Yesterday we published Peter Oakes' presentation on fintech at the Financial Services Ireland event in Dublin.  Mr Oakes' presentation is here.

Earlier today (29 May 2015) the Central Bank published the speech given yesterday by Bernard Sheridan, Director of Consumer Protection at the Central Bank of Ireland.  Click here for the speech.

A couple of points to note, Mr Oakes and Mr Sheridan were on a four person panel together with Colm Lyons (PaywithFire), and hosted by Marc Coleman, Director of Financial Services Ireland.  As the event was a private event we will not disclose the content of discussions but rather point to information in the public domain.  

A few points to note:

• Mr Oakes and Mr Sheridan are former colleagues at the Central Bank of Ireland where Mr Oakes was the Director of Enforcement and Financial Crime and Mr Sheridan is Director of Consumer Protection.  Mr Oakes was a member of the Senior Management (Leadership) Committee and also sat on the Policy and Supervisory Risk Committees of the Central Bank together with being members of other Central Bank fora.  
  
• In an article appearing in the Sunday Business Post on 12 April 2015, Mr Oakes was quoted as saying 

1. 'The perception is that the Central Bank is not a great regulator to deal with from the startup scene, or if you’re moving into the financially regulated space,” said Peter Oakes, who is driving the Fintech Ireland project'.
   
2. 'People feel there’s no clarity around timelines to get regulated. That hurts us in two ways. One, people will drop out and choose another jurisdiction, and two, rumours and stories are going around international financial markets that it’s best to avoid Ireland.'
   
3. 'Every jurisdiction in fintech is going to have its own angle, but unless Ireland is out there telling its story, nobody’s going to know about it, and we’re not going to get the business. That’s the real issue.'
   

• See our previous post here and click here for a copy of the article in the Sunday Business Post (twitter @jackhojo)

• The above points were addressed by the Central Bank in its speech.  Our feedback together with that of others has been heard by the Central Bank and yesterday's statements are very reassuring. If you are interested in the Central Bank's authorisation process and how it relates to Fintech, note the following from the Central Bank:

• "Our authorisation process is subject to on-going review and we have been considering how we can move to a more effective and facilitative approach to progressing applications which meet the authorisation standards.  Feedback received from a number of sources has been useful in helping us review and refine our approach.  We have identified a number of key principles to underpin our authorisation approach and specific areas which we believe will assist us in moving to a speedier, more streamlined and effective authorisation model including:

1. Accessibility – we will be offering potential applicants the option of an initial meeting with us to discuss the application process and key areas that need to be addressed in any formal application. This is designed to enable firms to focus on making their formal application rather than engaging with us on specific details in a pre-application process. We will also continue to deal with questions/queries from applicants during the authorisation process should they arise.
2. Transparency - we will be further streamlining the authorisation process to ensure that all applicants have a better sight and understanding regarding the authorisation process and, importantly, the stage that their application is at and the next steps in progressing the application.
3. Timelines – following the receipt of an application, we will be clearer with applicants on the expected timelines involved in reviewing their application.

• We will continue to review the effectiveness of this approach in order to ensure it is working to achieve all of our objectives."  HTML version of speech here
  

Slides from Peter Oakes' presentation (founder of Fintech Ireland*) at Financial Services Ireland  on 28 May 2015 are available here.  Peter covered topics of:

• What is FinTech
• How big is Fintech
• Recent regulatory developments in Australia, UK and Ireland
• A look at the impact of the Payment Services Directive and the number of e-money and Payment Institutions authorised in Europe 
• The way the Central Bank of Ireland looks at risk through PRISM
• Recent comments by former European Commissioner for Internal Market and Services (Charlie McCreevey) on what the Commission intended when it passed the PSD 

Thanks to the Financial Services Ireland for arranging this great event.   

*Fintech Ireland (CRO 523657) is registered with the Companies Registration Office

www.fintechireland.com

Thanks to Gavin Fox, Associate Director at Harvey Nash for sending us information on the 2015 CIO Survey, the largest study of IT leadership in the world. It is considered one of the most respected reports of its kind in the world and according to CIO Magazine’s UK editor is “one of the most reliable surveys of CIO sentiment”.  The Harvey Nash CIO Survey 2015, in association with KPMG has been released and Harvey Nash Ireland is launching its event on the 25th of June 2015.  The CIO Survey represents almost 4,000 IT leaders from more than 30 countries, with a combined tech spend of well over $200bn and believed to be the largest survey of IT leaders ever conducted; AND in 2015 is being conducted in close association with KPMG.  

