However, as highlighted by Professor Yang Kai of East China University of Political Science and Law, inconsistencies in legal standards across jurisdictions hinder the efficient liquidation of seized assets.
Markets such as Singapore, Australia, Hong Kong, Korea, and Taiwan have all taken action to allow for the confiscation of cryptocurrency assets through court processes. However, they have primarily focused on domestic assets, not cross-jurisdictional recoveries.
This has created a bottleneck in asset confiscation, particularly in markets like China where domestic policies mean illicit assets are mostly held overseas, effectively locking up billions of yuan out of reach of law enforcement.
Yang Kai argues there is an urgent need for standardisation of methods and enhanced international cooperation to ensure that these assets can be recovered and properly managed.
The second headline comes from Singapore, where OKX has taken the strategic step of hiring Gracie Lin, a former Monetary Authority of Singapore (MAS) official, as CEO of its Singapore branch.
This move is aligned with the company's expansion plans following its acquisition of a major payment institution (MPI) licence. Lin’s leadership, along with her background in regulatory and financial sectors, sets the stage for OKX’s broader efforts to grow in Singapore and beyond.
Interestingly, whereas banks have traditionally been the landing space for ex-regulators, Lin has followed the likes of Richard Teng (ex-MAS). This suggests that as the crypto-space becomes increasingly mainstream, its appeal will also grow to ex-public sector officials.
The final headline comes from Thailand, which is leveraging artificial intelligence (AI) to tackle banking fraud. The Thai Bankers Association’s Cross-Reference File (CRF) system, operational since August, has led to the suspension of 34,000 accounts involved in money laundering.
Somewhat similar to COSMIC in Singapore, the CRF works by cross-referencing suspicious individuals or entities with transaction data, which is shared among participating banks and financial institutions.
While CRF does not operate as broadly as COSMIC – for instance COSMIC involves non-bank financial institutions, including payment service providers – it is indicative of the data sharing ecosystems that are now being built to address money laundering and fraud (including scam) risks.
This Week In:Review
Australia
China
India
Korea
Singapore
Best of the Rest
Australia In:Review
Monochrome Asset Management, an Australian asset manager, has filed for the country’s first spot Ether exchange-traded fund (ETF), known as the Monochrome Ether ETF (IETH). If approved, it will be listed on Cboe Australia by the end of September.
CEO Jeff Yew expects strong interest, citing the ETF’s in-kind subscription model, allowing investment via fiat or digital assets. This follows a similar trend with their Bitcoin ETF, which has attracted AUD 11.4 million since its June launch.
Yew believes Australia is less restrictive on crypto than other countries, providing an opportunity for regulated products like ETFs to gain traction. As cryptocurrencies shift from exchanges into structured products, Yew predicts Australia will see unique growth in this area.
Other Australian ETFs, such as the VanEck Bitcoin ETF, have over AUD 40 million in holdings, while the Global X 21Shares Bitcoin ETF has over AUD 98 million. Despite being smaller in scale, Monochrome's spot crypto ETF will hold a significant market position as Australia’s regulatory framework continues to evolve.
China In:Review
The United States is intensifying its export controls on advanced technologies, including semiconductors, to limit adversaries' access to sensitive components. These efforts, which began with 2022's semiconductor export controls, now extend to Thursday’s proposed restrictions on quantum and other advanced technologies.
According to US Undersecretary of Commerce Alan Estevez, aligning these controls with key allies makes it harder for adversaries to develop technologies that threaten collective security.
A 60-day public comment period will precede the finalisation of these rules. Separately, the US is working on a broader export control package aimed at restricting China’s access to high-bandwidth memory chips—critical for AI—and semiconductor manufacturing tools.
Exemptions will apply to allies such as Japan and the Netherlands, which are pivotal in the chip supply chain.
The Dutch government, meanwhile, has announced broader restrictions on the export of semiconductor manufacturing equipment, effective immediately. This decision, driven by security concerns, will impact Dutch technology giant ASML Holding NV, requiring it to seek government approval for certain exports.
These measures target equipment vital for producing advanced semiconductors, which play a significant role in military applications.
Yang Kai, a law professor at East China University of Political Science and Law, has highlighted the urgent need for China to standardise methods for recovering billions of yuan in confiscated digital assets.
In an article published in the People’s Court Daily, Yang noted that law enforcement faces significant challenges in retrieving virtual currencies, such as Bitcoin and Ether, involved in criminal cases.
