International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, August 15, 2017

Uber Settles FTC Allegations that It Made Deceptive Privacy and Data Security Claims

Uber Technologies, Inc. has agreed to implement a comprehensive privacy program and obtain regular, independent audits to settle Federal Trade Commission charges that the ride-sharing company deceived consumers by failing to monitor employee access to consumer personal information and by failing to reasonably secure sensitive consumer data stored in the cloud.

In its complaint, the FTC alleged that the San Francisco-based firm failed to live up to its claims that it closely monitored employee access to consumer and driver data and that it deployed reasonable measures to secure personal information it stored on a third-party cloud provider’s servers.

“Uber failed consumers in two key ways: First by misrepresenting the extent to which it monitored its employees’ access to personal information about users and drivers, and second 1024px-US-FederalTradeCommission-Seal.svgby misrepresenting that it took reasonable steps to secure that data,” said FTC Acting Chairman Maureen K. Ohlhausen. “This case shows that, even if you’re a fast growing company, you can’t leave consumers behind: you must honor your privacy and security promises.”

In the wake of news reports alleging Uber employees were improperly accessing consumer data, the company issued a statement in November 2014 that it had a “strict policy prohibiting” employees from accessing rider and driver data – except for a limited set of legitimate business purposes – and that employee access would be closely monitored on an ongoing basis.

In December 2014, Uber developed an automated system for monitoring employee access to consumer personal information, but the company stopped using it less than a year after it was put in place. The FTC’s complaint alleges that Uber, for more than nine months afterwards, rarely monitored internal access to personal information about users and drivers.

The FTC’s complaint also alleges that despite Uber’s claim that data was “securely stored within our databases,” Uber’s security practices failed to provide reasonable security to prevent unauthorized access to consumers’ personal information in databases Uber stored with a third-party cloud provider. As a result, an intruder accessed personal information about Uber drivers in May 2014, including more than 100,000 names and driver’s license numbers that Uber stored in a datastore operated by Amazon Web Services.

The FTC alleges that Uber did not take reasonable, low-cost measures that could have helped the company prevent the breach. For example, Uber did not require engineers and programmers to use distinct access keys to access personal information stored in the cloud. Instead, Uber allowed them to use a single key that gave them full administrative access to all the data, and did not require multi-factor authentication for accessing the data. In addition, Uber stored sensitive consumer information, including geolocation information, in plain readable text in database back-ups stored in the cloud. 

Under its agreement with the Commission, Uber is:

  • prohibited from misrepresenting how it monitors internal access to consumers’ personal information;
  • prohibited from misrepresenting how it protects and secures that data;
  • required to implement a comprehensive privacy program that addresses privacy risks related to new and existing products and services and protects the privacy and confidentiality of personal information collected by the company; and
  • required to obtain within 180 days, and every two years after that for the next 20 years, independent, third-party audits certifying that it has a privacy program in place that meets or exceeds the requirements of the FTC order.

The Commission vote to issue the administrative complaint and to accept the consent agreement was 2-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through September 15, 2017, after which the Commission will decide whether to make the proposed consent order final.

Interested parties can submit comments electronically by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $40,654.

August 15, 2017 in Financial Regulation | Permalink | Comments (0)

Monday, August 14, 2017

PHH Pays $74 Million for False Claims Act Liability Arising from Mortgage Lending, Whistleblower Earns $9 Million.

PHH Corp. PHH Mortgage Corp. and PHH Home Loans (collectively, PHH) have agreed to pay the United States $74,453,802 to resolve allegations that they violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA), guaranteed by the United States Department of Veterans Affairs (VA), and purchased by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) that did not meet applicable requirements, the Justice Department announced today. PHH is headquartered in Mount Laurel, New Jersey, and PHH Home Loans operates in Edina, Minnesota. PHH has agreed to pay $65 million to resolve the FHA allegations and $9.45 million to resolve the VA and FHFA allegations.

“Government mortgage programs designed to assist homeowners — including programs offered by the FHA, VA, Fannie Mae and Freddie Mac — depend on lenders to approve only eligible loans,” said Acting Assistant Attorney General Chad A. Readler, head of the Justice Department’s Civil Division. “The Department has and will continue to hold accountable lenders that knowingly cause the government to guarantee, insure, or purchase loans that are materially deficient and put both the homeowner and the taxpayers at risk.”

“PHH submitted defective loans for government insurance, and homeowners and taxpayers paid the price. This significant resolution helps rectify the misconduct by returning more than $74 million in wrongfully claimed funds to the government,” said Acting U.S. Attorney for the District of Minnesota Gregory Brooker. “I commend the efforts of this Office’s Civil Division in reaching a successful resolution.”

“This settlement requires PHH to pay back to the taxpayers of the United States millions of dollars in loans that never should have been made,” Acting U.S. Attorney William E. Fitzpatrick for the District of New Jersey said. “By failing to ensure the creditworthiness of borrowers and otherwise failing to make sure the loans met HUD underwriting requirements, loans were insured by FHA that should not have been.”

“By failing to comply with FHA regulations, PHH put taxpayers and borrowers at risk of sustaining significant financial losses,” stated Acting U.S. Attorney Benjamin G. Greenberg. “This case and the resulting $75 million dollar settlement demonstrate that U.S. Attorney’s Offices and our investigative partners across the country are committed to holding lenders accountable who knowingly submit unqualified loans and compromise needed governmental programs.”

“For government mortgage programs to assist homeowners but not take on ill-advised risk, all participants in the mortgage lending process must provide true and complete information,” stated Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York. “Today’s settlement with PHH demonstrates our continuing commitment to requiring such integrity in the process.”

The settlements announced today resolve allegations that PHH failed to comply with certain FHA, VA, Fannie Mae and Freddie Mac origination, underwriting, and quality control requirements.

Since at least January 2006, PHH has participated as a Direct Endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan before it is endorsed for FHA insurance for compliance with FHA’s credit and eligibility standards, but instead relies on the efforts of the DEL to verify compliance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance.

As part of the settlement, PHH admitted to the following facts concerning the FHA loans:

Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s self-reporting requirements. Examples of loan defects that PHH admitted resulted in loans being ineligible for FHA mortgage insurance included:

  • Failing to document the borrowers’ creditworthiness, including paystubs, verification of employment, proper credit reports, and verification of the borrowers’ earnest money deposit and funds to close.
  • Failing to document the borrower’s claimed net equity in a prior residence or obtain documentation showing that the borrower had paid off significant debts. Including these debts in the borrower’s liabilities resulted in the borrower exceeding HUD’s debt-to-income ratio requirements for FHA-insured loans.
  • Insuring a loan for FHA mortgage insurance even though the borrower did not meet HUD’s minimum statutory investment for the loan.

In 2007, PHH audited a targeted sample of government loans for closing or pre-insuring requirements and found that its “percent accurate” did not exceed 50 percent during 2007. Since at least 2006, HUD has required self-reporting of material violations of FHA requirements. However, between Jan. 1, 2006, and Dec. 31, 2011, PHH Home Loans did not self-report any loans to HUD; rather, PHH Home Loans did not self-report any loans to HUD until 2013, after the United States commenced its investigation resulting in this settlement.

