Q3 2022 Regulatory Updates

Q3 2022 Regulatory Updates

Q3 2022 Regulatory Updates

Regulatory Actions and Updates from Around the Globe


Enforcement Highlights – Q3 2022

 

United States: 

  • The Securities and Exchange Commission (SEC) announced fraud charges against Equitable Financial Life Insurance Company for providing account statements to approximately 1.4 million variable annuity investors that included materially misleading statements and omissions concerning investor fees. Their penalty is $50 million.
  • The SEC announced charges against Health Insurance Innovations (HII) and its former CEO Gavin Southwell for concealing extensive consumer complaints about short-term and limited health insurance products HII offered.
  • The SEC announced insider trading charges against Ishan Wahi, a former Coinbase product manager, his brother, and his friend for perpetrating a scheme to trade ahead of multiple announcements regarding certain crypto assets that would be made available for trading on the Coinbase platform
  • The SEC filed insider trading charges against Stephen Buyer, a former U.S. Representative for Indiana’s 4th Congressional District. According to the SEC’s complaint, Stephen Buyer formed a consulting firm, Stephen Buyer Group, which provided services to T-Mobile and other clients. In March 2018, Buyer attended a golf outing with a T-Mobile executive, from whom he learned about the company’s then nonpublic plan to acquire Sprint. Buyer began purchasing Sprint securities the next day, and, ahead of the merger announcement, he acquired a total of $568,000 of Sprint common stock in his own personal accounts, a joint account with his cousin, and an acquaintance’s account.
  • The SEC separately charged J.P. Morgan Securities LLC, UBS Financial Services Inc., and TradeStation Securities, Inc. for deficiencies in their respective programs to prevent customer identity theft, in violation of the SEC’s Identity Theft Red Flags Rule (Regulation S-ID).
  • The SEC charged 11 individuals for their roles in creating and promoting Forsage, a fraudulent crypto pyramid and ponzi scheme that raised more than USD $300 Million from millions of retail investors worldwide, including in the United States. Those charged include the four founders of Forsage, who were last known to be living in Russia, the Republic of Georgia, and Indonesia, as well as three U.S.-based promoters engaged by the founders to endorse Forsage on its website and social media platforms, and several members of the so-called Crypto Crusaders—the largest promotional group for the scheme that operated in the United States from at least five different states.
  • The SEC charged Global Business Development and Consulting Corp. (Global) and its owner, Anthony J. Mastroianni, Jr., in connection with a $1.2 million fraudulent promissory note scheme targeting older Americans.
  • The SEC charged Granite Construction, Incorporated and its former Senior Vice President, Dale Swanberg, with fraud for inflating the financial performance of the major subdivision Swanberg managed. In 2021, Granite restated its financial statements from 2017 through 2019 to correct revenue and profit margin errors allegedly caused by Swanberg’s misconduct.
  • The SEC announced settled charges requiring Oracle Corporation to pay more than $23 million to resolve charges that it violated provisions of the Foreign Corrupt Practices Act (FCPA) when subsidiaries in Turkey, the United Arab Emirates (UAE), and India created and used slush funds to bribe foreign officials in return for business between 2016 and 2019.

Canada:

  • The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) announced that it has fined Cheetah Consulting Ltd. This money services business in Richmond, British Columbia, was imposed an administrative monetary penalty of CAD $33,000 on July 20, 2022, for non-compliance with Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations.
  • FINTRAC announced that it has fined Nu Stream Realty Inc. The real estate broker in Burnaby, B.C., received an administrative monetary penalty of CAD $230,423 for non-compliance with Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations.

United Kingdom:

  • The Financial Conduct Authority (FCA) announced fines of £12.6M against Citigroup’s international broker-dealer for failing to properly implement the Market Abuse Regulation (MAR) trade surveillance requirements relating to the detection of market abuse.
  • The FCA has fined The TJM Partnership Limited (in liquidation) £2,038,700 for failing to ensure it had effective systems and controls in place to identify and reduce the risk of financial crime and money laundering in its business operations.

