Legaltech: Bootstrap Legal and Sosnow & Associates Merge

Legaltech platform Bootstrap legal has merged with Sosnow & Associates, the law firm launched by Robin Sosnow.

Bootstrap Legal is a Legaltech platform that streamlines the process of drafting legal documents for real estate offerings. Bootstrap Legal is the creation of its affiliate, the Law Office of Amy Wan who is Founder and CEO of Bootstrap. Wan will be joining Sosnow & Associates PLLC as Partner.

Sosnow & Associates is a boutique corporate and securities law firm well versed in the JOBS Act exemptions.

Both Wan and Sosnow are well known in the Fintech sector having both been engaged with the early days of online capital formation.

According to a note from Bootstrap, the merger is intended to facilitate the rapid growth of the Bootstrap Legal business,

“I’m thrilled to join forces with Robin Sosnow, who is an excellent real estate and securities attorney, whom I’ve known since our days counseling real estate crowdfunding portals back in 2014. Our teams’ joint efforts will enable Bootstrap Legal to continue to grow while providing personalized attention and responsive drafting and counseling to clients, which is what we’ve always strived for with the Bootstrap Legal product,” said Wan.

Sosnow added:

“Our firm is delighted to have joined forces with Amy Wan and the Bootstrap Legal Team. Amy has proven to be a respected and successful innovator in her business and legal endeavors, and we’re thrilled to have her as Partner within our growing firm. Now, together, we are able to offer our clients bi-coastal legal services from our offices in Orange County, CA and New York City, NY.”

Since 2017, Bootstrap Legal has helped real estate syndicators craft legal documents quickly and affordably. The software platform combines AI and attorney services to assist the compliance process while providing attorney-grade documentation for real estate syndication clients at flat-fee pricing.

Bootstrap Legal claims to offer the fastest document turnaround time in the industry, with attorney-reviewed drafts within three days.

Regtech: Crypto Compliance Firm TRM Raises $4.2 Million in Funding from Blockchain Capital, PayPal Ventures, Others

TRM, a digital currency compliance and risk management service provider, recently revealed that it has acquired $4.2 million in funding from Blockchain Capital, Initialized Capital, PayPal Ventures, and Y Combinator.

As noted in a release, TRM has raised a total of $5.9 million through its seed funding round.

Esteban Castaño, co-founder and CEO at TRM Labs, stated:

“At TRM, we are fueled by a fundamental belief that cryptocurrency and blockchain can democratize access to financial services and empower billions of people. By building solutions to prevent cryptocurrency fraud and financial crime, we enable this vision and build a safer financial system for billions of people.”

The growth of the digital asset industry is a global development that presents both business opportunities and new potential risks to financial services providers. TRM aims to assist companies in safely adopting crypto-assets through its platform, which has been developed to help financial services providers monitor and reduce risks.

As mentioned in the announcement, compliance teams at financial organizations use TRM to “risk-score their cryptocurrency-related transactions, customers, or partnerships, helping them to simplify customer due diligence and meet regulatory requirements.”

TRM’s platform integrates with several different blockchain networks. The company’s solution analyzes a large number of digital currency transactions in order to identify potential signs of fraudulent activity and financial crimes such as money laundering in real-time.

TRM was developed out of the startup incubator Y Combinator (earlier this year). The company has reportedly been offering its digital currency compliance and risk management software to financial services providers such as large banks, major brokerage firms, and crypto exchanges based in the US, Asia, Europe, and Latin America.

Rahul Raina, co-founder and CTO at TRM Labs, noted:

“PayPal has been trusted by consumers for over 20 years because of its emphasis on fraud prevention and risk management. Their strategic investment in TRM signals their continued commitment to ensuring safety and compliance as the digital payments landscape evolves and innovates.”

Initialized Capital, an early investor in American crypto exchange Coinbase and Digit, also took part in the investment round.

Garry Tan, co-founder and managing partner at Initialized Capital, noted:

“Illicit activity is an existential problem for crypto since it impacts the willingness of financial institutions, regulators, and consumers to embrace crypto. We can’t imagine more mission-oriented founders who can bridge the worlds of traditional finance, compliance, and crypto to tackle this critical problem.”

TRM is planning to use the capital raised to expand its engineering and data science teams. The company also intends to penetrate new markets, while continuing to develop and refine its products.

Spencer Bogart, General Rartner at Blockchain Capital, noted that the firms’s solution is “desperately needed” by financial services providers.

Bogart remarked:

“TRM provides a solution that every financial institution needs today because they are either establishing plans to directly engage with crypto or because they inevitably have customers or partnerships that are in some way exposed to cryptocurrency transactions.”

Report: Fintech Solutions to be Increasingly Adopted by Banks and Governments in 2020

In order to encourage the development of innovative solutions while supporting financial inclusion, banks and world governments are expected to increasingly adopt Fintech-based solutions next year. This, according to a recent report from Ecosystm, a “disruptive” technology research and advisory service.

The report, titled “Ecosystm Predicts: The Top 5 Fintech Trends for 2020,” notes that there are five key trends that will contribute to the development of the global Fintech industry during the next 12 months. The Fintech ecosystem report states that the sectors of digital banking, online payments, and Insurtech are expected to experience substantial growth in the coming months.

Paul Gestro, the report’s co-author and principal advisor at Ecosystm, remarked:

“Fintech is poised to have a much greater impact in 2020 than many people realise. As well as improving the experience for existing customers, it will also drive the induction of many currently unbanked people into the mainstream economy.”

As mentioned in the report, the top five Fintech trends will be:

“One for all and all for one.”

The steady increase in Fintech-related investments will play a key role in enabling greater financial inclusion, particularly in developing nations. The gender gap, when it comes to accessing modern financial services, is expected to become less prominent.

This (expected) substantial Fintech ecosystem growth, and an increasing ability for financial institutions and other organizations to penetrate previously unexplored markets, will encourage  greater capital inflow from “high impact” investors who are interested in making profits and providing beneficial solutions to society.

“The year of the banks.”