As a result of PHH’s conduct and omissions, PHH admitted, HUD insured loans endorsed by PHH that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured. It admitted that HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

In addition, from at least 2005 to 2012, PHH was a VA approved lender, originating and underwriting mortgage loans and obtaining VA loan guarantees. The VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners by guaranteeing a portion of home loans. VA home loans are provided by certain pre-approved private lenders, including banks and mortgage companies. By guaranteeing a portion of the loan, the VA enables the lender to provide Servicemembers, Veterans, and eligible surviving spouses with loan terms that are more favorable than would otherwise be available in the marketplace. In order to qualify for a VA guarantee, borrowers must comply with VA loan requirements. The settlement resolves the United States’ claims and potential claims that PHH originated loans that it submitted for guarantee by the VA that did not meet the VA’s requirements.

Also from at least 2009 to 2013, PHH sold mortgage loans to Fannie Mae and Freddie Mac. Congress created the two entities to provide stability and liquidity in the secondary housing market and established the Federal Housing Finance Agency (“FHFA”) to supervise, regulate, and oversee Fannie Mae and Freddie Mac, as well as the Federal Home Loan Bank System. Since 2008, in response to the substantial deterioration in the housing markets that severely damaged Fannie Mae and Freddie Mac’s financial condition, Fannie Mae and Freddie Mac have been operating under a government conservatorship. The settlement resolves the United States’ contentions that PHH originated and sold loans to the Freddie Mac and Fannie Mae that did not meet their requirements.

“This case demonstrates HUD’s resolve in protecting the integrity of its mortgage insurance programs for the benefit of all Americans, and in particular, first time homebuyers,” said Dane Narode, HUD’s Associate General Counsel for Program Enforcement. “We are gratified that PHH has accepted responsibility for its actions.”

“This settlement resolves allegations of reckless origination and underwriting of VA guaranteed mortgage loans,” said Michael J. Missal, Inspector General, for the Office of Inspector General for the Department of Veterans Affairs (VA OIG). “It sends a clear message that the VA OIG will aggressively protect the integrity of this crucial program which helps so many of our veterans buy, build, or repair their homes. I would also like to thank the U.S. Attorney's Offices for partnering with us to achieve this significant result.”

Some of the allegations resolved by these settlements included in a whistleblower lawsuit filed under the False Claims Act by a former employee of PHH, Mary Bozzelli against PHH Corp. and PHH Mortgage Corp. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. Ms. Bozzelli will receive $9,067,377.33 from the settlements.

The settlements were the result of joint investigations conducted by HUD, the HUD Office of Inspector General, the Veterans Administration’s Office of Inspector General, the FHFA Office of Inspector General, the Department of Justice’s Civil Division, and the U.S. Attorney’s Offices for the District of Minnesota, District of New Jersey, Southern District of Florida, and Eastern District of New York. The qui tam action is captioned United States ex rel. Mary Bozzelli v. PHH Mortgage Corporation and PHH Corporation, 13-cv-3084 (E.D.N.Y.). The claims asserted against PHH are allegations only, and there has been no determination of liability.

August 14, 2017 in Financial Regulation | Permalink | Comments (0)

Sunday, August 13, 2017

A costly low-cost trial offer

You’ve probably seen online ads with offers to let you try a product – or a service – for a very low cost, or even for free. Sometimes they’re tempting: I mean, who doesn’t want whiter teeth for a dollar plus shipping? Until the great deal turns into a rip-off. That’s what the FTC says happened in a case it announced today.

The defendants sold tooth-whitening products under various names, and hired other companies to help them market the products. These affiliate marketers created online surveys, as well as ads for free or low-cost trials – all to drive people to the product’s website. What happens next is so complicated that we created an infographic to explain it.

In short, once people ended up on the product’s website, they filled in their info, put in their credit card number, and clicked “Complete Checkout.” When people clicked this button they not only got the free trial of the one product, but were actually agreeing to monthly shipments of the product at a cost of $94.31 each month.

Next, another screen came up and people were asked to click “Complete Checkout” again. But the second screen wasn’t a confirmation screen for the trial of the product. Instead, by clicking this button people were actually agreeing to monthly shipments of a second product. So, what started as a $1.03 (plus shipping) trial of one product wound up being an unexpected two products at a very unexpected $94.31 each – for a total monthly charge of $188.96 plus shipping.

Trial offers can be tricky – and there is often a catch. If you’re tempted, do some research first, and read the terms and conditions of the offer very closely. Sometimes, however, marketers might simply try to trick you – and it can be hard to spot. Look again at the infographic…would you have known what charges were about to hit your credit card? If you use your credit card for a low-cost trial offer, be sure to check your credit card statement closely. If you see charges you didn’t authorize, contact the company and your bank immediately. And then tell us about it.

August 13, 2017 in Financial Regulation | Permalink | Comments (0)

Wednesday, August 9, 2017

E-Commerce Company and Top Executive Agree to Plead Guilty to Price-Fixing Conspiracy for Customized Promotional Products

Conspiracy Was Conducted Through Social Media and Encrypted Messaging Applications

An e-commerce company and its top executive have agreed to plead guilty to conspiring to fix prices for customized promotional products sold online to customers in the United FBI DOJ logoStates. Zaappaaz Inc. (d/b/a WB Promotions Inc., and and its president Azim Makanojiya agreed to plead guilty to a one-count criminal violation of the Sherman Act.


Acting Assistant Attorney General Andrew Finch of the Department of Justice’s Antitrust Division, Acting U.S. Attorney Abe Martinez and Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Division made the announcement.

According to the felony charges filed today in the U.S. District Court for the Southern District of Texas in Houston, the conspirators attended meetings and communicated in person and online. The investigation has revealed that the conspirators used social media platforms and encrypted messaging applications, such as Facebook, Skype and Whatsapp, to reach and implement their illegal agreements. Specifically, the defendants and their co-conspirators agreed, from as early as 2014 until June 2016, to fix the prices of customized promotional products sold online, including wristbands and lanyards. In addition to agreeing to plead guilty, Zaappaaz has agreed to pay a $1.9 million criminal fine.

“As today’s charges show, criminals cannot evade detection by conspiring online and using encrypted messaging,” said Acting Assistant Attorney General Andrew Finch. “In addition, today’s charges are a clear sign of the Division’s commitment to uncovering and prosecuting collusion that affects internet sales. American consumers have the right to a marketplace free of unlawful collusion, whether they are shopping at retail stores or online.”

“Schemes like the defendants’ cause financial harm to consumers who purchase goods and services and to businesses who sell goods and services in compliance with the laws of the United States,” said Acting U.S. Attorney Abe Martinez. “The United States will continue to investigate and prosecute individuals and businesses who seek to gain an illegal advantage.”

“The FBI stands ready to protect consumers from unscrupulous business practices,” said Special Agent in Charge Perrye K. Turner. “Antitrust laws help protect the competitive process for the benefit of all consumers.”

Makanojiya is charged with price fixing in violation of the Sherman Act which carries a maximum sentence of 10 years in federal prison and a maximum fine of $1 million for individuals. The maximum fine for an individual may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either of those amounts is greater than the statutory maximum fine.

Both defendants have agreed to cooperate with the Antitrust Division’s ongoing investigation. The plea agreements are subject to court approval.

This prosecution arose from an ongoing federal antitrust investigation into price fixing in the online promotional products industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section with the assistance of the FBI’s Houston Field Office. Anyone with information on price fixing or other anticompetitive conduct in the customized promotional products industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258 or visit

August 9, 2017 in Financial Regulation | Permalink | Comments (0)

Friday, June 16, 2017

Rock Crushing Plant’s Owner Pushes To Open Despite Opposition

Please write in your comments against this cement and rock crushing plant across from the Gateway Park, Montessori School and down the street from Nolan Catholic.
1. Go to:
2. list permit number: 146263
3. Add your comments and attach a Word or PDF (you may copy from my reasons below).