Germany:

  • The Federal Financial Supervisory Authority BaFin announced that it imposed a securities violation fine of €200,000 on MFS Meridian Funds for failing to submit voting rights notifications within the prescribed period.

Singapore:

  • The Monetary Authority of Singapore (MAS) has imposed fines of $375,000 on UOB Kay Hian Private Limited for business conduct and AML/CFT failures.

Hong Kong:

  • The Securities and Futures Commission (SFC) has reprimanded and fined TC Capital International Limited for HK$3 Million and suspended its responsible officer for failing to discharge its duties as the sponsor in the listing application of China Candy Holdings Limited (China Candy). The disciplinary action followed the SFC’s investigation which found that TC Capital failed to:
    • 1) conduct reasonable due diligence on the third party payments made on behalf of two top customers of China Candy; and
    • 2) maintain proper records of the due diligence work allegedly done in relation to the listing application.
  • The SFC reprimanded KTF Capital Management Limited (KTFCM)—formerly known as Forchn International Asset Management Co. Limited and Rega Technologies Limited—and handed out a HK$400,000 fine for breaching Financial Resources rules. The SFC found that KTFCM failed to maintain its required liquid capital of approximately HK$2.8 million between 13 and 18 December 2018 and failed to notify the SFC when it became aware of its inability to comply with the financial resources requirements. It transpired that the almost HK$20 million deficit in KTFCM’s liquid capital was the result of an oversight in that it failed to anticipate its proprietary trading in shares would trigger adverse implications to its liquid capital calculation.
  • The SFC has reprimanded Rifa Futures Limited (Rifa) HK$9 Million for failure to comply with Know-Your-Client, Anti-Money Laundering / Counter-Terrorist Financing (AML/CFT), and other regulatory requirements between May 2016 and Oct 2018.
  • The SFC has reprimanded RBC Investment Services (Asia) Limited (RBC) and fined it HK$7.7 Million for regulatory breaches relating to mishandling of client assets.

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Q3 2022 Regulatory Updates

October 2021 Regulatory Updates

October 2021 Regulatory Updates

Regulatory Actions and Updates from Around the Globe


Enforcement Highlights
– October 2021

 

United States: 

 

  • The SEC charged CanaFarma Hemp Products Corp. and co-founders with defrauding investors of nearly USD $15 million and misappropriating a majority of investor funds for personal use and unrelated purposes.

 

  • The SEC charged former broker and investment adviser Kenneth A. Welsh with misappropriating almost USD $3 million from his clients’ accounts in order to personally purchase gold coins and other precious metals.

 

  • The SEC announced that clearing agency Fixed Income Clearing Corporation (FICC) will pay USD $8 million in penalties to settle charges that it failed to enact adequate risk management policies within its Government Securities Division.

 

  • Credit Suisse Group AG has agreed to pay hundreds of millions in penalties, including nearly USD $100 million to the SEC, for violating the Foreign Corrupt Practices Act (FCPA) and misleading investors in a fraudulent loan scheme in Mozambique. 

 

United Kingdom:

 

  • The Financial Conduct Authority (FCA) also fined Credit Suisse over £147 million for significant failure to conduct adequate due diligence regarding loans worth over $1.3 billion, which the bank arranged for the Republic of Mozambique.

 

Hong Kong:

 

  • The Securities and Futures Commission (SFC) fined Ample Capital Limited $5.5 million and suspends its responsible officer for IPO sponsor failures.