This comes after the Supreme People’s Court and Supreme People’s Procuratorate revised laws to broaden money laundering definitions, including cryptocurrencies, online game coins, and live streaming tips.
While these revisions bolster China’s crackdown on illegal activities, they also expose the difficulties of managing digital asset seizures due to inconsistent legal standards across different jurisdictions.
Yang emphasised that, despite various methods employed by law enforcement, the lack of uniform standards has resulted in inefficiencies. Large amounts of virtual currency remain locked up, hindering economic activities.
He advocates for comprehensive guidelines to facilitate the secure liquidation of these assets and urges closer cooperation with international regulators to address the cross-border nature of digital currencies.
By the end of June 2024, China's digital yuan transactions reached CNY 7 trillion (approximately USD 986.07 billion), according to Lu Lei, deputy governor of the People's Bank of China.
Speaking at a press conference, Lu stated that the feasibility and reliability of the digital yuan have been preliminarily verified in terms of theory, business, and technology. An operational structure is now in place, with continuous improvements to various systems.
The digital yuan has been piloted across 17 provincial-level regions, encompassing industries such as wholesale and retail, catering, tourism, education, and healthcare. Numerous online and offline applications have emerged, offering replicable models for future adoption.
Lu highlighted the positive impact of the digital yuan on stimulating household consumption, supporting green transformation, and optimising the business environment.
Looking ahead, the central bank plans to continue promoting research, development, and the application of the digital yuan in line with broader digital development trends, aiming to further solidify its foundations.
China's metaverse-related industry is expected to experience rapid growth over the next three years, driven by advancements in 5G, artificial intelligence, blockchain, cloud computing, and virtual reality, according to a report by the Hurun Research Institute.
Rupert Hoogewerf, chairman of Hurun Report, highlighted the metaverse’s potential to revolutionise sectors such as entertainment, social media, education, telecommuting, and digital marketing.
Released in August 2024, the Hurun Research Institute ranked 200 Chinese companies with the greatest potential in the metaverse, including firms from the Chinese mainland, Hong Kong, Macao, and Taiwan.
Huawei topped the list, followed by Alibaba, Baidu, China Telecom, and China Mobile. Beijing led with 57 companies, while Shanghai, Shenzhen, and Guangzhou followed with significant representation.
The metaverse is seen as a strategic emerging industry, expected to drive innovation in the Guangdong-Hong Kong-Macao Greater Bay Area. However, its development requires ongoing improvements in technical standards, platform construction, and regulatory frameworks.
Hoogewerf emphasised that the growth of the metaverse involves the co-evolution of various technologies, requiring continuous progress rather than quick achievements.
India In:Review
India's Financial Intelligence Unit (FIU) is set to approve two additional offshore cryptocurrency exchanges to resume operations in the country after previously banning several for non-compliance with Anti-Money Laundering (AML) regulations.
This follows the FIU’s recent registrations of Binance and KuCoin after they met AML standards. According to local reports, the FIU is currently reviewing requests from four overseas exchanges and expects at least two approvals by the end of FY25, pending thorough assessments of transaction visibility and suspicious activity reporting.
Earlier this year, the FIU restricted access to nine foreign exchanges, including Binance, for failing to adhere to AML norms. While Binance resolved its non-compliance issues by paying a USD 2 million fine and registering with the FIU, other exchanges like OKX exited the Indian market, citing regulatory burdens.
The anticipated re-entry of these offshore exchanges is expected to intensify competition, providing Indian investors with more options and potentially lowering fees. Raj Kapoor, founder of India Blockchain Alliance, believes this development could enhance liquidity and attract institutional investors.
However, increased competition may also pressure domestic exchanges to improve offerings, which could lead to further regulatory challenges. India’s Department of Economic Affairs (DEA) is preparing a consultation paper on cryptocurrency regulation, aiming to gather feedback from stakeholders to shape future cryptocurrency legislation.
Korea In:Review
In South Korea, an alarming rise in digital sex abuse involving deepfakes is prompting increased scrutiny from authorities. Women and teenage girls, including students, teachers, and even soldiers, are frequently targeted through fake sexual images and videos created using artificial intelligence.
These images are shared in secretive Telegram chat rooms, often without the victims' knowledge or consent, sourced from social media or taken covertly.
The Korean National Police recently launched an investigation into Telegram for aiding the spread of these deepfakes. This follows a government crackdown aimed at addressing the growing issue. Telegram, under scrutiny globally, has cooperated by removing some flagged content but faces challenges in balancing privacy and abuse prevention.