In recent years, large banks have been hesitant to work with Fintech firms due to fear and uncertainty of the outcomes. However, it’s expected that by next year, these fears or concerns will subside.

Banks and other traditional financial institutions have been formulating various strategies for adopting leading technologies such as artificial intelligence (AI), cybersecurity, and robotic process automation (RPA). Fintech is also expected to be adopted in order to provider better customer experience while ensuring regulatory compliance.

“Asia becomes ‘Middle Earth’.”

Last year, VC-funded Fintech companies reportedly raised over $40 billion in total funding, and almost half or 50% of the investments were from China. This enormous growth is expected to continue in Asia where Fintech firms are constantly working to improve the existing financial infrastructure.

Open government policies and an underdeveloped banking industry are expected to drive more Fintech-supported projects in the banking and non-financial industries in Asia.

“The rise of Artificial Intelligence.”

An increasing number of artificial intelligence (AI)-based solutions have been used by Fintech platforms and this trend is expected to boost innovation in the emerging sector. AI and machine learning allow companies to make better choices about data and workplace automation. These are key areas that will be part of the main corporate strategy for finance firms during 2020.

RPA (Robotic Process Automation) will be implemented in an increasing number of platforms in order to improve customer experience while also updating legacy systems with more advanced technologies.

AI will be used more frequently to prevent cybercrime in cases where it can effectively identify potential cases of fraudulent activities.

“Regtech will take center stage.”

Regtech, or regulatory technology, will experience strong growth and adoption next year as businesses begin to understand how it can help them in implementing compliance procedures more effectively and efficiently. Regtech can help prevent financial crimes and help companies reduce the number of costly mistakes they might make.

Previously, more workers would be assigned to complete compliance procedures. However, this is not a sustainable long-term strategy and companies are interested in developing better ways of addressing the challenge. The return on investment (ROI) on Regtech platforms is believed to be quite substantial.

Gestro noted:

“Our report clearly shows that 2020 will be a huge year for Fintech firms and the organisations that take advantage of their offerings. Making strategic decisions on Fintech adoption now will ensure financial services firms are well placed to benefit from the massive growth ahead.”

A  copy of the report is available here.

Regtech: AML and Counter-Terrorism Financing Firm Silent Eight Raises $6.2 Million via Series A Round

Silent Eight, a Singapore-based regulatory technology (Regtech) company, announced on November 14 that it had raised an oversubscribed $6.2 million through a Series A investment round.

The funds raised will be used to recruit new talent in order to support Silent Eight’s new clients who may use the company’s banking and insurance-related services. The firm has 50 employees on its payroll globally with 20 workers based in Singapore. Silent Eight’s management says it’s planning to double its employee headcount by early next year.

The anti-money laundering (AML) and counter-terrorism financing firm is reportedly planning to recruit more product managers and data scientists in order to assist the company in its research and development (R&D) efforts.

Silent Eight’s funding round was led by existing investor Wavemaker Partners, an early-stage VC firm. Standard Chartered’s venture capital division, SC Ventures, and OTB Ventures also took part in the round.

Existing investor Koh Boon Hwee, an experienced corporate executive and venture capitalist, also participated in Silent Eight’s investment round.

Paul Santos, managing partner at Wavemaker Partners Southeast Asia, will take a seat on Silent Eight’s board.

Standard Chartered is Silent Eight’s largest client and has been working with the startup since last year, in order to improve the bank’s name screening process across the US, the UK, Singapore and Hong Kong.

Silent Eight uses artificial intelligence (AI) to enable improved decision-making, which enhances the name screening process.

Santos noted that financial institutions will continue to face heightened scrutiny and they will also have to deal with more complex regulatory requirements.

Santos stated:

“An artificial intelligence-powered engine like Silent Eight is the most effective solution to weed out money laundering and terrorist financing and reduce manpower and compliance risks.”

Since 2008, financial services providers have had to pay around $28.4 billion in penalties for money laundering and violating sanctions.

Following the global financial crisis, regulatory authorities have introduced stricter compliance procedures.

Regtech: Wells Fargo and Dutch Financial Giant ING Lead Ascent’s $19.3 Million Round to Expand Company’s Compliance Solution

San Francisco-based Wells Fargo, the fourth-largest bank in the US by total assets, and Dutch banking giant ING led a $19.3 million round in Chicago-based Regtech firm Ascent

Ascent provides a cloud-based platform that helps financial services providers to keep their business operations compliant. The company uses artificial intelligence (AI) to help financial institutions manage their compliance procedures

Established in 2015, Ascent’s clients include the Commonwealth Bank of Australia, Bremer Bank, Wells Fargo, and ING.

Ascent’s management noted that US-based venture capital firm Drive Capital and the University of Chicago also took part in its Series B investment round. The company says it will use the capital raised to recruit new talent, enhance its existing products, and increase brand awareness.

Ascent’s latest investment round has come after it raised $6 million via a Series A round in 2018. The company’s founder Brian Clark, a former capital markets regulator, “witnessed first-hand how under-regulation spurred risk-taking and lax compliance practices that helped inflate the bubble, leading to the 2008 global financial meltdown.”

Benoit Legrand, CEO at ING Ventures, stated:

“As the regulatory environment becomes increasingly demanding, so is the pressure on firms to remain compliant. In order to keep up with this ever-changing landscape and help relieve the mounting strain on resources, the financial services sector is continuously looking for more automated, intelligent and cost-effective ways to manage compliance.” 

Legrand added:

“ING is keen to support innovative and visionary firms, such as Ascent, which will play an essential role in shaping the industry’s future.”

Andy Jenks, partner at Drive Capital, noted:

“The ‘RegTech boom’ of the past few years is evidence of the pressing need for innovation in not only financial services, but in every regulated industry. We’re proud to support the Ascent team as they enhance their solutions and continue pioneering in an industry hungry for progress.”

In October 2019, Ascent revealed that UK’s regulatory authorities, including the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) were available on the company’s platform.

