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How tighter compliance can boost the reputation and value of ICOs

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How tighter compliance can boost the reputation and value of ICOs

At the latest Financial Action Task Force (FATF) meeting, 35 countries, the European Commission and the Gulf Co-operation Council urged the international body to improve understanding of money laundering risk related to cryptocurrencies. In light of this, Michael LaScola, Business Solution Specialist at Accuity, discusses some AML best practices for ICOs and why they should consider compliance an asset, rather than overhead.

The rise of ICOs

Michael LaScola

Michael LaScola

In 2017 Initial Coin Offerings (ICOs) became the hottest new tool for startups, and transitioned from being a relatively unknown fundraising method used in the blockchain community, to raising over $4 billion by the end of the year.[i] Just like Kickstarter or Go Fund Me, ICOs let entrepreneurs take their business plans directly to non-accredited[ii] or inexperienced investors to try to secure early stage funding for their ideas. Unlike traditional crowd-funding platforms that give away t-shirts and posters as a ‘thank you’ for investing, ICOs distribute digital coins to investors with the promise of big returns.

For most of 2017, the ICO market was on fire and the companies that launched them were doing everything they could to lure in investors, including running multi-platform social media campaigns and promoting celebrity endorsements. Most ICO pitches consisted of two elements; they encouraged their audience to read a ‘white paper’ – a document laying out their grand plans – and they prompted people to ‘buy now’ for the chance to secure the biggest profits.[iii] These marketing campaigns proved extremely successful in raising billions of dollars of startup funding.

Risky business

Unfortunately, the easy money bubble had to burst and as 2017 drew to a close, governments around the world began to take note and crackdown on the ICO market. In the U.S., the. Securities and Exchange Commission (SEC) ruled that many digital coins and tokens from ICOs must be considered securities and therefore subject to federal securities laws.[iv] China and South Korea banned ICOs altogether, and most recently, at the Financial Action Task Force (FATF) meeting held in February 2018, members representing 35 countries, the European Commission and the Gulf Co-operation Council, asked the global body to improve the understanding of money laundering risks relating to cryptocurrencies.[v]

While no crypto-enthusiast wants to see a fully-fledged ban on ICOs, there is clearly growing sentiment that a more regulated ICO market would create a fairer playing field for everyone. Since these investments are available to the public and not just accredited or experienced investors, it is important that situations like the one that occurred with Confido (in which the founders disappeared with $375,000 just days after concluding their ICO) are avoided.[vi]

With the U.S. SEC and now FATF positioned to take an even closer look at the ICO market in 2018, it is important to look at all of the risks involved, and to note that they don’t all fall on the side of the investors. The companies running ICOs in a market that is sure to become increasingly regulated, need to demonstrate they are operating as legitimate businesses. Part of that will mean understanding who their investors are and performing Know Your Customer (KYC) checks before engaging in transactions, just as financial institutions are required to do, to protect themselves from becoming involved in any illicit financial activity.

Bridging the compliance gap

The good news is that KYC compliance screening is not difficult to implement and a realm of regulator-ready best practices have already been tried and tested by financial institutions of all sizes, around the world.

Take sanctions screening, for example; best practice for ICOs would be to screen the lists of their contributors against the sanctions lists that are relevant to the jurisdictions in which they operate. In doing so, ICOs will be able to detect any investors who are linked to blacklisted entities and ensure they are not breaching sanctions legislation before coins are issued. Removing any questionable investors from the ICO fundraising round will not only ensure they are in compliance with AML and KYC laws, but will also send a clear signal to the market that they are a legitimate, trustworthy business.

Yet the screening of investors should not be limited to their initial onboarding; ICOs can last weeks or even months and someone who invested on day one might be added to a watch list some time later. Continuously re-screening investors until the conclusion of the ICO is the best way to guarantee that no bad actors are exploiting the system. After all, anyone who is involved in illicit financial activity might need a place to stash their cash at a moment’s notice and ICOs currently seem a much more attractive place to put it than banks which already have extensive AML and KYC infrastructures in place and can quickly stop deposits or freeze accounts.

Turning a problem into an opportunity

In a cryptocurrency market that is becoming increasingly crowded as each new ICO emerges, investors want to make sure they give their money the best chance of making a good return. Such investors are looking for indicators that the ICO is the real deal and that they won’t be scammed.

It all comes down to trust and reputation. The savviest ICOs in the market today are beginning to see that putting the correct compliance controls in place can be a smart commercial move as it gives investors confidence in the coin and in several cases, has proven to increase its value.