 


Regulatory Updates

 

FATF: Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers

This latest update forms part of the FATF’s ongoing monitoring of the virtual assets and VASP sector and provides relevant examples and potential solutions to implementation obstacles. The 2021 Guidance includes updates focusing on updates and additional information in the following six key areas: 

  • Clarification of the definitions of virtual assets and VASPs
  • How the FATF Standards apply to stablecoins
  • Related risks and tools available to countries to address money laundering and terrorist financing risks for peer-to-peer transactions
  • Licensing and registration of VASPs
  • Public and private sector guidance on the implementation of the “travel rule”
  • Principles of information-sharing and co-operation amongst VASP Supervisors

 

 

FinCEN: Updated Suspicious Activity Reports Statistics

The Department of the Treasury and the Financial Crimes Enforcement Network (FinCEN) recently released updated statistics on the SARs submitted up to the end of September 2021, showcasing an anticipated record high of over 3,000,000 SARs filed by the end of the year. 

The challenge now facing enforcement agencies is to sift through the high volumes of reports to determine quality vs quantity. The AML Act of 2020 has been the biggest proponent of improvement in the quality of meaningful feedback and trends, with the purpose of encouraging higher-quality reporting, not simply higher quantity.

 

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Ethics of AI in Facial Recognition – Credit Unions

Ethics of AI in Facial Recognition – Credit Unions

Ethics of AI in Facial Recognition – Credit Unions

Barb MacLean, VP of Integration & Analytics at Celero, discusses the responsibility and ethical impacts of credit unions using facial recognition in their back office

What are the top challenges facing credit unions in today’s marketplace​?

Differentiation. Why would someone choose a credit union over another financial services provider? There is a huge opportunity for credit unions to work for a new kind of member who wants to support their local community, wants to derive value from associating with a banking provider vs just paying fees to a faceless and valueless corporate entity, who shares the values (and shares in the value) of the environmental, social and corporate governance that credit unions are well-positioned to provide. And that credit union may only provide a small part of the overall financial services capabilities that a member needs. Credit unions have a long history of working on behalf of affinity groups. The perspective of who has an affinity for what purpose needs to shift to harness global mobility and association. And if credit unions collectively aren’t focused on enabling people who for many reasons aren’t well served by traditional financial services, then as an industry we’re doing it wrong.

The building blocks of the technology needed to provide financial services are getting cheaper, but the skillsets and mindsets ready and knowledgeable about how to use modern technology can be hard to find. Changing the traditional ways of making decisions and running a business – decisions by committee(s) who sometimes have no experience with the new possibilities that commoditized cloud-based service unlock, fixed budget cycles and related fixed multi-year roadmaps, reliance on the same business model that was built for the paper-based industrial age – is key to enabling future-focused innovation.

 

How have credit unions adapted to digital customer journeys?

Credit unions have focused on enabling truly digital journeys, something that aligns to the members’ expectation of being able to start, pause, and complete at a time and place, and using the method or device of their choosing. For a new member joining a credit union, that experience should be a positive one. And if that member is choosing to interact with the credit union in the time and place of their choosing that doesn’t involve the credit union branch, you obviously need to be able to actually enable them to complete all of the steps without needing to wait for someone in the credit union back office to take an action. Credit unions have focused on where they can remove friction points in that journey, minimize the time to accessing the capability they’re looking for, whether that’s an ability to go pay a bill or send an eTransfer to a friend.

 

How much of a role did the global health crisis play in the transition to digital-first tools?

Many credit unions were already there. There are some great examples of credit unions that have been doing this for years, such as Implicity Financial, Outlook Financial, Achieva Financial, Accelerate Financial. And those are just examples from Manitoba! But clearly, things changed completely for everyone in the last 16 months. And in conjunction credit unions have been focused on many avenues to ensure they stay connected to their members, from ensuring they have secure access to their systems outside their branch network to be able to work remotely, to moving workloads to cloud-hosted systems.

 

What are the top misconceptions that banking/credit union customers have about facial
recognition tools?

There are concerns about security and privacy. What is that information being used for? It’s one thing to use other mechanisms for authentication and authorization, like a password that you can change. But you can’t go and get a new face. A second is that it is hard to implement. As with many new technologies, human change and helping people to understand and change their behaviours is the harder part, not necessarily that it’s hard to implement technically.

 

How has facial recognition transformed the way credit unions perform remote identity
verification today?

It’s not transformational yet. The adoption of using facial recognition amongst credit unions is still low.