At present, Ascent is carrying out pilot testing with the Global Financial Innovation Network (GFIN). The pilot involves “analyzing the similarities and differences of a firm’s obligations across jurisdictions,” the release noted.

Ascent’s Chicago-based support team has been growing steadily. The company offers services to large financial institutions throughout the world, including in the US, UK, Australia, and Asia.

Australian Senate Select Committee on Fintech & Regtech Publishes Issues Paper

The Australian Senate Select Committee on Financial Technology (Fintech) and Regulatory Technology (Regtech) has published an “Issues Paper outlining what it intends to review and report back to the Senate.

The Committee was established in September 2019 and consists of six senators. The Fintech and Regtech Committee is to present a final report on or before the first sitting day in October 2020.

According to its mandated mission, the Committee will review the following topics:

(a)  the size and scope of the opportunity for Australian consumers and business arising from financial technology (Fintech) and regulatory technology (Regtech);
(b)  barriers to the uptake of new technologies in the financial sector;
(c)  the progress of Fintech facilitation reform and the benchmarking of comparable global regimes;
(d)  current Regtech practices and the opportunities for the Regtech industry to strengthen compliance but also reduce costs;
(e)  the effectiveness of current initiatives in promoting a positive environment for Fintech and Regtech start-ups; and
(f)  any related matters.

 Australia has emerged as a convenient bridge to booming economies in Asia. While the market is small, the Fintech ecosystem has gained the supported of elected officials and a vocal advocacy group – Fintech Australia.

The Issues Paper is calling for written submissions addressing multiple questions regarding Fintech/Regtech.

The paper points to the UK and Singapore as two leading Fintech hubs which may provide helpful perspective in fostering Fintech development.

The deadline for feedback is December 31, 2019.

The issues paper is embedded below.


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Regtech: London-based Crypto Firm Knabu Is Testing Bank Regulatory Reporting with Blockchain Firm Factom

London-based crypto firm Knabu is reportedly testing bank regulatory reporting with US-based Factom, Inc., a blockchain innovations company that provides various blockchain as a service (BaaS) platforms.

In statements shared with Coindesk, the UK-based company revealed that it launched its 30-day pilot on October 31, 2019.

Knabu is well established as a payments solutions provider with a smart-deposit product that helps firms minimize the risks associated with self-custodying blockchain-based assets. The company is currently seeking a license in the UK, as it intends to launch its services, which include serving as a bank. The firm’s main goal is to offer financial services to cryptocurrency companies that don’t have access to traditional banking services.

Gabrielle Patrick, founder and CEO at Knabu, stated: 

“The purpose of the pilot is to start proving some of the efficiencies that blockchain brings – specifically as core infrastructure for a bank. The average cost of regulatory compliance for a bank is about 30 percent of its budget. We’re a blockchain-first company and felt that it was necessary to demonstrate the features that can remodel that.”

The costs associated with implementing regulatory compliance procedures at banking institutions can be quite high due to many manual processes that have to be repeated multiple times. Knabu’s management says that it’s services allow banks to easily perform know-your-customer (KYC), know-your-business (KYB) and anti-money laundering (AML) checks on their clients. 

The company’s solutions also help banks encrypt user data, which can be sent to Factom’s platform, where it can be backed up to the Bitcoin and Ethereum blockchain networks.

Hakim Mamoni, CTO and co-founder at Knabu, noted:

“We wanted to avoid repeating the same KYC, KYB and AML checks. [Traditional financial institutions] don’t have the same flexibility in terms of having access to the data.”

Patrick says his company is planning to serve both small-and-medium-sized enterprises (SMEs) and Fintech firms, as both of them are underserved business entities.

EthBits, an exchange that handles secure trades between users from bank accounts to online cryptocurrency wallets, will be participating in Knabu’s pilot program. IdentityMind has been tasked with carrying out Knabu’s KYC and KYB checks. DMG Blockchain will be utilizing DLT forensic tools such as Blackseer and Walletscore to conduct appropriate AML checks on transactions made from Bitcoin (BTC) and Ether (ETH) wallets.

The Factom blockchain network has been designed to build data chains, which are periodically backed up to the Bitcoin and Ethereum blockchains using a Merkle root. Factom chooses to use these two crypto platforms because they are the most secure and largest blockchains due to their established network effects. 

Factom’s service, which was previously run by people who had factoid tokens, is now being operated by Factom itself, while Knabu is sending data to the firm through an API.

Carl DiClementi, VP of Product at Factom, explained:

“This allows us to be able to borrow the security that you get from the power of the bitcoin and ethereum blockchains to verify that your data is what you claim it to be.”

Knabu CEO Patrick said its testing is consistent with the requirements specified by the UK’s Financial Conduct Authority (FCA). The company says it’s been looking for ways that financial service providers can digitize regulatory reporting. Knabu’s management also mentioned that it’s planning to launch a pilot that will test reporting capital reserves on Factom’s DLT-based platform.

Patrick noted:

“The goal is to rip out any inefficiency and to serve underserved businesses. Many sectors are underserved because the cost is too high.”

UK-based Centre for Finance, Technology and Entrepreneurship Announces New Online Regtech Course

The Centre for Finance, Technology and Entrepreneurship (CFTE), an education platform supported by veteran leaders from major institutions, innovative startups and universities, has revealed that it’s launching an online Regtech course.

According to a press release shared with CrowdFund Insider, the course has been designed to upskill professionals so that they can advance in the regulatory technology transformation process. 

As noted in the release, the Regtech online course will provide students “a thorough foundation of regulatory technologies.”

The announcement was made at The Regtech Book Launch at the CFTE Fintech Campus in London. More than 200 industry professionals attended the event. As mentioned in the release, the course will offer training in the latest regulatory technology to organizations and individuals with relevant use cases from Europe and Asia.

The Regtech course will help students in preparing for the rapidly evolving global landscape of regulation. The release mentioned that the compliance industry is being transformed by emerging technologies, including artificial intelligence (AI), blockchain or distributed ledger technology (DLT), and “increasing data availability and market transparency.” 

