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New York Attorney General proposes cryptocurrency regulations - Industry roundup: 10 May

Major banks bolster global blockchain network of networks for institutional assets

Several market participants have announced plans to launch the Canton Network, the finance industry’s first privacy-enabled interoperable blockchain network designed for institutional assets and built to unlock the potential of synchronised financial markets responsibly. 

Canton Network participants include 3Homes, ASX, BNP Paribas, Broadridge, Capgemini, Cboe Global Markets, Cumberland, Deloitte, Deutsche Börse Group, Digital Asset, The Digital Dollar Project, DRW, Eleox, EquiLend, FinClear, Gambyl, Goldman Sachs, IntellectEU, Liberty City Ventures, Microsoft, Moody’s, Paxos, Right Pedal LendOS, S&P Global, SBI Digital Asset Holdings, Umbrage, Versana, VERT Capital, Xpansiv, and Zinnia.

The Canton Network will provide a decentralised infrastructure that connects independent applications built with Daml, Digital Asset’s smart-contract language. It creates a ’network of networks’, allowing previously siloed systems in financial markets to interoperate with the appropriate governance, privacy, permissioning and controls required for highly regulated industries. The Canton Network enables financial institutions to experience a safer and reconciliation-free environment where assets, data, and cash can synchronise freely across applications. This creates opportunities for financial institutions to offer new innovative products to their clients while enhancing their efficiency and risk management.

For example, asset registers and cash payment systems are distinct and siloed in today’s markets. With the Canton Network, a digital bond and a digital payment can be composed across two separate applications into a single atomic transaction, guaranteeing simultaneous exchange without operational risk. Likewise, a digital asset could be used in a collateralised financial transaction via connection to a repo or leveraged loan application.

Until now, smart contract blockchain networks have not achieved meaningful adoption among financial institutions and other enterprises because of three significant shortfalls:

  1. The lack of privacy and control over data: other chains have shortcomings around privacy that prevent the use of the technology by multiple regulated participants on the same network. There are currently no other blockchains that can offer data protection or control at any layer of its network.
  2. Other blockchains have had to accept trade-offs between control and interoperability: other chains require operators to forfeit their full control of applications by using a shared pool of validators to gain interoperability.
  3. The inability to scale: with applications competing for global network resources and the inherent capacity limitations caused by how public blockchains operate, achieving the scale and performance financial institutions need remains challenging.

The Canton Network aims to remove these obstacles by uniquely balancing the decentralisation of a network with privacy and control essential to operating within a safe and sound regulatory environment. Network participants can safeguard permissions, exposure, and interactions across the network, to comply with security, regulatory and legal requirements.

The network can connect existing blockchain solutions, such as Deutsche Börse Group’s D7 post-trade platform and Goldman Sachs’ GS DAP, while retaining privacy and permissioning. As more Daml-built applications go into production this year and beyond, the number of connections on the Canton Network will grow exponentially. For example, one application’s monthly notional traded exceeds the most active crypto token volumes.

In July, Canton Network participants will begin testing interoperability capabilities across various applications and use cases.

“The Canton Network vision strives to enable seamless connectivity across various blockchain networks in the industry,” commented Jens Hachmeister, Head of Issuer Services & New Digital Markets at Deutsche Börse Group. “Such solutions are a key building block for future digital and distributed financial market infrastructures.”

Trovata launches generative AI treasury and finance tool

Trovata has announced what it claims is the first generative AI entrant in the fintech space. Trovata AI leverages OpenAI’s ChatGPT technology to accelerate the company’s vision of automating cash workflows and business intelligence for corporate finance, accounting and treasury departments. The company is rolling out a beta of Trovata AI to selected customers from this month. 

With the onset of generative AI providing unprecedented inspiration and automation to text-based tasks, it has lacked an entry point into the finance industry due to fears of inaccuracies in financial modelling and mathematical calculation. Trovata has developed a patent-pending formulation methodology for prompting that allows ChatGPT to use Trovata’s analytics and data APIs while maintaining security and privacy. Its open finance platform works in concert with OpenAI’s Large Language Model (LLM) to combine the answers that ChatGPT can provide with the analytics from finance and treasury tools and the context of bank and other financial data it aggregates, stores, and manages for its customers. The feature enables customers to complete scenario planning, answer complex questions, or compile financial reports nearly instantaneously. 

