MARCH 2021
AMEIS REGFACTS FINTECH - Related Regulatory & Compliance News
In This Issue : CSA'Proposal to Narrow the Scope of Information Required as Part of Registration Process............................................................1 CSA Released Disclosure Guidance for Crypto Assets Reporting Issuers...............................................................................................3 FATF Revised Draft Guidance on Virtual Assets and VASPs ........4 FATF' Guidance for Risk-based Approach for Supervision and Enforcement by AML/CFT Supervisors...........................................5 EBA publishes final revised Guidelines on ML/TF risk factors.........................................................,......................................5 ECON Published Draft Report on DLT Market Infrastructures Pilot Regime...............................................................................................6
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CSA' Proposal to Narrow the Scope of Information Required as Part of Registration Process On February 4, the Canadian Securities Administrators (CSA) published proposed amendments to NI 33-109 and its Companion Policy (NI 33-109CP) (collectively, the Proposed Amendments) intended to provide “greater clarity on what information is required as part of the registration process”. The proposed amendments will help Regulated Persons (i.e. individuals and firms) provide complete and accurate registration information while allowing the CSA to receive the information necessary to carry out its mandates. The CSA seek to address issues identified by its staff and respond to concerns raised by Regulated Persons.
Key takeaways Outside Activities and positions of influence Currently, Individual Registrants are required to disclose “any employment and business activities outside the sponsoring firm”. To ensure that Regulated Persons comply efficiently and in a timely manner to the requirements relating to the disclosure of outside activities, the CSA proposed, among other things, to establish 6 categories of Outside Activities that must reported to regulators including: Activities with another registered firm. Other securities related activities. Provision of financial or financial related services. The CSA also proposed to extend the deadline for reporting new Outside Activities or changes in Outside Activities to 30 days. Reporting deadlines The current rules require Regulated Persons to inform regulators of changes to registration information within 10 calendar days of the change. Because Regulated Persons, especially larger firms with numerous Individual Registrants, has raised concerns about the challenge in complying with this reporting timeline, the CSA proposed to extend the reporting deadlines from 10 days to 15 days for changes in certain registration information. 1
To extend the reporting deadline from 10 days to 30 days for changes for certain information including: An Individual Registrant’s current and previous residential address; Outside Activities; A registered firm’s securities registration; A registered firm’s conflicts of interest. Regulatory burden of certain reporting requirements To reduce regulatory burden related to reporting requirements the CSA proposed, among others, to: Reduce the requirement for reporting changes in percentage ownership on an ownership chart to when the percentage ownership exceeds or falls below 10%, 20%, or 50%. Provide a mechanism for a registered firm to delegate to another registered firm the requirement to notify the regulator of changes in certain registration information. Common errors and updated certification requirements Currently, information provided to regulators by Regulated Persons in the Registration Form must be true and complete. To reduce the regulatory burden caused by issues related to inaccurate or incomplete information, the CSA proposed to provide guidance regarding the completion of the Registration Forms including clarify what registration information must be disclosed in the Individual Registration Form. Privacy notice and consent The CSA proposed to update the notice of use and collection of personal information in each of the Registration Forms and improve readability. These Proposed Amendments are scheduled to come into force at the end of 2021, with the changes relating to positions of influence subject to a six-month transition period. Comments on the Proposed Amendments are to be provided by May 5, 2021.