The extensive training will take “a wide perspective and include RegTech topology, solutions exhibited by startups as well as implementation examples by banks,” the announcement stated.

As explained in the release:

“The program covers 8 hours of video content, curated readings and online assessment. The course co-convenors will include Janos Barberis (Founder of Supercharger) and Douglas Arner (Professor in Law from Hong Kong University). Additional lecturers and guest experts will be announced by the end of the year.”

For the past few years, the Regtech space has been expanding rapidly, mainly due to increased regulatory oversight that requires additional resources. Automation and ongoing technological developments have been identified as “strategic responses” to this evolving landscape. 

Big Four auditing firm KPMG says that by 2020, Regtech is projected to account for 34% of all spending related to regulations, with an estimated $76 billion contribution by 2022, up significantly from just $10.6 billion during 2017.

Corporations and business owners are interested in Regtech because it can help them cut down operational costs. Industry participants believe that the Regtech transformation is about making existing processes more efficient and also completely replacing certain processes with improved ones. 

Janos Barberis, founder of Supercharger and head of Entrepreneurship at CFTE, stated: 

“The Regtech industry is at tipping. Whilst the last 2 years have focused on digitising existing processes, such as KYC, the next 2 will be about driving further efficiency in the financial market, and perhaps, more importantly, re-building regulatory architecture globally.”

Barberis added:

“We expect the course to be a reference in the industry, used by regulators & financial institutions alike.”

Professionals are invited to register their interest in CFTE’s new course.

Regtech Firm Exec Says EU’s 6th Anti-Money Laundering Directive “Clears Path for Holding Responsible Parties Accountable”

The European Union’s sixth anti-money laundering directive (6AMLD) is expected to take effect on December 3, 2020. The new directive recommends several penalties for non-compliance. 

EU Member States are required to have 6AMLD incorporated into their national legislation by December of next year and related entities must enforce relevant regulations by June 3, 2021.

The European Banking Authority (EBA) will be managing the strict AML implementation, which provides an updated framework for defining offenses and penalties to prevent money-laundering in the evolving digital economy.

Zac Cohen, general manager of Regtech firm and global identity verification firm Trulioo, told  Finextra that 6AMLD aims to go after “individual bad actors within an unsuspecting organization and clears the path for holding the responsible party accountable.”

Cohen, an economics graduate from the University of British Columbia, added:

“Where the entity may have protected the individual or vice versa in the past, the market is now being signalled that controls need to be tightened both internally and externally to ensure that the issue isn’t being propagated.”

Detailing an extensive list of 22 predicate offenSes, 6AMLD covers offenses such as internet crime and environmental crime. Notably, the directive addresses issues related to “aiding and abetting” and “attempting and inciting” money-laundering activities, meaning that criminal charges will be brought against the “enablers” who may be accessories to criminal activities.

The extension of criminal liability in which “the lack of supervision or control” from a “directing mind” within the organization indicates that business owners may be subject to penalties, even in cases where the offender or origin of illicit funds cannot be determined.

Several new penalties are expected to be introduced after the implementation of 6AMLD. EU Member states are required to enforce a four-year prison sentence for those who engage in money-laundering, a significant increase from the present one-year prison sentence.

Article 5 of the Directive notes that “effective, proportionate and dissuasive criminal penalties” must be enforced, including fines and potential disqualification from practice.

Under the new directive, firms will be obligated to develop monitoring systems, provide training for staff members and have the appropriate technological capabilities to prevent digital attacks.

Cohen says that the increased thresholds for AML compliance will have a symbiotic effect on RegTech developments. He states:

“The regulatory environment of today is arguably a response to technological innovation, and in order for the current and next generation of innovation to continue, the industry requires regtech tools to provide equally compelling capability.”

Given the international nature of money laundering and other illicit financial activities, Cohen notes that Trulioo “provides tools that are ready and able to be implemented across any business regardless of the internal machinations of that company.”

He adds:

“You want to build with flexibility in mind, and to be able to handle the constantly evolving market changes that we see today with the fourth, fifth, sixth and what’s definitely going to be seventh AML directive down the road.”

Cohen further notes that effectively implementing complex compliance procedures across different organisations requires properly designed RegTech tools, especially when addressing KYC and AML requirements. He points out that there “must never be a one and done solution; it should be layered and follow the customer lifecycle from end-to-end.”

Cohen goes on to add:

“Talking from a tech perspective, it’s about a mind shift in that it’s not about just satisfying 6AMLD, it’s about satisfying and operating in an environment of change. That’s the reality today.”

Security Tokens: Tokensoft Says ERC-1404 Token Standard is Seeing Broad Adoption

TokenSoft, a platform for issuing digital securities using blockchain technology, says the ERC-1404 token standard is seeing broad adoption for security token issuance.

James Poole, co-founder and CTO of TokenSoft, says that creating a standard for security token issuers made sense to developers:

“our customers, and their counsel was incredibly important to our tech team. We worked with issuers, exchanges, and their legal counsel to make sure ERC-1404 met their regulatory needs.”

Importantly, the ERC-1404 standard prevents the “flow back” of tokens originally sold to investors under Regulation S into the U.S. when offering security tokens internationally.

In a release, TokenSoft listed the following reasons why ERC-1404 is gaining industry traction:

  • ERC-1404 is the only security token standard to be listed in multiple SEC filings on EDGAR as their token standard for issuance.
  • INX, a TokenSoft customer, is planning the first tokenized IPO in the U.S. to raise up to $130 million using an ERC-1404 compliant token.
  • TokenSoft customers use ERC-1404 to implement compliance requirements relating to The Investment Company Act of 1940 and FINRA Rule 3220 (Gifts Rule).
  • ERC-1404 may implement the compliance requirements involved in the transfer of equities, debt and derivatives.

CCAF: Regulation of Alternative Finance is Key to Make Sector Safe to Scale for the Masses

The Cambridge Centre for Alternative Finance (CCAF), part of the Judge School of Business at Cambridge University, has partnered with the World Bank to publish a report on the global regulation of alternative finance and innovative Fintech firms. According to the new report, the regulation of alternative finance will increase significantly over the next two years, as indicated by a global survey of 111 regulatory jurisdictions.