Examples of the open-ended and complex questions that customers can ask include:

  • “Give me a report showing all of my company’s cash outflows by cash flow type.” 
  • “Provide me with a list of cash inflows in US$ greater than $10,000 for the past month in descending order.”
  • “What is our company’s cash high and low point in total across all banks and bank accounts in the last 12 months?”
  • “What is our company’s burn rate for the past 12 months?”
  • “Build me an FBAR report in a format I can file that meets IRS guidelines.”

The tool can also handle follow-up questions, such as requests for the data to be reformatted to be rounded to the nearest whole, or to put a table into a stacked bar chart, for example. The company plans to continue to iterate on the product and use its machine learning (ML) capabilities to accelerate improvements over time.

“The economic environment is rapidly shifting and finance teams are under more pressure than ever to provide business intelligence and manage their cash effectively, but they have few real tech-driven resources to help them do that,” said Brett Turner, founder and CEO of Trovata. “Trovata AI completely changes that, helping finance teams operate with great leverage and proactivity while still managing business risk.”


New York Attorney General proposes cryptocurrency regulations

New York Attorney General Letitia James has announced landmark legislation to tighten regulations on the cryptocurrency industry to protect investors, consumers, and the broader economy. The AG says that the multi-billion-dollar industry lacks robust regulations, making it prone to dramatic market fluctuations, and has been used to hide and facilitate criminal conduct and fraud. Attorney General James’ program bill aims to increase transparency, eliminate conflicts of interest, and impose “common sense” measures to protect investors, consistent with regulations imposed on other financial services.

The bill would require independent public audits of cryptocurrency exchanges and prevent individuals from owning the same companies, such as brokerages and tokens, to stop conflicts of interest. Crypto platforms would also have responsibilities to customers similar to banks under the federal Electronic Fund Transfer Act by requiring platforms to reimburse fraud victims. The bill would also strengthen the New York State Department of Financial Services’ (DFS) regulatory authority of digital assets.

“Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry,” said Attorney General James. “New York investors should have the peace of mind that there are safeguards in place to protect them and their money. All investments are regulated to account for every penny of investors’ money - cryptocurrency should be no exception. These common sense regulations will bring more transparency and oversight to the industry and strengthen our ability to crack down on those that don’t pay respect to the law.”

A study by the JPMorgan Chase Institute on investments made before the 2022 collapse in cryptocurrency values found that lower-income households bought crypto at substantially higher prices. As a result, those lower-income households bore a disproportionate share of the losses when the bubble burst.

Additionally, as cryptocurrency investments have been marketed directly to minority communities, the people most susceptible to fraud and losing significant funds due to financial collapses are disproportionately vulnerable and marginalised Americans. The bill seeks to protect New York investors by bringing regulations and oversight applied to other financial services to the cryptocurrency industry and addressing risky practices unique to crypto.

The bill would stop conflicts of interest in the industry by preventing common ownership of crypto issuers, marketplaces, brokers, and investment advisers and preventing any participant from engaging in more than one of those activities. It would also prevent crypto brokers and marketplaces from trading for their own accounts and prohibit marketplaces and investment advisers from keeping custody of customer funds. Brokers would also be prohibited from borrowing or lending customer assets, and referrals from marketplaces to investment services for compensation would be banned.

To increase industry transparency, the bill would require companies to undergo mandatory independent auditing and publish audited financial statements, provide investors with material information about issuers, including risks and conflict-of-interest disclosures, and require marketplaces to establish and publish listing standards. It would also require cryptocurrency promoters to register and report their interest in any issuer whose crypto assets they promote.

To bolster investor protections, the bill sets out to enact and codify KYC provisions, meaning brokers would have to know essential facts about their customers, and requiring crypto brokers and marketplaces to only conduct business with firms that comply with KYC provisions. It would also ban using the term “stablecoin” to describe or market digital assets unless they are backed 1:1 with US currency or high-quality liquid assets as defined in federal regulations. In addition, it would require platforms to reimburse customers who are the victims of unauthorised asset transfers and transfers resulting from fraud.