This stone and concrete crushing factory is seeking a second bite at the apple via a state TECQ permission for a heavy industry air pollution zoning for the same property across the street from the Montessori school. The comment period ends in 30 days in July.

The Texas Supreme Court ruled in favor of a cement crushing plant in 2013 that used its state-granted TECQ pollution permit to quash a city's attempt to stop it from locating next to a school. See Southern Crushed Concrete v City of Houston, 398 S.W.3d 676, (Supreme Court of Texas Feb. 15, 2013).

Last year Alice Barr reported about a proposed factory across the street of Gateway Park and Montessori school: "East Fort Worth Neighbors Upset Over Proposed Concrete Recycling Plant", May 16, 2016. In May 2016 over 800 neighborhood residents signed a petition against this “heavy industrial” proposed factory and approximately 400 residents attended the May 2016 public meeting to voice near unanimous objections. Fort Worth District 4 Councilperson Cary Moon, who attended the public meeting, surveyed more than 1,500 neighborhood residents of which near unanimity, 99 percent, disapproved of the development. Councilperson Cary Moon concluded:

“Through our discussion the developer came to understand the concrete recycling plant was not a good fit for our community and decided to discontinue their application for the zoning change,” Moon said. “The concrete recycling plant will not be built.” (See Planting Their Feet, Fort Worth Weekly, June 8, 2016.

But the plant has gone around the city directly to the state and thus silencing the voices of the neighborhoods and schools that will be devastated.

  • Heavy Industrial Use Detrimental to Neighborhood Residents Health, Especially Schools and Retirement Community

Rock crushing factories, documented in numerous medical articles, produce fine dust particles and silica content for which exposure, especially prolonged, poses serious health problems. The inhalable dust and respirable particulate matter causes respiratory problems. This unacceptable health risk is particularly acute for the most vulnerable: the children and elderly neighborhood residents. East Fort Worth Montessori Academy located within two blocks of the proposed factory as well as Noland Catholic High School and Lakewood Village Retirement Community located within a mile, may become economically unviable. School enrollment will likely plunge when parents are made aware of the industrial factory locating next to the schools. The health risks of this factory would probably require that the proposed charter school for Randol Mill on the East side of Quanah Parker Park (West side of Riverbend Estates) seek an alternative neighborhood, which would be a tremendous loss for the low-income children of East Fort Worth.

  • The City Of Fort Worth's Future Land Use Map Allocates This Neighborhood Area For Private Open Spaces And Single Family Residential, Not Industrial

The City of Fort Worth and partnering governments will have wasted millions of dollars the past two years renovating Gateway Park, Quanah Parker Park, and the Trinity Trail. Millions of dollars have been spent to transform Gateway Park into a 1,000 acre premier park for the city of Fort Worth with several sports fields for children and 80,000 trees planned.If a rock and cement crushing industrial factory

If a rock and cement crushing industrial factory is built across the street, then Gateway and Quanah Parker parks will no longer be desirable from a health perspective, environmental perspective, and a safety perspective. for after-school sports and weekend family activities. By example, the industrial traffic of the 100 to 200 heavy truck trips in and out of factory daily laden with concrete waste will create unacceptable traffic hazards for families and their children using the parks and the nearby Montessori school, as well as for the elderly who reside at the Lakewood Village Retirement Community that drive along Randol Mill Road and Oakland Road and walk to the Gateway and Quanah Parker parks. That is an industrial truck every two to five minutes on Randol Mill Road. The proposed industrial factory’s location next to the newly expanded Trinity Trail bike path may also render it unsafe for cyclists, and at least undesirable for use.Neighborhood Property Values Will Collapse Along With The Tax Base

  • Neighborhood Property Values Will Collapse Along With The Tax BaseI am a nationally respected tax expert, the author of several highly regarded and cited tax treatises, of government tax and economic impact studies, and employed as a professor of law

It is well documented in studies over decades that health and amenity risks associated with environmental hazards, whether real or perceived, translate into economic harm both to individuals and to the tax base

Studies have shown that negative attitudes toward facilities which pose nuisance, health or environmental risks are strong and geographically extensive.” (Quoting as one example, Undesirable facilities and property values: a summary of empirical studies, Dr. Stephen Farber, Ecological Economics 24 (1998) at p 1 - 14.)

The change to an industrial use, and location of a hazardous rock and cement crushing factory, will lead to a substantial drop of property value and thus the tax base. Based on a zoning change to heavy industrial, and the nature of the factory proposed, it is reasonable to estimate a drop of approximately twenty percent of the property value within 24 months for at least 1,500 residences in the neighborhood. By rough calculation, the property tax revenue loss from just 1,500 residences being impacted by approximately 20 percent of the property value would exceed $1.5 million annually by the third year. More devastating though is the human cost of residents permanently losing 20 percent of their home value, the primary method of family saving.

Besides the TECQ, you can also reach out to the news organizations below to get the word out. 


-Star reporter who covered story in May 2016:
- NBC local newstips:
- FW Weekly:
- Fox news:

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June 16, 2017 in Financial Regulation | Permalink | Comments (0)

Wednesday, June 14, 2017

Is the Financial Choice Act the Death of Dodd Frank?

Personal note: The Bankruptcy section of the bill (banks should go bankrupt, not be bailed out).  While I agree that the market should hold banks and their employees accountable for bad decisions and lack of foresight (such as through insolvency), an organized "work out" (not taxpayer funded bailout) should not be taken off the table as an aspect of the insolvency toolkit.  Such workouts generally require a facilitator who sees the entire market, a role by example the FDIC has played fro decades for the betterment of the banking system and the public trust in it.  Over 100 professors, including myself, signed onto a comment letter to this effect. 

See Republican proposal to kill Dodd-Frank that has now passed by House.  Executive Proposal here.  

Bill that passed the House here.

  1. The Dodd-Frank Off-Ramp for Strongly Capitalized, Well-Managed Banking Organizations Bankruptcy Not Bailouts
  2. Repeal of the Financial Stability Oversight Council’s SIFI Designation Authority
  3. Reform the Consumer Financial Protection Bureau
  4. Relief from Regulatory Burden for Community Financial Institutions
  5. Federal Reserve Reform
  6. Upholding Article I: Reining in the Administrative State
  7. Amend Dodd-Frank Title IV
  8. Repeal the Volcker Rule
  9. Repeal the Durbin Amendment
  10. Eliminate the Office of Financial Research
  11. SEC Enforcement Issues
  12. Reforms to Title IX of Dodd-Frank
  13. Capital Formation
  14. Repeal Specialized Public Company Disclosures for Conflict Minerals, Extractive Industries, and Mine Safety
  15. Improving Insurance Regulation by Reforming Dodd-Frank Title V

June 14, 2017 in Financial Regulation | Permalink | Comments (0)

Tuesday, June 13, 2017

Gabelli v. SEC U.S. Supreme Court Decision

"There are good reasons why the fraud discovery rule has not been extended to Government civil penalty enforcement actions. The discovery rule exists in part to preserve the claims of parties who have no reason to suspect fraud. The Government is a different kind of plaintiff. The SEC’s very purpose, for example, is to root out fraud, and it has many legal tools at hand to aid in that pursuit".