The surge in deepfake crimes has led to a fourfold increase in requests to tackle abusive videos in the first half of 2024 compared to the previous year. Most perpetrators are young, with 74% of suspects aged between 10 and 19.
Women’s rights groups blame sexism for the spread of deepfakes, accusing the government of not doing enough to address the root causes. President Yoon Suk Yeol’s administration has faced criticism for downplaying structural sexism, with cuts to budgets supporting violence prevention and victim aid.
Although new laws exist, conviction rates remain low, and many perpetrators receive suspended sentences, leaving victims without sufficient justice.
South Korea's Financial Supervisory Service (FSS) is set to begin inspections of virtual asset exchanges, aiming to identify suspicious or illegal activities. The FSS, in collaboration with the Financial Services Commission (FSC), will impose strict penalties on any illegal transactions uncovered and may advocate for regulatory changes if current systems are found lacking.
The inspections follow the implementation of the “Virtual Asset User Protection Act” on 19 July 2024, which mandates safeguards such as insurance against hacks and the segregation of customer assets from the exchange’s funds.
South Korea's top crypto exchanges, including Upbit, Bithumb, and Coinone, are required to adhere to anti-money laundering protocols and report suspicious transactions.
This regulatory push mirrors global trends, as other jurisdictions, including Hong Kong and the UK, are also increasing scrutiny on crypto platforms to safeguard users. Hong Kong recently criminalised operating unlicensed virtual asset platforms, while Coinbase’s UK division was fined for failing to comply with user onboarding agreements.
Singapore In:Review
OKX, a cryptocurrency exchange, has appointed Gracie Lin, a former official at the Monetary Authority of Singapore (MAS), as CEO of its Singapore branch, OKX SG.
Lin’s appointment comes as the company secures a major payment institution (MPI) license, allowing it to offer cryptocurrency and cross-border money transfer services, including spot trading for Singaporean customers.
In a press release on 2 September 2024, OKX announced that Lin will lead strategic initiatives, focusing on developing digital payment token products and services tailored for Singapore’s market. Lin brings significant experience from her previous roles at Grab, where she led regional strategy, and at MAS and the sovereign wealth fund GIC.
With the MPI license in hand, Lin expressed OKX’s commitment to expanding access to digital assets and enhancing the local ecosystem. OKX also has broader international ambitions, having recently applied for a listing with Turkey’s Capital Markets Board as part of its global expansion plans.
Best of the Rest In:Review
The FBI has issued a warning about North Korea’s growing use of “highly tailored, difficult-to-detect social engineering campaigns” targeting decentralised finance (DeFi) businesses and cryptocurrency-related operations.
These scams aim to deploy malware and steal company assets, with North Korean cyber actors focusing on gathering detailed information about employees through social media, particularly professional networking sites, before establishing contact.
Despite the technical sophistication of DeFi and cryptocurrency firms, these companies remain vulnerable to social engineering attacks, which involve building rapport with employees to gain unauthorised access to networks. The FBI warns that companies handling cryptocurrency exchange-traded funds (ETFs) are particularly at risk.
The bureau provided a range of indicators to identify potential threats, such as requests to use non-standard software for basic tasks. North Korea has been linked to various scams, including employing fake IT workers, hacking apps, and laundering stolen funds through ransomware.
The FBI stressed that organisations within the cryptocurrency sector should remain vigilant as North Korea continues to employ increasingly sophisticated tactics to steal funds.
The Thai Bankers Association (TBA) has blacklisted 15,000 individuals and suspended 34,000 bank accounts linked to call-centre scam operations, as reported by The Nation. This follows the deployment of an AI-driven Cross-Reference File (CRF) system designed to detect mule accounts involved in money laundering.
TBA Chairman Payong Srivanich announced that the CRF system, developed by the association, flagged over 15,000 individuals opening accounts for illicit activities. Operational for nine months, the system fully launched last month, enabling banks to share information more efficiently.
Payong highlighted the expectation of further suspensions as the system continues to identify additional mule accounts. All commercial banks are using data from the CRF system and the Anti-Money Laundering Office to combat fraud.
Ronadol Numnonda, Deputy Governor of the Bank of Thailand, praised the collaboration between banks, noting the swift identification and blocking of fraudulent accounts since the system went live on 1 August. Blacklisted individuals must meet with officials at the Anti-Online Scam Operation Centre to resolve their cases and unfreeze their accounts.
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