The bill would grant the Attorney General jurisdiction to enforce any violation of the law, issue subpoenas, impose civil penalties of US$10,000 per violation per individual or US$100,000 per violation per firm, collect restitution, damages, and penalties, and shut down businesses engaging in fraud and illegality. The bill would also codify DFS’s authority to license digital asset brokers, marketplaces, investment advisors, and issuers prior to engaging in business in New York and allow DFS to oversee the digital asset licensing regime.

This program bill will be submitted by OAG to the State Senate and Assembly for their consideration during the 2023 legislative session.


Standard Chartered targets seamless cross-border e-commerce payments with Tazapay

Standard Chartered and global payments platform Tazapay have announced a global partnership to deliver payments and commerce-enabling experiences as part of the bank’s broader initiative to provide curated financial services on B2B platforms.

This builds on the memorandum of understanding signed between the two organisations in May 2021 and the pilot launch of the digital Escrow-as-a-Service (EaaS) on Proxtera, a Singapore-based cross-border marketplace, in addition to collaborating with select B2B marketplace clients as pilot engagements.

The pair’s purpose-built proposition allows global marketplaces and e-commerce merchants to accept payments from buyers locally in more than 70 markets based on their preferred payment method via a single API, offering a cost-effective and frictionless checkout (Tazapay Checkout) experience when settling cross-border commercial transactions.

Tazapay Checkout comes with buyer protection that helps enhance the commercial trust between the buyer and seller. Buyer protection is built upon the EaaS service, with the ability to include document verification (for example, shipping proof) and customised payment release only when transactions are completed. The partnership further enables B2B marketplaces to onboard third-party sellers across 170 markets.

The organisations have further strengthened the partnership with deeper integration of the processes and technologies to deliver these composable solutions. Tazapay can now leverage Standard Chartered’s banking services, including bank accounts, payment acceptance, payouts and FX solutions. The partnership will focus on clients across the bank’s network.


Bank of America launches transaction banking operations in Luxembourg 

Bank of America has opened a new branch in Luxembourg, meaning that it can support corporate, commercial and non-bank financial institution (NBFI) clients with setting up local bank accounts and provide in-country transaction banking products and services. With Luxembourg being the world’s second largest investment fund centre behind the US, the bank says it will deepen its global cash management services to these NBFIs.

“The opening of the Luxembourg branch demonstrates our ongoing commitment to supporting clients in key countries where they have cash management requirements and providing strategic advice with building resilient enterprises,” said Matthew Davies, head of Global Transaction Services (GTS), EMEA and Global co-head of Corporate Sales, GTS, Bank of America.

Bank of America’s GTS business drives over 10% of the bank’s firm-wide revenue and is responsible for around a third of deposits. Clients access a suite of treasury services on a single platform that is marketed as globally connected and locally relevant.


Bank of Canada launches public consultations on a digital dollar

The Bank of Canada is launching an online public consultation on the features that could be included in a digital Canadian dollar. The consultation is open now and runs until 19 June.

The way Canadians pay for everything from daily necessities to major purchases is evolving rapidly. As the world becomes increasingly digital, the Bank - like many other central banks - is exploring a digital version of Canada’s national currency.

“As Canada’s central bank, we want to make sure everyone can always take part in our country’s economy,” explained Senior Deputy Governor Carolyn Rogers. “That means being ready for whatever the future holds.”

In a statement, the Bank noted that, at this time, a digital Canadian dollar is not needed and any decision to issue one rests with Parliament and the Government of Canada. A Canadian digital dollar issued by the Bank would have to be designed to serve Canadians’ needs, which is why the Bank is holding this online consultation: to understand which features are most important to Canadians. The Bank is also seeking opinions about topics related to a digital dollar, such as:

  • How people would likely use it.
  • What security features are important.
  • What concerns you have about accessibility and privacy.

The Bank will publish a report summarising this consultation later this year.


BNP Paribas integrates with Bloomberg AIM to enhance post-trade workflows

BNP Paribas’ Securities Services business and Bloomberg have announced an integration that combines BNP Paribas’ multi-asset servicing capabilities with Bloomberg AIM, the buy-side order management system. The solution aims to provide mutual clients with seamless front-to-back workflows and standardised data connectivity to support efficient trade management.