Head Note: The Investment Advisers Act makes it illegal for investment advisers to defraud their clients, 15 U. S. C. §§80b–6(1), (2), and authorizes the Securities and Exchange Commission to bring enforcement actions against investment advisers who violate the Act, or against individuals who aid and abet such violations, §80b–9(d). If the SEC seeks civil penalties as part of those actions, it must file suit “within five years from the date when the claim first accrued,” pursuant to a general statute of limitations that governs many penalty provisions throughout the U. S. Code, 28 U. S. C. §2462.

In 2008, the SEC sought civil penalties from petitioners Alpert and Gabelli. The complaint alleged that they aided and abetted investment adviser fraud from 1999 until 2002. Petitioners moved to dismiss, arguing in part that the civil penalty claim was untimely. Invoking the five-year statute of limitations in §2462, they pointed out that the complaint alleged illegal activity up until August 2002 but was not filed until April 2008. The District Court agreed and dismissed the civil penalty claim as time barred. The Second Circuit reversed, accepting the SEC’s argument that because the underlying violations sounded in fraud, the “discovery rule” applied, meaning that the statute of limitations did not begin to run until the SEC discovered or reasonably could have discovered the fraud. Held: The five-year clock in §2462 begins to tick when the fraud occurs,

Held: The five-year clock in §2462 begins to tick when the fraud occurs, not when it is discovered. Pp. 4–11.

Download here:  Download Gabelli v SEC


June 13, 2017 in Financial Regulation | Permalink | Comments (0)

Friday, June 9, 2017

With BREXIT Eliminating UK Voice, EU Ramps Up For More Regulation & Integration of Capital Markets. Or Is This A Shot At London?

The proposal in detail

The CMU Mid-term review sets out nine new priority actions:

  1. strengthen the powers of European Securities and Markets Authority to promote the effectiveness of consistent supervision across the EU and beyond; EU Securities Market
  2. deliver a more proportionate regulatory environment for SME listing on public markets;
  3. review the prudential treatment of investment firms;
  4. assess the case for an EU licensing and passporting framework for FinTech activities;
  5. present measures to support secondary markets for non-performing loans (NPLs) and explore legislative initiatives to strengthen the ability of secured creditors to recover value from secured loans to corporates and entrepreneurs;
  6. ensure follow-up to the recommendations of the High Level Expert Group on Sustainable Finance;
  7. facilitate the cross-border distribution and supervision of UCITS and alternative investment funds (AIFs);
  8. provide guidance on existing EU rules for the treatment of cross-border EU investments and an adequate framework for the amicable resolution of investment disputes;
  9. propose a comprehensive EU strategy to explore measures to support local and regional capital market development.

In addition, the Commission will advance on outstanding actions under the 2015 Action Plan. In particular, the Commission will put forward:

  1.  A legislative proposal on a pan-European personal pension product to help people finance their retirement; 
  2. A legislative proposal for an EU-framework on covered bonds to help banks finance their lending activity;
  3. A legislative proposal on securities law to increase legal certainty on securities ownership in the cross-border context.


The CMU seeks to strengthen the flow of private capital to growing businesses, infrastructure investment, energy transition and other projects to underpin sustainable growth. Removing obstacles to the free flow of capital across borders will strengthen Economic and Monetary Union by supporting economic convergence and helping to cushion economic shocks in the euro area and beyond, making the European economy more resilient. Stronger capital markets, better connected to productive investment, will create better investment opportunities for pension funds and institutional and retail investors saving for the long-term and retirement.

In January 2017, the Commission launched a consultation on the CMU mid-term review, creating an opportunity for stakeholders to provide targeted input to complement and advance actions put forward in the CMU Action Plan. On 30 September 2015, the Commission adopted an Action Plan on Building a Capital Markets Union (CMU). The Action Plan sets out a programme of actions which aim to establish the building blocks of an integrated capital market in the European Union by 2019.

The Action Plan is built around the following key principles:

  • Connecting financing to the real economy by developing non-bank funding sources
  • Creating more opportunities for investors
  • Fostering a stronger and more resilient financial system
  • Deepening financial integration and increasing competition.

After almost two years since the launch of the CMU Action Plan, the Commission is presenting today a number of important new initiatives to ensure that this reform programme remains fit for purpose.

The CMU is a key pillar of the Commission's Investment Plan for Europe, the so-called Juncker Plan. Through a mix of regulatory and non-regulatory reforms, this project seeks to better connect savings to investments. It aims to strengthen Europe's financial system by providing alternative sources of financing and more opportunities for consumers and institutional investors. For companies, especially SMEs and start-ups, the CMU means accessing more funding opportunities, such as venture capital and crowdfunding. The rebooted CMU puts a strong focus on sustainable and green financing: as the financial sector begins to help sustainability-conscious investors to choose suitable projects and companies, the Commission is determined to lead global work on supporting these developments.

European Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said: "The CMU remains at the heart of our efforts to boost European investment and create jobs and growth. As we face the departure of the largest EU financial centre, we are committed to stepping up our efforts to further strengthen and integrate the EU capital markets. This review makes clear the scale of the challenge and we count on the support of the European Parliament and Member States to rise to it.”

European Commission Vice-President Jyrki Katainen, responsible for Jobs, Growth and Investment, said: "The Commission has worked hard to give decisive impetus to the CMU. In just twenty months, we have delivered two-thirds of our initial commitments and other important actions are in the pipeline. We are now expanding our scope to meet new challenges such as funding sustainable investment and harnessing the potential of FinTech. The new measures presented here today renew and reinforce the Commission's commitment and set us on an irreversible path towards the CMU.”

The Mid-Term Review reports on the good progress made so far in implementing the 2015 Action Plan, with around two-thirds of the 33 actions delivered in twenty months. Just recently, co-legislators agreed in principle on two major proposals. The securitisation package will free up capacity on banks' balance sheets and generate additional funding for households and fast growing companies. The venture capital funds reform will facilitate investment in small and medium-sized innovative companies. Moreover, last year we agreed on the new Prospectus regime that will allow easier access to public markets especially for SMEs. However, for the CMU to succeed, the full and constant support of the European Parliament, Member States and all market participants is paramount.

The Mid-Term Review also sets the timeline for the new actions that will be unveiled in the coming months. These will include a pan-European personal pension product to help people finance their retirement. Furthermore, the Commission will continue its work on enhancing the supervisory framework for integrated capital markets, increasing the proportionality of the rules for listed SMEs and investment firms, harnessing the potential of FinTech and promoting sustainable investment.

Alongside the CMU Mid-Term Review, the Commission is also unveiling measures to encourage long-term investment through a review of prudential calibration for investments in infrastructure corporates. We propose reducing the amount of capital that insurance companies need to hold when they invest in infrastructure corporates. These targeted changes to the Solvency II Delegated Regulation will further support investment in infrastructure.


More information:



Communication on Capital Markets Union- Accelerating Reform

Action Plan on Building a Capital Markets Union

Mid-Term Review main page

EPSC Strategic Note on Financing Sustainability

Study on tax incentives by DG TAXUD

June 9, 2017 in Financial Regulation | Permalink | Comments (0)

Saturday, June 3, 2017

Central bank Governors welcome global code of conduct for currency markets

The Governors of the Global Economy Meeting welcome the publication of the FX Global Code, a single global code for the wholesale foreign exchange market, as well as the Bank Int Settle Logoestablishment of the Global Foreign Exchange Committee to maintain the Code in the future.