Equity Crowdfunding, Peer to Peer Lending & Initial Coin Offerings

As various forms of alternative finance emerge, typically regulators are slow to update or create new rules as they research and dissect digital services. More specifically, access to capital platforms such as equity crowdfunding, peer to peer (marketplace) lending and initial coin offerings (or token offerings), have digitized investment opportunities and the capital-raising process. These three types of finance are the focus of this report. The CCAF study seeks to better comprehend alternative finance via empirical information gleaned from regulators and other public authorities.

Alongside AML/KYC requirements, regulators’ main priorities are said to be:

“… protections against misleading promotions or the misuse of client money. Depending on the activity in question, between 93% and 100% of regulatory frameworks impose requirements in relation to the clarity and fairness of promotions; between 100% and 88% impose sector-specific AML/KYC requirements, and over 80% impose the segregation of client assets, where applicable.”

While regulators and other policymakers see the potential for new forms of finance they simultaneously understand the need to better regulate the sector for the “mass market” including individuals and mid to small businesses (MSMEs).

CCAF explains:

“Despite a boom in alternative finance regulation since 2015, the relevant activities are still not formally regulated in most jurisdictions – only 22% of jurisdictions formally regulate P2P lending, as opposed to 39% for ECF [equity crowdfunding] and 22% in the case of ICOs [initial coin offerings]. Where these activities are regulated, some jurisdictions apply to them pre-existing regulatory frameworks (e.g for securities). More often, they are subject to bespoke regulatory frameworks, particularly in the case of P2P lending (12% of jurisdictions) and ECF (22% of jurisdictions).”

While not the norm today, CCAF predicts that by 2021 most jurisdictions will have bespoke rules for investment crowdfunding and over a third will have new rules for peer to peer lending and ICOs.

Creating new rules or updating old ones is not always an obvious task. Regulators, as one would expect, look towards other jurisdictions to gauge and compare rule-making progress and development.

While fraud and capital loss are big concerns, regulators frequently lack the expertise and other resources to move quickly and better regulate. Innovative policy approaches have helped in their task. CCAF states:

“Regulators are thus looking to more innovative solutions to overcome these limitations in regulation and supervision. Among respondent regulators, 22% have created regulatory sandboxes, 26% have innovation offices and 14% have active Regtech/Suptech programs. Based on regulators’ responses, the number of sandbox and Regtech/Suptech programs could double and triple respectively in the coming years. In terms of sheer numbers, it seems that innovation offices that have the most quantifiable impact to date, having assisted twelve times as many firms as sandboxes – over 2,100 in total, against just 180 for sandboxes. However, proponents of the sandbox might argue that for particular ‘policy-testing’ orientated sandboxes, the purpose is not to increase the number of innovative firms supported but to facilitate policy learning, design, and review.”

Learning from more established ecosystems is vital for policymakers to better manage innovative financial service firms. Today, the “most benchmarked-against jurisdiction is the UK, followed by the USA and Singapore, but emerging markets such as Malaysia, the UAE and Mexico also rank among the top 10.”

Lower-income jurisdictions are understandably less likely to pursue “active regulatory innovation.” At the same time, these jurisdictions may stand to benefit the most. There is strong interest “for co-learning from other regulators,” reports CCAF.

The goal of the CCAF-World Bank report is to support an agenda of financial inclusion and support for micro, small and medium-sized enterprises. These MSMEs drive economic wealth and create much-needed jobs. Alternative finance is an important variable to support access to capital and financial services.

The report concludes:

“It is clear from this study that regulators around the world believe that alternative finance is a force for good and understand the benefits which it can bring about for access to finance, financial inclusion, competition in financial services, job creation and economic growth. There is also a desire among regulators to make the necessary changes to bring this about, and plans are being made to do so.”

But as we all know, change is hard. Keeping things simple is never easy and convoluted rules can crush the benefits of innovation. CCAF recommends a “significant and coordinated effort” to help support development of effective regulatory ecosystems to fuel the benefits of Fintech and alternative finance.

The report, Regulating Alternative Finance: Results from a Global Regulator Survey, is embedded below.


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Swiss Regtech Firm Apiax Raises $6.6 Million in Series A Funding Round

Zürich-based Apiax, a Fintech firm that transforms complex regulatory requirements into digital compliance rules, has raised $6.6 million through a Series A investment round.

Founded in 2017, Apiax is a Swiss Regtech firm that builds and provides tools to transpose written regulations into binary, machine-readable rules. The digital compliance rules are used to develop new internet-based solutions and products that are “compliant by design.”

Apiax’s system regularly updates and verifies compliance rules, which are consumable through an App. They can also be integrated directly into traditional banking platforms via an easy-to-use API. 

Apiax’s proprietary technology helps legal and compliance teams by giving them control and full visibility over their digital rule sets. The company’s systems also helps client advisors serve their customers in a more efficient and compliant manner.

The funding round was led by San Francisco-based VC firm e.ventures and Paris-based VC team XAnge. The company’s existing investors also participated in the round, including Peter Kurer, DIVentures, Swiss ICT Investor Club (SICTIC), Zürcher Kantonalbank and Tugboat.

Apiax’s management is planning to use the capital to fund its “global growth plans,” support the development of its product and build up the company’s staff members.

Co-founder of Apiax, Nicolas Blanchard, stated:

“In recent months, we have created terrific momentum and a basis for international growth. With e.ventures and XAnge, we have found the perfect partners to boost our global expansion plans,” 

Andreas Haug, co-founder and managing partner at e.ventures, noted:

“We are impressed by the results Apiax is already delivering and confident that Apiax, with its ‘open compliance platform’ approach, has the best qualifications to establish a comprehensive and highly efficient solution for the fast-growing – but so far highly fragmented – area of compliance.”