 

What ethical considerations should credit unions account for when building out digital
customer journeys and services that utilize facial recognition?

Ethics is such an important discussion that doesn’t get enough airtime. Credit unions should be asking and answering questions like: do members understand how their information is being collected, used, stored, and shared? How is their consent being gathered, and how can they withdraw their consent? How are vendors of the tools and technology underpinning the solutions we use for facial recognition building with an ethics-first mindset? How are biases within the data used to create the models that assess the facial recognition images removed? What recourse or support will members have when they believe their data has been used inappropriately? Who has accountability?

 

 

What considerations should be taken when implementing facial recognition into a company’s back-office onboarding workflows? (Essentially, how would this impact credit unions in day-to-day operations?)

Start with re-examining the process entirely. Better yet, start with the end in mind: how would you go about this if you were a new financial institution, with a focus on meeting the member’s needs and creating an experience that best satisfied their jobs to do, vs your own. And in envisioning that future state, it will become clear what will need to change to get there vs how you are doing things today. And then you can focus on how the tools and technology will enable the people on your teams who are supporting this member journey, vs ending up in a scenario where any question on what happens in the process is “the computer says so”. That enabling of your teams is key to unlocking where the true value of the human is in a digital process.

 

What data privacy and security measures should credit unions put into practice when using facial recognition?

Embed privacy and security at the time of design. Many best practice examples from OWASP to Microsoft are broadly applicable to any solution design, including those that make specific use of facial recognition. Credit unions should also consider balancing risk management and fostering innovation as equally important objectives. Risk will never be completely eliminated, so focus instead on leveraging a financial institution’s core competency of managing, and pricing. Is a well-proven, understandable, and replicable facial recognition algorithm more or less risky than requesting a human verify the authenticity of an identification document?

 

 

Anything else you would like to share with our audience that wasn’t covered above?

Some further reading for those interested in the topic and ethics in technology in general, including the 10 principles of Canada’s Digital Charter, is listed below:

 

 

Author — BARB MACLEAN

Barb MacLean is the VP of Integration & Analytics at Celero. She has spent 20 years learning, implementing, and building banking, payments, and integration platforms for Canadian credit unions. If you ever need a phone-a-friend for Star Wars trivia or a last-minute karaoke buddy, you can tweet @barbmaclean.

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Q3 2022 Regulatory Updates

May 2021 Regulatory Updates

May 2021 Regulatory Updates

Regulatory Actions and Updates from Around the Globe


Enforcement Highlights
– May 2021

 

United States: 

 

  • The Securities and Exchange Commission (SEC) charged BitConnect and five individuals for allegedly promoting a global unregistered digital asset securities offering that raised over $2 billion from retail investors.

 

  • SEC charged Under Armour Inc. with failing to adequately disclose known uncertainties concerning its future revenue prospects and misleading investors. Under Armour agreed to a $9 million settlement.

 

  • SEC charged Colorado-based GWFS Equities Inc. for failures related to filing suspicious activity reports (SARs). GWFS agreed to a settlement that imposes a $1.5 million penalty, a censure, and an order to cease and desist from future violations.

 

  • SEC charged New Jersey-based healthcare company Premier Healthcare Solution LLC and its founder, Josiah David (formerly known as Dennis Lee) with fraudulently raising almost $4 million from over 130 investors nationwide.

 

  • The SEC charged LJM Funds Management Ltd., LJM Partners Ltd., and their portfolio managers with fraudulently misleading investors regarding investment risks, resulting in a $1 billion trading loss.

 

  • The SEC charged and fined S&P Dow Jones Indices LLC $9 million for failures relating to a previously undisclosed quality control feature of one of its volatility-related indices, which led S&P DJI to publish and disseminate stale index values during a period of unprecedented volatility. 

 

United Kingdom:

 

  • The Financial Conduct Authority (FCA) fined Sapien Capital Ltd £178,000 for serious financial crime control failings in relation to cum/ex trading, which led to the risk of facilitating fraudulent trading and money laundering.