This represents the culmination of a two-year collaborative initiative between central banks and private sector market participants from across the globe. The Code is voluntary and covers important areas including ethics, governance, execution, information-sharing, risk management and compliance as well as confirmation and settlement. Download Global Code FOREX 2016

"The FX Global Code sets good practices for market participants to follow and will support a robust, fair and transparent market, underpinned by high ethical standards," said GEM Chair Agustín Carstens, Governor of the Bank of Mexico.

Central banks are strongly committed to supporting and promoting adherence to the Code. They confirm that they intend to adhere to the principles of the Code, and will expect the same of their regular FX counterparties, except where this would inhibit the discharge of their policy functions. Additionally, members of central bank sponsored foreign exchange committees will be expected to adhere to the Code.

Governors encourage market participants to evolve their practices to be consistent with the principles of the Code and to demonstrate their commitment by using the Statement of Commitment that was also published today. They also encourage the private sector, including associations and infrastructure providers, to raise awareness of the Code and to develop and establish mechanisms to support its adoption.

June 3, 2017 in Financial Regulation | Permalink | Comments (0)

Friday, June 2, 2017

Global regulators expect deal soon on "Basel IV" for capital requirements

Reuters reported that Global regulators will soon finalize a suite of rules to ensure banks across the world hold enough capital to withstand rocky markets without taxpayer aid, one of Bank Int Settle Logotheir top officials said on Thursday.  The remaining elements of Basel III seek to ensure banks are consistent in the way they assess risks from loans and determine the size of their capital reserves.

The Basel Committee had hoped for a deal in January, but its members could not agree on how to set a capital backstop known as an aggregate output floor, which ensures a minimum level of capital.   Read the Reuters article here.

June 2, 2017 in Financial Regulation | Permalink | Comments (0)

Wednesday, May 24, 2017

FTC Submits Annual Budget Request, Performance Plan and Performance Report to Congress

The Federal Trade Commission submitted to Congress its Fiscal Year 2018 budget request to Congress, in support of the President’s FY 2018 budget for the federal government. The 1024px-US-FederalTradeCommission-Seal.svgbudget request also includes the FY 2018 Budget Overview Statement, Performance Plan for FY 2017 and FY 2018, and Performance Report for FY 2016, as required under the Government Performance and Results and Modernization Act of 2010.

The Commission vote to submit the budget request, performance plan and performance report to Congress was 2-0. (FTC File No P859900; the staff contact James Hale, Financial Management Office, 202-326-2385.)

Download FTC Budget 2018


May 24, 2017 in Financial Regulation | Permalink | Comments (0)

Tuesday, April 25, 2017

EU reveals its hardball UK terms but welcomes UK back if it changes it mind about BREXIT

The British Bankers Association has included its daily press release that the Brexit negotiation guidelines have been revealed

Leaked European Commission negotiating guidelines reveal Brussels’ requirement that the UK remain subject to European Comision_Europea_logo.svgCourt of Justice laws post-Brexit (The Times, p1, £, online). Any exit deal that does not uphold EU citizen rights will be vetoed as part of this ‘hard line approach’, warned European parliament chief Antonio Tajani (Financial Times, £, online). The guidelines also say the UK must pay all Brexit costs and ‘bear the currency risk’ (Politico, online). Tajani added, however, that Britain would be welcomed back if a new UK government reversed Brexit after the general election (The Guardian, p1, online).

April 25, 2017 in Financial Regulation | Permalink | Comments (0)

Monday, April 24, 2017

FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship

Commission aims to improve disclosures in social media endorsements

After reviewing numerous Instagram posts by celebrities, athletes, and other influencers, Federal Trade Commission staff recently sent out more than 90 letters reminding influencers 1024px-US-FederalTradeCommission-Seal.svg and marketers that influencers should clearly and conspicuously disclose their relationships to brands when promoting or endorsing products through social media.

The letters were informed by petitions filed by Public Citizen and affiliated organizations regarding influencer advertising on Instagram, and Instagram posts reviewed by FTC staff. They mark the first time that FTC staff has reached out directly to educate social media influencers themselves.

The FTC’s Endorsement Guides provide that if there is a “material connection” between an endorser and an advertiser – in other words, a connection that might affect the weight or credibility that consumers give the endorsement – that connection should be clearly and conspicuously disclosed, unless it is already clear from the context of the communication. A material connection could be a business or family relationship, monetary payment, or the gift of a free product. Importantly, the Endorsement Guides apply to both marketers and endorsers.

In addition to providing background information on when and how marketers and influencers should disclose a material connection in an advertisement, the letters each addressed one point specific to Instagram posts -- consumers viewing Instagram posts on mobile devices typically see only the first three lines of a longer post unless they click “more,” which many may not do. The staff’s letters informed recipients that when making endorsements on Instagram, they should disclose any material connection above the “more” button.

The letters also noted that when multiple tags, hashtags, or links are used, readers may just skip over them, especially when they appear at the end of a long post – meaning that a disclosure placed in such a string is not likely to be conspicuous.

Some of the letters addressed particular disclosures that are not sufficiently clear, pointing out that many consumers will not understand a disclosure like “#sp,” “Thanks [Brand],” or “#partner” in an Instagram post to mean that the post is sponsored.

The staff’s letters were sent in response to a sample of Instagram posts making endorsements or referencing brands. In sending the letters, the staff did not predetermine in every instance whether the brand mention was in fact sponsored, as opposed to an organic mention.

In addition to the Endorsement Guides, the FTC has previously addressed the need for endorsers to adequately disclose connections to brands through law enforcement actions and the staff’s business education efforts. The staff also issued FTC’s Endorsement Guides: What People are Asking, an informal business guidance document that answers frequently asked questions. The staff’s letters to endorsers and brands enclosed copies of both guidance documents. The FTC is not publicly releasing the letters or the names of the recipients at this time.

April 24, 2017 in Financial Regulation | Permalink | Comments (0)

Wednesday, April 19, 2017

ECB Advises Banks For Their Exodus from London to EU

European Central Bank Q&A About Banks Relcoating from London to EU

In the context of Brexit, the ECB and several national supervisors have been approached by banking groups with questions about the supervisory approach in the euro area and about ECBrequirements by ECB Banking Supervision for banks potentially relocating business.

Who supervises banks in the euro area?

In the euro area, banking supervision is conducted by the ECB and the national supervisors of the participating countries – known as the national competent authorities (NCAs) – within the framework of the Single Supervisory Mechanism (SSM).

The supervisory roles and responsibilities of the ECB and the national supervisors for banks in the euro area are allocated on the basis of the significance of the supervised entities.

  • A bank that meets a set of significance criteria (significant institution (SI)) will, as a rule, be supervised directly by the ECB.
  • A bank which does not meet these criteria (less significant institution (LSI)) will be supervised directly by the national supervisor of the country where that bank is located. (The ECB has an oversight role to ensure the consistency and quality of supervision across such institutions and over the entire system).

The ECB is also responsible for granting licences for credit institution (as defined in CRR) and approving the acquisition of qualified holdings and other common procedures for all supervised credit institutions within the context of the SSM Regulation (see also Section 2 "Authorisations and licences to carry out banking activities in the euro area" of the FAQs).

What if my bank is part of a larger group? Would the ECB directly supervise all entities in the group? Would this affect the significance status of my bank?

Where a bank is part of a group, for the purpose of determining significance the situation of the group at the highest level of prudential consolidation within the euro area will be taken into account (not the individual situation of each entity). For example, if the group’s assets exceed €30 billion at the above-mentioned consolidated level, then all supervised entities within that group are considered as significant, even if they do not meet the threshold of €30 billion of assets at an individual level.