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CSA Released Disclosure Guidance for Crypto Assets Reporting Issuers On March 11, the Canadian Securities Administrators (CSA) released CSA Staff Notice 51-363 Observations on Disclosure by Crypto Assets Reporting Issuers (the Notice) to provide guidance to reporting issuers (other than investment funds) that engaged in crypto assets via mining and/or the holding/trading of those assets in meeting their ongoing continuous disclosure obligations. The CSA guidance relating to disclosure include: Safeguarding of Crypto Assets: the CSA outlined crypto issuers can expect CSA staff to focus its reviews on disclosures of these controls. Relevant controls may include, among other things, multi-signature wallets, safeguarding of private keys, the use of “cold wallets” and frequent monetization of crypto Key takeaways assets into fiat currency. Use of Crypto Asset Trading Platforms: issuer relying on a crypto asset trading platform to hold their crypto assets, must disclose, at a minimum, all the items referenced in the “Safeguarding of Crypto Assets” section of the Notice when using third party custodians. Description of business should be ‘sufficiently detailed to enable investors to make informed decisions about whether to buy, sell or hold the issuer’s securities’. Risk factors disclosures should be ‘specific and sufficiently tailored to the risks that relate to the issuer and its business’ as the risks of holding cryptocurrencies such as bitcoin or Ether may be significantly different from investments in other digital assets. Material changes report: for an event that is considered as a material change (see example provided by the CSA), issuers are required to immediately issue and file a news release disclosing the nature and substance of the change within 10 days of the date on which the change occurs. Investment fund requirements: where relevant issuers must consider to apply some of the requirements concerning investor protection under the investment funds regime prior to the issuance of a prospectus receipt. This Notice should be carefully considered by Crypto issuers considering filing a prospectus or entering into a restructuring transaction to enter the Canadian public markets. 3
FATF Revised Draft Guidance on Virtual Assets and VASPs On March 19, 2021, the Financial Action Task Force (FATF) released a public consultation for its updated and finalised Draft Guidance on a risk-based Approach to Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs). The Draft Guidance was originally published in June 2019 to clearly place antimoney laundering and countering the financing of terrorism obligations on VAs and VASPs. The updated Drafted Guidance include the following key changes: Clarification of the definitions of VAs and VASPs: the FAFT excluded explicitly from the definitions of VAs, a bank record maintained in digital format that Key takeaways represents a customer’s ownership of fiat currency. Meaning that central bank digital currencies (CBDCs) are not to be considered as virtual assets. Guidance on how the FATF standards apply to so-called stablecoins: with an emphasis places on ML/TF risks of so-called stablecoins that can be used for P2P transactions. The FATF recommended that the risks related to these products be mitigated before such arrangements are launched. Guidance on the risks and potential risk mitigants for peer-to-peer transactions: with the recommendations for countries to seek to understand the ML/TF risks related to P2P transactions and how P2P transactions are being used in their jurisdiction in order to limit their exposure to the latter. Measure that can be taken by countries include denying licensing of VASPs if they allow transactions to/from non-obliged entities (i.e., private / unhosted wallets). Guidance on the licensing and registration of VASPs: with the recommendation that VASPs should be, at a minimum, required to be licensed or registered in the jurisdiction(s) where they are created. The consultation is open for comments until 20 April 2021.
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Global/FATF Guidance for Risk-based Approach for Supervision & Enforcement by AML/CFT Supervisors On 4 March 2021, The Financial Action Task Force (FATF), published a new guidance document in its efforts to promote risk-based supervision.
Developing an in-depth understanding of the risks that their regulated entities face, is deemed critical to effective supervisory approaches and the guidance sets forth standards for a risk-based approach and strategies to address common challenges in risk-based supervision.
The FATF document includes high level guidance on risk based-supervision that are in line with he FATF standards, strategies to address common challenges in risk-based supervision as well well jurisdictional examples. In addition, the guidance provides various examples from across the global network of countries, in particular on approaches related to Financial Institutions, Money Value Transfer Services (MVTS), Designated Non-Financial Business and Professions (DNFBP), Virtual Asset Service Providers (VASPs), and supervision in the COVID-19 context.
EU/EBA Publishes Final Revised Guidelines on ML/TF Risk Factors March 1st, the European Banking Authority (EBA) published its final guidelines on money laundering and terrorist financing (ML/TF) risks factors. Drawing on information provided by competent authorities (CAs), among others, the EBA opinion examines diverse risks and proposals for addressing these risks, including: Risks associated with virtual currencies Risks associated with the provision of financial products and services through FinTech firms Risks arising from weaknesses in CFT systems and controls Risks arising from de-risking Risks arising from supervisory divergence Risks associated with crowdfunding platforms Risks arising from divergent approaches to tackling tax-related crimes Risks arising from the COVID-19 pandemic The EBA outlines that in accordance with article 14(5) AMLD, firms need to apply customer due diligence measures to new and also existing customers at appropriate times on a risk sensitive basis, or when circumstances change. Thus, the revised Guidelines is applicable to new customers as well as to existing customers. 5
EU/ECON Published Draft Report on DLT Market Infrastructures Pilot Regime On 9 March 2021 the European Parliament's Committee on Economic and Monetary Affairs published a draft report setting out recommendations to the European Commission on a pilot regime for market infrastructures based on distributed ledger technology (DLT). A DLT market infrastructure is defined as a DLT multilateral trading facility (DLT MTF), a DLT securities settlement system (DLT SSS) or a DLT trade and settlement system (DLT TSS). As per amendment 7, the pilot regime should allow DLT market infrastructures to be temporarily exempted from specific requirements under financial services legislation that would "otherwise prevent them from developing solutions for the trading and settlement of transactions in cryptoassets that quality as financial instruments". The pilot regime would also enable authorities to develop experience on the opportunities and the Key takeaways specific risks created by crypto-assets.
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Complex landscape & widening gaps
We help you understand the rules that govern your activites, services and products, enabling you to meet your ongoing regulatory obligations and navigate the ever-evolving, complex regulatory landscape.
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Carolyn Le Quéré carolyn.lequere@ameiscorp.com
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