Global Regtech Market was Valued at $2.45 Billion in 2017, Projected to Reach $12.43 Billion by 2026

The global Regtech market was valued at $2.45 billion in 2017 and is projected to reach an estimated $12.43 billion by 2026, at a compounded annual growth rate (CAGR) of 22.51%.

Regtech refers to set of tools developed to enhance the efficiency and effectiveness of implementing and monitoring regulatory guidelines. Regtech includes any technology or software developed to address challenges involving regulations. 

Regtech helps companies and organizations understand regulatory requirements and remain compliant. The global market for regulations technology is growing steadily due to the increased costs associated with compliance procedures and lower entry barriers for software-as-a-service (SaaS)-based offerings.

Artificial intelligence, machine learning, and blockchain technology are being applied to improve the efficiency and effectiveness of compliance platforms. The application of these new technologies is expected to lead to substantial market growth for Regtech. However, the high cost of regulations tech platforms and the lack of expertise in using the software could limit the growth of the Regtech market.

Cybersecurity-related problems, privacy issues, and the lack of data standardization may challenge the ongoing development of the global Regtech industry. The risk and compliance management application is expected to have the largest Regtech market share.

Risk management plays a key role in business management procedures. Enterprises that have not implemented proper risk management programs may have to pay large amounts in drawbacks for not adhering to relevant regulatory guidelines.

The large enterprise segment is projected to hold the majority of the market share, as most publicly traded firms are forced to implement regulatory procedures. Rules and regulations vary depending on the industry and jurisdiction, which makes it challenging and unfeasible to manually check all the regulatory guidelines.

North America is expected to hold the largest Regtech market share in the coming years, due to the relatively early adoption of regulatory tech solutions by the North American financial services providers. 

North America is home to some of the world’s largest economies including the US, Canada, and Mexico. These nations are significantly advanced in terms of technology adoption and its application.

Some of the main players in the global Regtech industry are Abside Smart Financial Technologies, Accuity, Actico, Alto Advisory, Broadridge, Compendor, Compliance Solutions Strategies (CSS), Deloitte, Eastnets, Fenergo, IBM, Infrasoft Technologies, Jumio, Lombard Risk, London Stock Exchange Group (LSEG), Metricstream, Nasdaq Bwise, Nice Actimize, PWC, Rimes Technologies, Sai Global, Sysnet Global Solutions, Thomson Reuters, Trulioo, and Wolters Kluwer.

IdentityMind Announces New Partnership With Acuant to Strengthen Digital Identity Proofing

IdentityMind Global, a SaaS RegTech platform that builds, maintains and analyzes digital identities worldwide, announced on Thursday it has formed a new partnership with Acuant, a global provider of identity verification solutions, to strengthen digital identity proofing.  IdentityMind reported that through the partnership Acuant’s identity solution will be offered through IdentityMind’s platform, providing identity and document verification across multiple channels globally.

While sharing more details about the partnership, Acuant President and CEO, Yossi Zekri, stated:

“Acuant and IdentityMind share a common belief that identity is the new currency in today’s digital economy, and it must be protected. Our strength in identity proofing during the onboarding and account origination process is the perfect combination to IdentityMind’s ability to build a digital identity and continue to monitor its use through the lifetime of the user. This partnership enables trusted transactions helping companies to reduce fraud, comply with AML/KYC regulations and provide better customer experiences.”

Garrett Gafke, IdentityMind’s CEO, went on to add:

“As part of our goal to create the most agnostic and accurate platform for trusted digital identities addressing compliance and risk, we have built an expansive technology ecosystem that pre-integrates the best of breed solutions across a variety of use cases and geographies. Acuant has an outstanding track record in identity verification as a white label solution for many industry leading partners globally. We are excited to be able to offer their solution to our customer-base.”

Founded in 2013, IdentityMind helps users win the fight against fraud, money laundering, human trafficking, and terrorist funding.

Our patented digital identity technology identifies good guys you want to work with and bad guys you want to avoid in real time. Our technology creates and utilizes digital identities to reduce fraud risk and decrease compliance cost for identity verification and customer onboarding throughout the customer lifecycle. We offer KYC and AML services for counter financing of terrorism (CFT), automated transaction monitoring and fraud prevention.”

Regtech: ClauseMatch is Now Live in Italy in New Partnership with Banca Intesa Sanpaolo

ClauseMatch has announced that it now operational at Intesa Sanpaolo. The partnership is said to be the genesis of a meeting at Fintech Innovation Lab hosted by the Bank. A Proof of Concept soon followed.

The ClauseMatch platform is currently being used by Barclays and Revolut as well to automate their compliance documentation.

According to a note from the company the Bank’s objective in its “Open Innovation” path is to experiment with innovative Fintech solutions to create digital services for the Bank.

After ClauseMatch passed all internal IT security and compliance checks, Intesa Sanpaolo then implemented the platform within the Cost Management Office governance area, which is an online document management and collaboration solution, adapted to optimize and streamline the process of creating and managing intragroup service contracts.

Intesa Sanpaolo also manages intra-group service contracts between internal suppliers and about 70 Customers between Business Units and Legal Entities of the Italian and Foreign Group.

Clausematch explained that the initial requirement was to identify a solution that would simplify the process of the annual renewal of service contracts. To do this, it was necessary to eliminate the exchange of documents by email with a complex structure of customers and products to then reduce operational activities of updating the system previously used to generate such contracts.

The results of the Proof Of Concept was said to have impressed stakeholders with the ability and speed of ClauseMatch to adapt their solution to the specific needs of Intesa Sanpaolo.

Evgeny Likhoded, ClauseMatch CEO & Founder, said that banks and other large financial services firms are looking for “next-generation solutions for different aspects of their business.”

“The Intesa Sanpaolo case shows how a RegTech company can first and foremost significantly optimize its business processes”, said Likhoded.

ClauseMatch is a 2014 graduate of the inaugural Barclays accelerator program, BBVA Open Talent challenge winner, and is in the top 10 Regtech companies selected by Dow Jones, Financial News, FinTech50 company by FinTechCity and in the 2018 CB Insights list of the most promising Fintech companies globally.