Where a bank is part of a significant group directly supervised by the ECB, the supervision of that bank is conducted both individually and on a consolidated basis. In order to conduct both layers of supervision, the SSM Regulation and the SSM Framework Regulation (the ‘regulations’) grant the ECB specific supervisory powers, not only over banks but also – for example – over (mixed) financial holding companies, as long as they are located within euro area countries and according to the specific rules of the regulations. If the group includes other financial institutions such as investment firms, these institutions would not be supervised by the ECB on an individual level, but would be included in the supervision of the group on a consolidated basis.

According to Article 2 (20) of the SSM Framework Regulation, ‘supervised entity’ means any of the following: (a) a credit institution established in a participating Member State; (b) a financial holding company established in a participating Member State; (c) a mixed financial holding company established in a participating Member State, provided that it fulfils the conditions laid down in point (21)(b); (d) a branch established in a participating Member State by a credit institution which is established in a non-participating Member State.

Will the choice of euro area country in which I establish result in more or less stringent supervision requirements?

The ECB is completely neutral regarding the location chosen and ensures consistent supervision throughout the euro area. All significant institutions are supervised directly by the ECB, using a single set of supervisory standards, irrespective of the country in which they are located. Less significant institutions are supervised directly by the national supervisor of the country where that bank is located. The ECB has an oversight role to ensure the consistency and quality of supervision across such institutions and over the entire system.

Do these FAQs only apply for significant institutions under the direct supervision of the ECB?

No. The ECB and national supervisors have agreed to apply consistent approaches across the euro area, to both significant and less significant institutions.

To whom do I submit my licensing application?

In the euro area, the procedure for granting or extending a banking licence (where relevant) is one of what are known as “common procedures”. The ECB and the national supervisors are involved in different stages of these procedures. In a common procedure, the entry point for all applications is the national supervisor of the country where the bank will be located, irrespective of whether the significance criteria are met or not. The national supervisors and the ECB cooperate closely throughout this procedure, which is completed for all supervised credit institutions, with the ECB taking the decision.

Therefore, in all cases, your licence application should be submitted directly to the relevant national supervisor, so that the common procedure can be triggered. In line with Article 22 of the Capital Requirements Directive (CRD), the same procedure should be followed in the event of an acquisition of a qualifying holding in a bank.

Common procedures

Can I approach the ECB/national supervisors to have pre-application discussions, even if my application file is not complete?

Yes. The ECB and the national supervisors see value in having preparatory discussions with banks interested in establishing or increasing their presence within the euro area. Such discussions are encouraged on issues around your application as soon as you have defined the fundamental elements and narrowed down any options of your transformation or reorganisation plan. In any case, the ECB and the national supervisors start communicating with each other on such applications at an early stage, in order to ensure a smooth process.

How long does the authorisation process take? Should I assume a shorter period if I only apply for the extension of an existing licence?

It usually takes six months from the applicant providing a complete application for a decision to be taken regarding a licence application. This period may be shorter in cases where the applicant asks for an extension of an existing license, provided that the national framework provides for such an extension and that there are no supervisory concerns over the existing SSM entity. In any event, a decision must be taken within 12 months of the date of the application. (For detailed information on the common procedures, see Articles 14 and 15 of the SSM Regulation, as well as Part V of the SSM Framework Regulation.) Submitting a complete file of high quality at the outset is in any case crucial to make sure that your application is processed as smoothly as possible.

Would the duration and assessment criteria differ depending on which euro area country I choose as my location?

No. All licensing applications are processed according to the common procedure described above, regardless of the country in which the application is filed (see also the question on how to submit a licensing application).

There is uncertainty around the exact time when I could lose my rights for cross-border provision of services and/or establishment within the EU, due to a potential loss of the passporting regime. Do you have a specific timeline according to which applications or extensions are expected to be submitted?

Applications will be processed as they are submitted, and within the legal timelines. The duration of the assessment will depend on the complexity of the individual case and the completeness and quality of the application (see also the question above). You should plan accordingly, in order to be sure to obtain your license on time.

What happens if a decision to restructure the group results in a change in the holdings of a bank directly supervised by the ECB? Do I notify the ECB directly?

The acquisition of, or increase in, a qualified holding in a credit institution – as defined in the Capital Requirements Directive – is subject to prior authorisation by the ECB. Like the assessment for granting a banking licence, this assessment is carried out under a common procedure. Therefore, the national supervisor is the entry point to which you should submit a notification. Following close cooperation and consultation with the national supervisor, the ECB will take a supervisory decision on the acquisition of the holding. For a smooth process, applicants should consider engaging in a dialogue with the respective NCA and the ECB prior to the official submission of the application.

April 19, 2017 in Financial Regulation | Permalink | Comments (0)

Monday, April 3, 2017

Former Vice President of Finance at Publicly Traded Company Charged with Accounting and Securities Fraud Scheme

A former vice president of finance for Bankrate Inc., a publicly traded financial services and marketing company Postal_Inspectors-Seriesheadquartered in New York City, was charged in an indictment filed yesterday for his alleged participation in a complex accounting and securities fraud scheme.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Benjamin Greenberg of the Southern District of Florida and Chief Postal Inspector Guy J. Cottrell of the U.S. Postal Inspection Service (USPIS) made the announcement today.

Hyunjin Lerner, 48, of Martin County, Florida, was charged in an indictment filed in the Southern District of Florida with one count of conspiracy to commit wire fraud, falsify a public company’s books, records and accounts and make false statements to a public company’s accountants; three counts of wire fraud; one count of securities fraud; four counts of false entries in a public company’s books, records and accounts; and three counts of false statements to a public company’s accountants.  Lerner, who previously worked at Bankrate’s offices in Palm Beach Gardens, Florida, made his initial appearance earlier today before U.S. Magistrate Judge John J. O’Sullivan of the Southern District of Florida and was released on bond.

The indictment alleges that between 2011 and 2014, Lerner and his co-conspirators carried out a complex scheme to manipulate Bankrate’s financial statements and artificially inflate Bankrate’s earnings.  According to the indictment, Lerner and his co-conspirators allegedly engaged in “cookie jar” or “cushion” accounting, meaning  unsupported expense accruals were left on Bankrate’s books and then selectively reversed in later quarters to meet earnings goals.  In addition, Lerner and his co-conspirators allegedly: misrepresented certain company expenses as “deal costs” in order to artificially inflate publicly reported adjusted earnings metrics; booked hundreds of thousands of dollars in unsupported revenue to further inflate Bankrate’s reported revenue and earnings; and made materially false statements to conceal the improper accounting entries from Bankrate’s auditors, shareholders and the investing public.

An indictment is merely an allegation and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.  

The USPIS Washington, D.C., Division investigated the case.  Assistant Chief Henry Van Dyck and Trial Attorneys Rush Atkinson, Emily Scruggs and Somil Trivedi of the Criminal Division’s Fraud Section are prosecuting the case.  The Securities and Exchange Commission and the U.S. Attorney’s Office of the Southern District of Florida provided assistance in this matter.

April 3, 2017 in AML, Financial Regulation | Permalink | Comments (0)

Wednesday, March 29, 2017

Deutsche Bank Sentenced for Manipulation of LIBOR: $2.519 Billion in Fines, 3 year Monitoring

DB Group Services (UK) Limited (DBGS), a wholly owned subsidiary of Deutsche Bank AG (Deutsche Bank), was sentenced today for its role in manipulating London Interbank Offered FBISeal Rates (LIBOR) for U.S. Dollar and several other currencies.  LIBOR is a leading benchmark used in financial products and transactions around the world.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Andrew W. Vale of the FBI’s Washington Field Office made the announcement.