The offering delivers real-time post-trade workflows, enhanced by the bank’s middle office outsourcer data, utilising seamless connectivity from automated trade instruction capture, to status update and end-of-day recaps. Clients should benefit from increased transparency along the transaction lifecycle while reducing manual touchpoints and minimising post-trade risk and costs.

Italian fund management firm Arca Fondi SGR has become the first BNPP client to use the solution.

“The new workflow has significantly improved the efficiency of our trade management,” commented Ugo Loeser, CEO of Arca Fondi SGR. “Our collaboration with international partners in developing new technologies allows us to offer an ever-growing range of value-added services to our network of distributors and customers.”


UK SME confidence makes a cautious comeback

There are signs of confidence returning to the UK’s 5.5 million small and medium-sized businesses and the lending market they rely on, iwoca’s latest SME Expert Index has found. The research, carried out with over one hundred SME finance brokers who collectively submitted over 2,500 SME finance applications in March, reveals that worries about a recession are at their lowest level in a year. While three in five (63%) brokers reported concerns from SMEs about a future recession, this is down from a high point of nearly four in five (77%) in Q2 2022. 

Worries about recession have also dropped from being SMEs’ second biggest overall concern to their fourth, since Q4 2022, with half the amount of brokers selecting it as the top concern compared to last quarter (6% down from 12%). Mirroring this cautious optimism, the data finds that growth was the most common reason for SME loan applications, according to over half (52%) of brokers.  

Nearly half (45%) of brokers have seen increases in the number of loans they are applying for on behalf of SME clients. By contrast, just over one in ten (14%) brokers reported a reduction in loan applications.

While the first dataset from brokers in 2023 shows signs of confidence, challenges remain for small and medium-sized businesses operating across the UK. Three-quarters (75%) of brokers said that the SMEs they work with are concerned about their business surviving the increasing costs of energy prices. 

More than half (52%) of the brokers surveyed reported either increased business running costs or inflation as the top current concern for SMEs, up significantly from just a third (34%) reporting the same in Q4 22. By comparison, inflation did not feature in the top five concerns in Q4 22, with only 2% of brokers citing it.

Increasing costs were the most selected concerns by a long way, with far fewer brokers selecting other options such as access to finance (9%), higher interest rates (9%), recession (6%), ability to hire or retain staff (6%) or something else. These fears coincide with the latest inflation figures from the Bank of England - the UK is experiencing a 10.1% inflation rate, five times the official 2% target. 

Small businesses are also worried about the support available to them. Just two in ten (22%)  brokers think the fiscal measures announced by the Chancellor in the Spring Budget will positively impact SMEs.

Despite more SMEs applying for loans to grow their businesses and concerns about a recession receding, data from brokers shows that a challenging lending environment remains. More than three in four (77%) report that high street banks are reducing their appetite to fund SMEs. Similarly, four in ten (39%) brokers have seen an increase in rejections of their clients’ applications for finance over the last quarter. 


Bankwest and CBA unveil Perth Tech Hub

The Commonwealth Bank Group has unveiled its latest technology hub in Perth as part of its broader strategy to contribute to Australia’s digital economy and support a diverse pipeline of technology talent.

CBA’s Tech Hub program has been established to diversify the concentration of tech professionals outside of Sydney CBD, with the Bankwest and CBA Perth Tech Hub joining previously launched hubs in Melbourne, Adelaide and Brisbane.

The Perth Tech Hub will offer employment opportunities across data science, cybersecurity, and software engineering, and deliver projects that benefit CBA and Bankwest customers, colleagues and the communities in which they operate. 

As part of its commitment to fostering future technology talent, the CBA Group has partnered with two major WA academic institutions - The University of Western Australia and Curtin University - and will provide valuable career experience for the next generation of technology professionals.

Brendan Hopper, Chief Information Officer for Technology at Commonwealth Bank, said the Bankwest and CBA Perth Tech Hub demonstrates CBA’s commitment to driving technological advancement nationwide as it expands its skilled team of tech professionals in Western Australia.

“Our latest technology hub in Perth will provide an innovative and collaborative space for highly skilled technologists, passionate engineers, analysts and developers,” said Hopper. “It underpins the Group’s more than AU$1bn a year tech investment in supporting the digitisation of the Australian economy. This includes our nationwide technology hub strategy and our commitment to building world-class engineering capability.”

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