 

  • The FCA charged Ian Hudson with fraudulent trading and carrying on regulated activities without authorization.

 

Hong Kong:

 

  • The Securities and Futures Commission (SFC) reprimanded and fined Ewarton Securities Limited $1.5 million for breaches and failures of internal controls.

 

  • The Market Misconduct Tribunal (MMT) fined China Medical & HealthCare Group Limited (formerly COL Capital Limited) and six former and current directors $4.2 million for failing to disclose inside information following SFC proceedings.

 

 

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Q3 2022 Regulatory Updates

April 2021 Regulatory Updates

April 2021 Regulatory Updates

Regulatory Actions and Updates from Around the Globe


Enforcement Highlights
– April 2021

 

United States: 

 

  • The SEC awarded over USD $3 million to two whistleblowers who brought to light key issues and violations to help improve SEC’s ongoing compliance efforts.

 

  • SEC filed charges against 8 companies for failing to disclose complete reporting information on required Form 12b-25 filings.

 

  • The SEC charged fund manager and former race car team owner Andrew T. Franzone with multimillion-dollar investment fraud and misappropriation scheme.

 

  • The SEC filed charges against Spot Tech House Ltd., a binary options trading platform, and two of its top executives with defrauding investors out of more than USD $100 million through unregistered online sales.

 

  • The SEC charged seven individuals with defrauding investors out of more than USD $16 million through an oil-and-gas market manipulation scheme.

 

United Kingdom:

 

  • The Financial Conduct Authority (FCA) commenced criminal proceedings against 2 individuals for conducting unauthorized regulated business activities in the UK.

 

  • The FCA banned and fined UK financial adviser Simon Varley £68,300 for providing unqualified, dishonest financial advice to retail customers.

 

Hong Kong:

 

  • The Securities and Futures Commission (SFC) fined Optimas Capital Limited $1.05 million over multiple failures with their short position reporting processes.

 

  • The Market Misconduct Tribunal (MMT) sanctioned two former executives of Asia Telemedia Limited (ATML), now known as Yunfeng Financial Group Limited, for insider dealing.

 

 

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Q3 2022 Regulatory Updates

March 2021 Regulatory Updates

March 2021 Regulatory Updates

Regulatory Actions and Updates from Around the Globe


Enforcement Highlights
– March 2021

 

United States: 

 

  • The SEC charged the founder of San Francisco-based biotech company uBiome for defrauding investors out of USD $60 million with false claims of the company’s successful business model and track record.  

 

  • The SEC charged 7 individuals and tech company Airborne Wireless Network with running a fraudulent fundraising scheme that generated nearly USD $45 million.

 

  • The SEC charged private investor George Heckler for running a decade-long scheme defrauding investors of over USD $90 million through two private hedge funds.

 

  • The SEC charged Seth P. Levine, owner of real estate firm Norse Holdings, LLC, that defrauding at least 60 people out of millions based on false and misleading claims about real estate investments.

 

  • The SEC took action against California-based stock trader Andrew L. Fassari (known as @OCMillionaire on Twitter) for a $900K fraudulent Twitter scheme for a now-defunct cannabis company.

 

United Kingdom:

 

  • The Financial Conduct Authority (FCA) fined over £530,000 24 Hour Trading Academy for giving unauthorized trading advice via Whatsapp to consumers.

 

  • The FCA fined experienced trader Mr. Adrian Geoffrey Horn £52,500 for executing trades with himself (“wash trading”) and prohibited him from participating in regulated activities.

 

Hong Kong:

 

  • The Securities and Futures Commission of Hong Kong fined Yardley Securities Limited $5 million for failing to comply with AML/CFT regulatory requirements while handling third-party fund transfers.

 

  • SFC reprimanded and fined Sino-Rich Securities & Futures Limited $7.2 million for failures in complying with AML/CFT regulatory requirements when handling cash deposits and third-party fund transfers.

 

 

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