DBGS was sentenced by U.S. District Judge Stefan R. Underhill of the District of Connecticut. DBGS pleaded guilty on April 23, 2015, to one count of wire fraud for its role in manipulating LIBOR benchmark interest rates. DBGS signed a plea agreement with the government in which it admitted its criminal conduct and agreed to pay a $150 million fine, which the court accepted in imposing today’s sentence.  In addition, Deutsche Bank, the Frankfurt, Germany-based parent company of DBGS, entered into a deferred prosecution agreement (DPA) with the Justice Department requiring Deutsche Bank to pay an additional $625 million criminal penalty, to admit and accept responsibility for its misconduct and to continue cooperating with the Justice Department in its ongoing investigation.  The DPA also requires Deutsche Bank to retain a corporate monitor for three years.

Together with approximately $1.744 billion in regulatory penalties and disgorgement – $800 million as a result of a Commodity Futures Trading Commission (CFTC) action, $600 million as a result of a New York Department of Financial Services (DFS) action and $344 million as a result of a U.K. Financial Conduct Authority (FCA) action – the Justice Department’s criminal penalties bring the total amount of penalties to approximately $2.519 billion.

According to the plea agreement, from at least 2003 through early 2010, numerous Deutsche Bank derivatives traders – whose compensation was directly connected to their success in trading financial products tied to LIBOR – engaged in efforts, many times in conjunction with other banks, to move these benchmark rates in a direction favorable to their trading positions.  Specifically, the derivatives traders requested that LIBOR submitters at Deutsche Bank and other banks submit contributions favorable to trading positions, rather than the accurate rates that complied with the definition of LIBOR.  Through these schemes, Deutsche Bank defrauded counterparties who were unaware of the manipulation.  Deutsche Bank admitted that its fraudulent LIBOR submissions did, in fact, affect the resulting LIBOR fix on multiple occasions.

The FBI’s Washington Field Office is conducting the investigation.  Trial Attorneys Alison Anderson and Richard Powers of the Criminal Division’s Fraud Section and Trial Attorney Michael Koenig of the Antitrust Division are prosecuting the case.  The Criminal Division’s Office of International Affairs has provided assistance in this matter.  

March 29, 2017 in Financial Regulation | Permalink | Comments (0)

Guidance for a Risk-Based Approach to Virtual Currencies

Virtual currencies have emerged and attracted investment in payment infrastructure built on their software protocols. These payment mechanisms seek to provide a new method for FATF logotransmitting value over the internet. At the same time, virtual currency payment products and services (VCPPS) present money laundering and terrorist financing (ML/TF) risks. FATF made a preliminary assessment of these ML/TF risks in the June 2014 virtual currencies report (key definitions and Potential AML/CFT Risks).

As part of a staged approach, the FATF has developed this Guidance focusing on the points of intersection that provide gateways to the regulated financial system, in particular convertible virtual currency exchangers. FATF will continue to monitor developments in VCPPS and emerging risks and mitigating factors to update this Guidance, to include, where appropriate, emerging best practices to address regulatory issues arising in respect of ML/TF risks associated with VCPPS.

This Guidance seeks to:

  • Show how specific FATF Recommendations should apply to convertible virtual currency exchangers in the context of VCPPS, identify AML/CFT measures that could be required, and provide examples; and
  • Identify obstacles to applying mitigating measures rooted in VCPPS’s technology and/or business models and in legacy legal frameworks.

Guidance for a Risk-based approach to virtual currencies

Download pdf ( 607kb)

AML bookProfessor Byrnes' Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis) is the financial industry go-to resource designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms contribute analysis to develop this practical risk-based guide.  “One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

March 29, 2017 in Financial Regulation | Permalink | Comments (0)

Tuesday, March 28, 2017

Guidance for a Risk-Based Approach to Prepaid Cards, Mobile Payments and Internet-Based Payment Services

New and innovative payment products and services are being developed and used at an ever-increasing pace. These new payment products and services have the potential of being used for money laundering or terrorist financing. Their vulnerabilities, associated risk factors and risk mitigants were described in earlier typologies reports by the FATF.

The FATF has developed guidance for countries and the private sector on how to apply a risk-based approach to implementing AML/CFT measures. This guidance examines how these payment products and services work, and how to regulate and supervise this activity. The FATF consulted with the private sector in the development of this guidance paper and appreciated the feedback received. The guidance recognises the role played by these products in financial inclusion and it should be considered, together with the FATF guidance on financial inclusion. In relation to Internet-based payment systems, the guidance provides advice in relation to the issuance of electronic money. While some alternative currencies, such as decentralised digital currencies, may fall outside the scope of this guidance, the guidance remains relevant where such currencies are exchanged or redeemed. The FATF will continue to consider the risks posed by such currencies and possible mitigating measures, and it encourages countries to monitor developments in the market.

The guidance is structured as follows:  Download FATF Guidance-RBA-NPPS

Section II explains how new payment systems work, who the entities involved in the provision of NPPS are, and their roles/activities 

Section III examines which entities involved in the provision of NPPS are already covered by the FATF Recommendations (i.e., because they fall within the FATF definition of a financial institution)

Section IV determines the risks involved in the provision of NPPS, including through consideration of any relevant risk factors and risk mitigation measures

Section V considers the impact of regulation on the NPPS market, including whether such regulation would impact financial inclusion and the positive implications of money deposits moving to regulated financial institutions

Section VI examines how to regulate and supervise entities involved in providing NPPS, and consider the impact of such regulation and supervision on the effective implementation of AML/CFT measures

Section VII discusses considerations when determining how to apply appropriate AML/CFT regulation of NPPS which addresses the risks, acknowledging that there may be multiple regulated entities

AML bookProfessor Byrnes' Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis) is the financial industry go-to resource designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms contribute analysis to develop this practical risk-based guide.  “One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

March 28, 2017 in Financial Regulation | Permalink | Comments (0)

Monday, March 27, 2017

Dialogue on FinTech and RegTech: Opportunities and Challenges

The Financial Action Task Force (FATF) held a dialogue on FinTech and RegTech in Vienna on 20 March 2017, as part of the FATF Private Sector Consultative Forum. The dialogue was FATF logochaired by the FATF President, Mr. Juan Manuel Vega-Serrano.

This dialogue built upon the FATF’s previous engagement with the private sector at the Roundtable on FinTech and Regtech held in Paris on 18 February 2017. Participants in this dialogue included over 250 representatives from the private sector and FATF members and observers.

Recognising the opportunities that FinTech and RegTech present for the private sector and that innovation in FinTech and RegTech spans across many aspects of the financial system, participants discussed how different jurisdictions are approaching the regulation and supervision of FinTech and RegTech, keeping in mind AML/CFT concerns. Participants shared their views and experiences with regard to the opportunities provided by FinTech and RegTech that are related to FATF’s priorities, and also on the challenges faced by the private sector in this area.

Discussions included the use of biometric technology and centralised databases as a means of verifying customers’ identities, the development of artificial intelligence and machine learning towards more effective monitoring and screening systems for suspicious financial activity, as well as the benefits of technology to improve financial access and reduce reliance on cash payments through more efficient processes and lower costs. Participants noted the potential for technological innovation to assist the public and private sectors in meeting the FATF’s objectives of combating money laundering, terrorist financing and other related threats to the integrity of the international financial system, and suggested that all stakeholders consider how best to take advantage of useful developments in this field.