For more: [email protected] phone +353 1 6741412 / +353 87 9210304 www.harveynash.com 

If you are doing something interesting and meaningful in #fintechreland, drop us a line at [email protected] or click on 'Get Involved'    

“Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.”

The digital currency world was hit by another shock today (5 May 2015) by law enforcement officials.  This was not another Silk Road or Darknet raid, nor thecollapse of a bitcoin exchange.  Rather, similar to cases of 'traditional' financial services firms, today's shock was delivered by the U.S. FINCEN which fined Ripple Labs Inc ('Ripple') $700,000.

Working in coordination with the U.S. Attorney's Office the civil money penalty against Ripple and its wholly-owned subsidiary, XRP II, LLC arose because they "willfully violated several requirements of the Bank Secrecy Act (BSA) by acting as a money services business (MSB) and selling its virtual currency, known as XRP, without registering with FinCEN".  Other civil actions enforced included failing to implement and maintain an adequate anti-money laundering (AML) program designed to protect the products from use by money launderers or terrorist financiers. According to FINCEN, XRP II later assumed Ripple's functions of selling virtual currency and acting as an MSB and in doing so willfully violated the BSA by failing to implement an effective AML program, and by failing to report suspicious activity related to several financial transactions.

In a statement crafted to address both FINCEN's objectives and recognition of these new financial services products, Director Jennifer Shasky Calvery stated that “Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws”.  The statement was also crafted to acknowledge innovation by firms such as Ripple but carried with it a warning that “Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.”

The regulatory message from FINCEN is short and simple - together with the privilege of providing financial services to the marketplace goes the obligation to conduct your activities in accordance with public policy.

FinCEN's assessment is concurrent with the USAO-NDCA's announcement of asettlement agreement with Ripple and XRP II. In that separate settlement, the companies resolved possible criminal charges and forfeited $450,000. The $450,000 forfeiture in that action will be credited to partially satisfy FinCEN's $700,000 civil money penalty. A Statement of Facts and Violations, describing the underlying activity and details of the BSA violations, is incorporated into FinCEN's assessment as well as the USAO-NDCA's settlement.

Both actions were accompanied by an agreement by Ripple and XRP II to engage in remedial steps to ensure future compliance with AML/CFT obligations, as well as enhanced remedial measures. Among these steps are agreements:

• to only transact XRP and “Ripple Trade” activity through a registered MSB
• to implement and maintain an effective AML program
• to comply with the Funds Transfer and Funds Travel Rules
• to conduct a three-year “look-back” to require suspicious activity reporting for prior suspicious transactions, and
• to retain external independent auditors to review their compliance with the BSA every two years up to and including 2020.

Under the agreement, Ripple must undertake certain enhancements to the Ripple Protocol to appropriately monitor all future transactions.

FINCEN took the opportunity of the announcement to again set out its mission statement, i.e. to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.  In doing so it enlisted the help of both Ripple and its subsidiary by having them publicly acknowledge that digital currency providers have an obligation not only to refrain from illegal activity, but also to ensure they are not profiting by creating products that allow would–be criminals to avoid detection.

Time will tell if FINCEN has been successful driving home at least one important policy objective by the taking of this action, namely, the setting of an industry standard in the important new space of digital currency.

One thing is for certain.  Credit institutions, i.e. banks, will no doubt subject digital currency businesses to greater scrutiny and where they were previously mindful of providing banking solutions some may find it tempting to point to a regulatory action to justify their lack of risk appetite for supporting the digital currency industry. 

Towards the end of the FINCEN announcement, Richard Weber, Chief, IRS Criminal Investigation pulls out a highly favoured analogy from the generic law enforcement officers' handbook (disclosure: I am a former enforcement director) reserved for those considered to be playing fast and loose with the law - i.e. the infamous Wild West: “Unregulated, virtual currency opens the door for criminals to anonymously conduct illegal activities online, eroding our financial systems and creating a Wild West environment where following the law is a choice rather than a requirement.”

Ripple being the second-largest cryptocurrency by market capitalisation after Bitcoin is probably the most expeditious and efficient way for law enforcement to demonstrate its muscle over virtual currencies in one place. To achieve a similar outcome across the broader bitcoin industry would require much more effort, resources and coordination.   To those working in the digital currency field it's probably a good idea to (re)review FinCEN's guidance on both the applicability of BSA regulations and requirements for virtual currency participants (e.g. currency exchangers and administrators) to register as MSBs 

The author's most recent regulator role was as the first Director of Enforcement at the Central Bank of Ireland (2010-2013).  He has also previously advised bitcoin firms on regulatory requirements under European Union Directives.

If you like this post, feel free to send me a connection request at https://ie.linkedin.com/pub/peter-oakes/12/650/b20 and/or get involved