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The Risks of Crypto Corruption
In a speech at the World Bank Global Payments Week 2023, Denis Beau, First Deputy Governor of the Bank of France, discussed some of the regulatory initiatives in the crypto space. Beau’s speech covered two areas:
- The risks to consider for regulation and supervision in the crypto ecosystem.
- The European regulatory stance and the importance of a convergent and coordinated regulatory response.
In conclusion, Beau said, "for the crypto ecosystem to overcome the confidence crisis it is currently facing, and to develop on a sustainable basis, a confidence prone regulatory and supervisory framework is needed. Central banks have an important role to play in helping to develop that framework, and in facilitating a much-needed convergent and coordinated framework at the international level."
ASIC’s Ban on Gregory Tolpigin
The Australian Securities & Investments Commission (ASIC) has banned Gregory Tolpigin, a former fund manager and authorized representative at Gleneagle Securities, from providing financial services for three years due to his involvement in naked short selling. Naked short selling occurs when someone sells financial products, like shares, that they do not own or have available for transfer at the time of the sell orders.
ASIC found that Tolpigin engaged in naked short selling on 150 occasions, totaling over $7 million, between January and August 2021. He executed these sales through accounts associated with Gleneagle Securities without owning or borrowing the shares.
MAS Issues Prohibition Order Against Mr. Yeo Siew Liang James
Meanwhile, the Monetary Authority of Singapore (MAS) has issued an eight-year prohibition order (PO) against Mr. Yeo Siew Liang James, a former insurance agent at AIG Asia Pacific Insurance and Liberty Insurance. This follows his conviction for corruption offenses in the State Courts. The PO, effective from May 22, 2023, prohibits Mr. Yeo from engaging in insurance intermediary activities and managing such businesses under the Insurance Act 1966.
During the period from March to June 2018, Mr. Yeo gave bribes amounting to $71,211.00 on eight occasions to an Indonesian Embassy official, without the knowledge of AIG and Liberty. These bribes were intended as rewards for accrediting AIG and Liberty to sell performance bonds to employers of Indonesian foreign domestic workers. Mr. Yeo also provided $21,363.30 on ten occasions to another individual in exchange for arranging favorable treatment with the embassy official. The bribes were funded by commissions earned from the sale of performance bonds.
Collateral Directors Found Guilty of Fraud and Money Laundering
Peter Currie and Andrew Currie, directors of the defunct peer-to-peer investment firm Collateral, have been found guilty of fraud and money laundering. The verdict was delivered after a five-week trial brought by the Financial Conduct Authority (FCA). Before its collapse in 2018, Collateral falsely claimed to be authorized and regulated by the FCA, enticing investors through its website.
Peter Currie, a Collateral director, had manipulated the FCA register by swapping the details of another company he planned to sell with Collateral’s information. This allowed the company to present itself as authorized, attracting investments in loans on the platform. Despite the FCA’s order to cease unauthorized business, Collateral continued to receive investments, and both Peter and Andrew Currie withdrew approximately £750,000 from client accounts. They also appointed an administrator without informing the FCA as required and transferred an additional £88,000 from Collateral funds.
By falsifying the official record and posing as an authorized firm, the Currie brothers engaged in criminal conduct that defrauded investors. The FCA has invested in strengthening the Register, providing consumers with more accessible information.
ESMA Releases Consultation Paper on ELTIF
The European Securities and Markets Authority (ESMA) has issued a new consultation paper to develop draft regulatory technical standards (RTS) to determine:
- the criteria for establishing the circumstances in which the use of financial derivative instruments solely serves a hedging purpose
- the circumstances in which the life of a European long-term investment fund (ELTIF) is considered compatible with the life-cycles of each of the individual assets, as well as different features of the redemption policy of the ELTIF
- the circumstances for the use of the matching mechanism, i.e., the possibility of full or partial matching (before the end of the life of the ELTIF) of transfer requests of units or shares of the ELTIF by exiting ELTIF investors with transfer requests by potential investors
- the criteria to be used for certain elements of the itemized schedule for the orderly disposal of the ELTIF assets
- the costs disclosure
The CP is relevant to ELTIF managers and their trade associations, alternative investment funds managers and their trade associations, as well as institutional and retail investors. The consultation ends 24 August 2023.
FCA Consults on Expanding Dormant Assets Scheme
The Financial Conduct Authority (FCA) is consulting on expanding its dormant assets scheme (DAS) to include dormant investment assets and client money to be made available to the scheme. DAS allows banks and building societies to pay dormant monies to an authorized reclaim fund which then puts this money towards funding good causes. Comments are requested by 10 July 2023.
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Conclusion
Crypto corruption is a growing concern worldwide, and authorities are taking significant steps to curb the risks and strengthen regulations. These efforts include banning individuals who engage in illegal practices, issuing prohibition orders, and developing regulatory technical standards. The expansion of the dormant assets scheme and the consultation on the ELTIF criteria are further signs of regulators’ commitment to investor protection. As with any other sector, the crypto space requires a confidence-prone regulatory and supervisory framework to overcome its confidence crisis and build a sustainable future. Central banks have an essential role to play in facilitating a convergent and coordinated international regulatory response to address the challenges associated with crypto corruption and build investor confidence in this ecosystem.