The FATF will hold a standalone event in the United States on 25-26 May 2017 to further engage the sector on their AML/CFT concerns and to explore how they can potentially contribute towards the FATF’s work going forward.


echnology-based innovations are starting to radically change the financial industry. The FATF has already undertaken a large body of work to understand the risks and vulnerabilities of new payment products and services, and to ensure that AML/CFT measures remain up-to-date as new technologies emerge. The next step and one of the key priorities of the Spanish Presidency is to develop a partnership with the FinTech and RegTech community to support innovation in financial services, while maintaining transparency and mitigating the associated risks. Building such a partnership will enable FATF to become more proactive in the development of standards, guidance and best practice, anticipating and being involved in these new developments rather than responding to them.

Today’s roundtable was a first step to take this initiative forward in order to engage with various stakeholders. The event brought together anti-money laundering/counter-terrorist financing (AML/CFT) professionals, national supervisors, international organisations and other relevant experts, including experts from banks which have partnered with FinTech and RegTech firms to discuss issues of common interest.

Participants in this dialogue included 144 delegates from 30 jurisdictions and 14 organisations, as well as 11 representatives from the banking sector. The key objective of this roundtable was to better understand and exchange views on the current and emerging state of play on interaction of the established traditional financial institutions with the FinTech and RegTech industries, and the impact financial innovations and technologies are having (or expected to have) on reshaping the delivery and provisions of financial services. The practical impact of AML/CFT standards on financial innovation and different approaches followed by a number of jurisdictions to help promote innovative business models and emerging technologies, while mitigating and addressing associated money laundering and terrorist financing risks, were also discussed.

During the half a day-long series of discussions, representatives of financial institutions shared their experiences in the emerging FinTech and RegTech solutions in areas such as distributed ledger technologies, new payment methods and techniques, digital currency, regulatory reporting solutions and products and technologies supporting initial and ongoing customer due diligence measures. Participants also noted how these and other related developments in the emergence of new products, services and technologies are creating opportunities for growth and efficiency, and at the same time, posing challenges both for the private and the public sector.

Since the global nature of some of these developments has a cross-border implication, participants also stressed upon the need to have effective mechanisms for proactive information sharing among relevant stakeholders, in order to take a more coordinated approach in addressing the emerging challenges.

The FATF will continue to remain engaged with these issues through a much broader engagement, including with representatives from the FinTech and RegTech industry, going forward.


AML bookProfessor Byrnes' Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis) is the financial industry go-to resource designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms contribute analysis to develop this practical risk-based guide.  “One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

March 27, 2017 in Financial Regulation | Permalink | Comments (0)

Sunday, March 26, 2017

Outcomes from the FATF Private Sector Consultative Forum 20-22 March 2017

The Financial Action Task Force (FATF) held its annual Private Sector Consultative Forum on 20-22 March 2017 in Vienna, Austria, hosted by the United Nations Office on Drugs and FATF logo Crime (UNODC).

The meeting was chaired by the President of the FATF, Mr. Juan Manuel Vega-Serrano (Spain). Over 250 representatives from the financial sector and other businesses and professions subject to AML/CFT obligations, civil society, and FATF members and observers participated in this year’s Private Sector Consultative Forum.

The Forum is an opportunity for the FATF and its members to engage directly with the private sector on anti-money laundering and counter terrorist financing (AML/CFT) issues. It provides a regular platform for the FATF to learn more about the private sector’s views and concerns of AML/CFT-related issues. Over the three days of the Forum, participants held constructive discussions over the following issues:

Information Sharing

Effective information sharing is a cornerstone of a well-functioning AML/CFT framework. The FATF sought feedback from the private sector representatives on barriers to information sharing, their practical impact and measures to address them, information elements needed for an effective group-wide AML/CFT program, the interplay between data protection and privacy (DPP) and AML/CFT frameworks, and practical examples of information sharing between financial institutions which are not part of the same group. The input provided will be taken into account in the draft guidance currently under development by the FATF.

Correspondent Banking

Participants welcomed the 2016 FATF Guidance on Correspondent banking services which they  consider has clarified regulatory and supervisory expectations associated to correspondent banking, and in particular the absence of FATF requirements for correspondent institutions to conduct CDD on each individual customer of their respondent institutions. National supervisors and regulators were encouraged to follow-up on the Guidance at domestic level and clarify how it will be reflected in the national framework and requirements. Some participants called on FATF to conduct further work on the definition of correspondent banking, and consider restricting its scope.

Financial Inclusion

This session focused on the new private sector, technology-driven innovation which is opening new ways of reaching financially excluded and underserved customers, verifying their identities, profiling them, and managing new tailor-made products. Participants heard from financial inclusion initiatives in different countries, including in India. They discussed publicly-sponsored central databases of basic information on people’s identity, authenticated through biometrics or fingerprints. These tools can help financial institutions conduct the basic CDD steps to establish relationships with undocumented people, and play a key role for financial inclusion. Discussions also highlighted products and services, including e-wallets and mobile payments, serving specific needs of unbanked people. Experiences of outreach to unserved groups of populations, remote from bank facilities and branches, were also shared.

Remittances and De-risking

In light of continuing concerns about the impact of de-risking on the remittance sector, the FATF and FSB, with the support of the GPFI and the German G20 Presidency, chaired a special session on remittances and de-risking with experts from the remittances and banking sectors. The discussion aimed to understand how the money and value transfer services sector is affected by loss of correspondent banking services, and the variety of reasons why this can occur. It also reviewed the responses which have been used to address the causes, and maintain access to banking services and remittance services; and sought to identify any remaining gaps or co-ordination needs, at national or international levels that are not already covered by existing initiatives.

Terrorist Financing

The FATF sought feedback on the how the dissemination of the Detecting Terrorist Financing: Relevant Risk Indicators report was made to banks, MSBs and other relevant private sector representatives. Feedback was also sought on the usefulness of the indicators, any tangible results achieved, and how similar projects could be improved in the future. The private sector participants welcomed the information contained in the report, and requested that it be kept up-to-date and specific risk indicators be developed for individual sectors.

Beneficial Ownership

Recognising the need for further guidance on how to identify other legal arrangements which are similar to express trusts within the context of Recommendation 25, the session discussed the uses of trusts and other legal arrangements in a few jurisdictions. Participants then briefly talked about how trustees are required to collect and maintain certain information in order to fulfil their common law obligations. The participants noted that the risks of legal arrangements may vary, depending on the context of the jurisdiction and who the users of the legal arrangements are.

Engaging Non-Profit Organisations

Participants from governments and NPOs shared their experiences with the mutual evaluation process and assessments of Recommendation 8 and Immediate Outcome 10. Participants discussed the importance of involving NPOs in the mutual evaluation process at an early stage to ensure that they understand the purpose, expectations and scope of the process, and are well-prepared for the onsite visit which focuses primarily on effectiveness. The session also discussed the different processes through which several jurisdictions have assessed the risks of their NPO sector. The participants also highlighted the importance of governments and NPOs continuing to engage and collaborate. 

AML bookProfessor Byrnes' Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis) is the financial industry go-to resource designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms contribute analysis to develop this practical risk-based guide.  “One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

March 26, 2017 in Financial Regulation | Permalink | Comments (0)