ClauseMatch has been working with Barclays on global policy management and compliance since 2017.

 

CipherTrace Hosting FATF Crypto Travel Rule Hackathon

Blockchain forensics firm CipherTrace is hostingTravel Rule Compliance Conference and Hackathon in San Francisco November 5th and 6th.

The event has been organized, “to develop open solutions that cryptocurrency exchanges, hedge funds, blockchains and banks urgently need to comply with both the FATF and BSA Travel Rules.”

In June of this year, the Financial Action Task Force (FATF), a standards-setting body that oversees global anti-money laundering and anti-terrorist finance efforts, released a set of monitoring standards for the oversight and guidance of Virtual Asset Service Providers (VASPS).

The FATF has 38 national members and several regional members. FATF members voluntarily comply with FATF recommendations and regions that do not risk being sanctioned.

According to CipherTrace, the FATF’s recommendations regarding cross-border movements of cryptocurrencies, “…will place dramatic new compliance requirements on cryptocurrency companies.”

The conference will combine compliance and regulation discussions with a, “technical hackathon to develop and expand open source solutions to these new regulatory requirements.”

According to CipherTrace,”Day 1 will include seminars from well-known legal, compliance, financial crime, and counter terrorist financing experts.”

As well:

“Attendees will hear about the complexities of FATF Travel Rule compliance and learn how the right solution will help drive mainstream cryptocurrency adoption and the future of the crypto economy…Presenters will also discuss technical challenges such as a compliance architecture designed for both enterprise-grade speed and scale.”

Speakers so far announced include:

Dave Jevans, CEO CipherTrace and APWG Chairman
Joe Ciccolo, President, BitAML
Jim Richards, founder RegTech Consulting
Daniel Sankey, Global Financial Crimes Officer, Coinbase
Erin O’Loughlin, Financial Intelligence, Western Union
Justin Newton, CEO, Netki
Neal Reiter, Vice-President, Platform, Identity Mind Global
Joe Weinberg, founder Shyft and Paycase

On the second day, “developers will work with security software gurus to integrate Travel Rule Information Sharing Architecture (TRISA) into their systems. The TRISA architecture is an open source, peer-to-peer design for cryptocurrency companies and blockchain projects to comply with these challenging new regulations.”

CipherTrace says developers attending will benefit from hands-on guidance from, “world-class technologists…regarding interoperability and integration of virtual asset transaction flows with the Travel Rule Information Architecture (TRISA).”

Prizes will also be awarded, “for the most innovative developments during the hackathon.”

The event is billed as “vendor neutral.”

CipherTrace blockchain analytics software is used by, “Financial investigators and auditors…to trace virtual asset transactions.”

The same software is also used by crypto exchanges and businesses, banks and regulators to assure regulatory compliance.

CipherTrace competitors include Chainalysis, Elliptic, DMG and Crystal.

Broadridge Teams Up With FundsLibrary to Provide RegTech Solutions For European Wealth & Asset Managers

U.S.-based fintech Broadridge Financial announced earlier this week is it teaming up with FundsLibrary, a provider of digital fund data and regulatory solutions, to provide regtech solutions for European wealth and asset managers. The duo is now developing an offering to address the challenges posed by MiFID II Ex-Post Costs and Charges and Solvency II.

While sharing details about the collaboration, Philip Taliaferro, Head of Strategy, EMEA and Asia-Pacific at Broadridge, stated:

“At Broadridge, we are focused on providing asset managers with innovative, data-centric solutions, and this new technology suite with FundsLibrary is a natural fit with our existing regulatory solutions capability. Leveraging FundsLibrary’s Solvency II along with Broadridge’s MiFID II Ex-Post Costs and Charges solutions will help clients drive more efficient and cost-effective processes in regulatory reporting.”

Arun Sarwal, CEO of FundsLibrary, further explained:

“FundsLibrary’s aim is to continuously broaden and improve data, digital and regulatory services for the investment industry, either through our own R&D or through working with world-leading partners. We are very pleased to be working with Broadridge. With its global expertise in delivering solutions to their asset management clients worldwide and our expertise, this will be an exciting partnership for both parties.”

Broadridge added its European fund regulatory communications business provides regulatory expertise and distribution support solutions to more than 70 clients worldwide. Meanwhile, FundsLibrary’s existing Solvency II clients include 15 of what claims to be Europe’s largest fund managers and the service is recognized by industry consultants as a best-in-class solution.

Regtech Startups at Lendit Europe 2019 : Onfido and ComplyAdvantage Have Big Plans

LendIt Fintech Europe 2019, which took place September 26-27 in London, was placed under the banner of lending and banking convergence.

As incumbents collaborate with Fintechs, online lending marketplaces become banks, and challenger banks expand into credit, a new ecosystem is emerging. An indispensable part of this ecosystem are new startups who rethink enabling technologies. These are much needed to make the tech advantage of fintech come true and to enable it to scale.

Onfido and ComplyAdvantage are regtech startups which provide KYC and AML solutions to banks and Fintechs. We caught up with Husayn Kassai, co-founder and CEO of Onfido and Charlie Delingpole, ComplyAdvantage founder and CEO of ComplyAdvantage following a panel discussion moderated by Steve Pannifer, COO, Consult Hyperion.

Onfido wants to give consumers control of their identity data

Husayn Kassai was one of the three Oxford students who founded Onfido in 2012. The company provides customer onboarding and identity verification services. It has a team of 260 with offices in the UK, the US, Portugal, France, India, and Singapore. Onfido has raised over $100m in 9 rounds of funding, including, most recently, a $50 million Series C round led by SBI Investment with Salesforce Ventures and M12 (Microsoft Ventures).

Onfido works with over 1,500 financial businesses, including 150 very large enterprises. Clients include Revolut, LendInvest, Drivy, and Blablacar.

Onfido’s main product is online identity verification. The company provides verification for more than 600 local driving licenses and a total of 5,000 government identification documents. It has built strong relationships with government authorities from around the globe. Its facial biometrics verification technology is proprietary. 

