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Industry roundup: 8 April

China eliminates obstacles for US audit

China has changed a decade-long rule that limited the practice of sharing financial data by offshore listed companies. According to US government reports, this may potentially remove a major obstacle for US regulators in accessing and auditing reports of more than 200 Chinese companies with a combined market capitalisation of US $2.1 trillion (approximately RM8.84 trillion) as of May 2021, including eight national-level state-owned enterprises listed in New York.

In a joint statement with other regulatory agencies, the China Securities Regulatory Commission (CSRC) said that the revised draft rules removed the requirements that on-site inspections should be conducted mainly by Chinese regulatory agencies as well as reliance on their inspection results. The statement added that the CSRC will provide support during the process through a cross-border regulatory cooperation mechanism. In the interim, all companies listed directly or indirectly abroad should be responsible for the proper management of confidential information and the protection of national information security.

This change marks an extraordinary reversal by Beijing and could end the decades of controversy that escalated when the United States set a deadline of 2024 to exclude non-compliant companies from the New York Stock Exchange and NASDAQ. This amendment should help mitigate national security risks in public company shared data and enable them to make audit documents available to US regulatory agencies as needed. Gary Gensler, Chairman, US Securities and Exchange Commission (SEC), commented that companies can only continue to trade in the US market by fully complying with audit inspections.

The Chinese securities regulator has proposed banning procedures for companies whose listing could pose a threat to national security. Additionally, the CSRC stated that companies can use the Variable Interest Entities (VIE) structure to pursue overseas IPOs only after meeting compliance requirements.

Bank of Ireland charged for data breaches

The Data Protection Commission (DPC) fined the Bank of Ireland €463,000 for a series of data breaches related to customer personal data. According to the press release, the DPC has investigated 22 personal data breach reports produced by banks between November 2018 and June 2019, and said it affected more than 50,000 customers. Information in the Bank of Ireland records are automatically forwarded to the Central Credit Register (CCR), a centralized system for collecting and securely storing loan information. Due to errors in this process, personal information was illegally disclosed and some customer data was accidentally changed.

The DPC has concluded that 19 of the reported incidents are considered violations of the General Data Protection Regulation (GDPR). Reports indicated that the DPC has ordered corrective action as the Bank of Ireland was fined not only for violations, but also for delays in communicating with affected customers. Additionally, reports show that this is not the first fine the Bank of Ireland has recently faced for violations. The Bank of Ireland was fined €24.5 million in December 2021 for IT deficiencies taking over a decade to correct. The bank's statement said: "The Bank of Ireland fully acknowledges these violations and apologizes.”

Online checkout giant provider Bolt to acquire Wyre, enabling crypto payments

The crypto market continues to surge, with investor interest and activity in 2022 on track to surpass the US $4.6 billion transactions in 2021. Bolt Financial Inc. (Bolt), a US California-based software development company, has agreed to acquire crypto infrastructure payments provider, Wyre Payments Inc. (Wyre), valued at approximately $1.5 billion and expected to close later in 2022, according the Wall Street Journal. Together, Bolt and Wyre are expected to develop a universal commerce solution while providing secure use of cryptocurrencies for millions of buyers, retailers and developers.

Bloomberg stated that these two San Francisco-based private companies plan to offer a “one-click cryptocurrency checkout system” to simplify digital shopping. Bolt reportedly designs and develops a cloud-based online platform for checkout, payments and fraud protection, while Wyre is a blockchain-based payment provider that offers services to exchange national currencies and cryptocurrencies between banks and cryptowallets as well as offering cryptocurrency trading.

Bolt plans to fully integrate Wyre's API by the end of 2022, enabling simple and secure crypto payments to fiat currencies. Bolt said in a statement that in addition to allowing millions of people to use crypto to pay for goods at hundreds of retailers, the integration will also enable the purchase of NFTs, leading to innovative Web3 opportunities.

Transaction stablecoin-based working capital credit line for MSBs worldwide via Arf

Arf, a European-based global payment network, is the first compliant cross-border payment network to run on stablecoin, announcing the launch of Arf Credit. According to the press release, Arf Credit should provide Money Services Businesses (MSBs), such as e-wallets, neobanks and digital remittance companies, with immediate working capital credit lines globally.

MSBs traditionally need to provide advanced funding in the receiving country when sending money from one country to another, resulting in capital constraints, higher opportunity costs and operational inefficiencies. With cross-border transaction risk, access to credit continues to be a major concern for MSBs. Arf Credit emerged from this high prefunding requirement and limited access to working capital. The report states that Arf Credit should help empower authorized MSBs around the world.

Kazım Rıfat Özyılmaz, Co-Founder, Arf, commented that MSBs have been an underserved player in the financial industry, especially in accessing working capital. Ali Erhat Nalbant, Co-Founder and CEO, Arf, further added that Arf Credit is developed as an API-based, transactional short-term working capital in USDC so that MSBs can use stablecoins without prefunding.

Open banking competition arises as Wells Fargo, Bank of America and other major banks aim to enable Zelle for retail

Wells Fargo and Bank of America are reported to be among major banks considering plans to enable Zelle, a US-based digital payments company, for online retail payments at large merchants, according to The Wall Street Journal.

Some JPMorgan executives stated it is not the right time to make such a plan and that Zelle should focus on protecting against the rampant consumer fraud on the peer-to-peer (P2P) payment network. According to The New York Times, the regulations are not clear on individuals obtaining reimbursement for fraudulent charges.

However, other banks support the plan because they can set their own rules and fees for accepting payments. The report further stated that these banks can participate in the program individually, but they must obtain a vote from Zelle owners before activating the service across the network. Zelle is operated by Early Warning Services LLC, a private financial services company owned by seven banks: JPMorgan, Bank of America, Wells Fargo, Truist, Capital One, PNC Bank, and U.S. Bank.

With growing Zelle adoption, Insider Intelligence forecasts that the number of users is expected to increase by 13.8% year-on-year to reach 61.6 million in 2022. However, card payments still dominate and are expected to account for 84.5% of this year's digital retail and hospitality transactions. Additionally, banks already earn billions of dollars on card transactions via merchant fees set by Visa and Mastercard payments, unlike with current Zelle transactions, leading to questions about why banks would want to move in this direction.

The report discussed that retail Zelle payments may be closely linked to open banking. Retailers using Zelle would enable their consumers to make payments directly from their bank account, and in some cases via bank login. This payment process is similar to open banking providers facilitated by Plaid, Mastercard-owned Finicity, and Visa-owned Tink. These providers are said to use customer-approved bank data to support a wide range of financial services, which reports state may pose a threat to bank-customer relationships and data ownership.

According to Juniper Research, the value of global payment transactions facilitated by open banking will increase from nearly $4 billion in 2021 to over $116 billion by 2026. Insider Intelligence stated that open banking-enabled payments and financial services become more widespread, banks may want to protect themselves from future disintermediation, which could occur as Visa, Mastercard, and other fintechs use open banking data and customer relationships to their advantage.

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