“We’re taking physical identify online,” said Husayn Kassai.

The CEO sees enormous growth potential for his company’s services. Traditional KYC and AML processes have an abysmal record in terms of catching fraudsters and money launderers. The consequence is that, to avoid risk, financial institutions are purely and simply excluding billions of customers from their services.

[easy-tweet tweet=”Traditional KYC and AML processes have an abysmal record in terms of catching fraudsters and money launderers. The future of identification is decentralized” template=”light”]

Husayn Kassai’s vision for the future is decentralized identity.

“Technology is capable of giving individuals full control over their data. But it has yet to be made easy. Decentralized identify is the future.”

Currently, every ID verification starts afresh. Nothing is stored. In the future, we will create a server for each individual. Individuals will be able to decide what they are willing to share with whom.”

Decentralized identify would make the customer onboarding process significantly easier and faster. Each customer could be verified multiple times. It would bring a significant cost reduction.

ComplyAdvantage sets on machine learning to scale AML

Charlie Delingpole is a serial entrepreneur. He started his first company as a student at the age of 16. After working a few years in investment banking at JP Morgan, he co-founded the invoice financing marketplace Marketinvoice, before founding ComplyAdvantage in 2015.

At both JP Morgan and Marketinvoice, Charlie Delingpole grew increasingly frustrated with the lack of efficiency of KYC and AML processes. Current fraud detection solutions are still largely manual. They are ineffective and out of proportion with the high stakes of money laundering.  In startups, the biggest teams are often KYC and compliance teams. This is not sustainable.

“Banks and Fintechs are faced with the challenge of industrializing the customer onboarding process without failing basic AML and identity checks.”

Charlie Delingpole decided to set up ComplyAdvantage to build new processes of fraud detection from scratch, using machine learning.

“Machine learning can process information from 60 million pages to profile an entity and extract a pattern from its transactions – a work that would require a million work hours from an intern.”

ComplyAdvantage now employs 250 people, mostly in London, Romania, and the US. Out of these, around 150 are working on developing the platform. The company has around 500 direct customers and 400 partners who distribute its data. The startup has raised $38 million in funding, including $30 million in a recent B series led by Index Ventures.

[easy-tweet tweet=”Machine learning can process information from 60 million pages to profile an entity and extract a pattern from its transactions – a work that would require a million work hours from an intern #Fintech #Regtech” template=”light”]

Charlie Delingpole claims that companies using its data report significant improvement in detecting true positives and avoiding costly false positives. Recently, for example, it enabled a large institution to close an account and report the client before it was raided by police shortly after.

The CEO has ambitious long-term plans for ComplyAdvantage

“We want to build a massive network of data that can be translated into a knowledge graph of external data and internal data.”


Therese Torris, PhD, is a Senior Contributing Editor to Crowdfund Insider. She is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She has covered crowdfunding and P2P lending since the early days when Zopa was created in the United Kingdom. She was a director of research and consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French personal finance blog, Le Blog Finance Pratique.

Australian Senate Creates Standing Committee on Fintech & Regtech

Last week on September 11, the Australian Senate decided to establish a “Select Committee on Financial Technology and Regulatory Technology” or a committee to research and follow Fintech and Regtech. According to the Australian Parliament, the committee will inquire and report on the following matters:

  • The size and scope of the opportunity for Australian consumers and business arising from financial technology (Fintech) and regulatory technology (Regtech);
  • Barriers to the uptake of new technologies in the financial sector;
  • The progress of Fintech facilitation reform and the benchmarking of comparable global regimes;
  • Current Regtech practices and the opportunities for the Regtech industry to strengthen compliance but also reduce costs;
  • The effectiveness of current initiatives in promoting a positive environment for Fintech and Regtech start-ups; and
    any related matters.

That the committee will consist of six senators, as follows:

  • Three nominated by the Leader of the Government in the Senate;
  • Two nominated by the Leader of the Opposition in the Senate; and
  • One nominated by any minority party or independent senator.

The Fintech and Regtech Committee is to present a final report on or before the first sitting day in October 2020.

Spain’s Autonomous Region Catalonia Introduces Decentralized Digital Identity Platform

The government of Catalonia is developing a decentralized identity solution that will allow the autonomous community’s residents to control their data while interacting with internet-based services.

Referred to as the IdentiCAT project, the launch of the new digital identity platform was announced on September 7 by Catalonia’s minister of digital policy and public administration Jordi Puigneró. 

Catalonia’s government notes:

“The ‘IdentiCAT’ will be the first digital identity at European level, which will be driven by the public sphere and managed by citizens themselves with the aim of becoming standard use in Catalonia.”

The initiative is part of the ministry’s main objectives, which include “qualifying and digitally empowering Catalan citizens so they may carry out activities with full assurance and security in the digital society of the 21st century,” according to Catalan News.

The decentralized identity platform is part of the autonomous region of Spain’s blockchain policy, which was released in June 2019, in order to promote the use of the distributed ledger technology (DLT) within the region’s “public authorities and society.”

Developed using DLT, IdentiCAT will be managed by the Catalan government, which will serve as the validator for the network. The government says it will not be requiring users to submit personal data.

The “self-sovereign” identity system will be available on mobile or desktop applications. It will allow Catalan citizens to “create and manage their own identities, with full legal effectiveness and privacy.”

For instance, a user can verify or provide proof that they are of legal age, by using the new ID system, without providing the actual date or place of their birth.

IdentiCAT will be developed in a manner that is compliant with the 2014 European Union’s elDAS rules, which pertain to electronic identification and trust services involving digital transactions. 

IdentiCAT users will reportedly have access to online services and be able to conduct electronic transactions in any EU member country.

The initial phase of IdentiCAT’s deployment will involve setting up the system and running it, which requires various tools for creating self-sovereign IDs. The software will authenticate and validate the IDs. 

IdentiCat will be integrated with existing authentication systems that are being used by the Catalan Open Government Consortium.

The identity platform will be launched and distributed for use to the region’s residents, businesses, and various other organizations.