[i]https://www.forbes.com/sites/outofasia/2017/12/18/icos-in-2017-from-two-geeks-and-a-whitepaper-to-professional-fundraising-machines/#5a16ef63139e

[ii] A non-accredited investor refers to any investors who do not meet the income or net worth requirements set out by the Securities and Exchange Commission (SEC) https://www.investopedia.com/terms/n/nonaccreditedinvestor.asp

[iii]https://www.ft.com/content/2b0d8926-96d9-11e7-b83c-9588e51488a0

[iv]https://www.forbes.com/sites/nikolaikuznetsov/2017/10/10/regulations-to-make-or-break-cryptocurrencies-icos/#31fed4fb8a83

[v] https://news.bitcoin.com/countries-fatf-revise-global-cryptocurrency-standards/

[vi]https://www.cnbc.com/2017/11/21/confido-ico-exit-scam-founders-run-away-with-375k.html

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says 1

By Sonia Elks

(Thomson Reuters Foundation) – Women gained legal rights in nearly 30 countries last year despite disruption due to COVID-19, but governments must do more to ease the disproportionate burden shouldered by women during the pandemic, the World Bank said on Tuesday.

Nations should prioritise gender equality in economic recovery efforts, the bank said, warning that progress on equal rights was threatened by heavier job losses in female-dominated sectors, increased childcare and a surge in domestic violence.

“This pandemic has exacerbated existing inequalities that disadvantage girls and women,” David Malpass, World Bank Group president, said in a statement accompanying the annual “Women, Business and the Law” report.

“Women should have the same access to finance and the same rights to inheritance as men and must be at the centre of our efforts toward an inclusive and resilient recovery from the COVID-19 pandemic.”

A total of 27 countries reformed laws or regulations to give women more economic equality with men in 2019-20, said the report, which grades 190 nations on laws and regulations that affect women’s economic opportunities.

While countries in all of the world’s regions made improvements in the new index – with most reforms addressing pay and parenthood, women on average still have only about three quarters of the rights granted to men, the report found.

Notably, nearly 40 countries brought in extra benefit or leave policies to help employees balance their jobs with the extra childcare needs created by coronavirus restrictions.

But such measures were “few and far between” worldwide and will probably not go far enough to tackle the “motherhood penalty” many women face in the workplace, it said.

The report also noted separate data from a United Nations tool tracking gender-sensitive pandemic responses which found 70% of such measures addressed violence, with just 10% targeting women’s economic security.

The pandemic could result in “a backslide on various hard-won advances in women’s rights achieved in recent years”, said Antonia Kirkland, the global lead on legal equality at women’s rights organisation Equality Now.

“This disruption is a unique opportunity for countries to rebuild more resilient, inclusive and prosperous economies,” she told the Thomson Reuters Foundation by email.

“But this can only be achieved alongside the removal of sex discriminatory laws that prevent women from participating fully and equally in economic, social and family life.”

(Reporting by Sonia Elks @soniaelks; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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Digital health checks vital to travel recovery, Heathrow says

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Digital health checks vital to travel recovery, Heathrow says 2

By Sarah Young

LONDON (Reuters) – Digital health checks will be vital to a recovery in foreign travel from the COVID-19 pandemic, Britain’s Heathrow airport said on Wednesday, after a collapse in passenger numbers saw it plunge to a 2 billion pound ($2.8 billion) loss last year.

The UK government said on Monday trips abroad could restart in mid-May as its vaccination campaign kicks in, sparking a surge in holiday bookings.

It is also looking into a digital health passport or app to help ease restrictions, while conceding the benefits have to be weighed against potential risks to civil liberties.

But Heathrow chief executive John Holland-Kaye said digital technology, and international agreements, would be vital to reviving a travel industry on its knees.

“It’s absolutely critical and that’s one of the main things that government needs to work on,” he said, when asked about a digital health app.

At present, paper checks on COVID-19 test results and passenger locator forms take 20 minutes per traveller at Heathrow, making travel near impossible should passenger numbers rise from current low levels.

Britain’s biggest airport said it was “very likely” people would be able to go on their summer holidays, but expects passenger numbers will take time to recover.

The airport, west of London, is forecasting 25 million passengers in the second half of the year, meaning it would be operating at about 50% capacity.

Heathrow, owned by Spain’s Ferrovial, the Qatar Investment Authority, China Investment Corp and others, last year lost its title as Europe’s busiest airport to Paris after its flight schedules shrank more than those of its rivals.

Passenger numbers plunged 73% to 22 million people last year, with half of those travelling during January and February, before the pandemic shut down global travel in March.

Heathrow said it had 3.9 billion pounds of liquidity, giving it sufficient resources to keep going with low levels of traffic until 2023, despite the 2 billion loss before tax for 2020.

The airport urged the government to provide business tax breaks for big airports, something only available to smaller airports so far, and to extend the furlough job support scheme to help it financially before the recovery takes off.

($1 = 0.7044 pounds)

(Reporting by Sarah Young. Editing by James Davey and Mark Potter)

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Britain’s Heathrow sinks to $2.8 billion loss during pandemic

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Britain's Heathrow sinks to $2.8 billion loss during pandemic 3

LONDON (Reuters) – Britain’s Heathrow Airport plunged to a 2 billion pound ($2.8 billion) annual loss after passenger numbers collapsed to levels last seen in the 1970s during the pandemic.

Heathrow called on the government to agree a common international travel standard to allow passengers to start flying again in the summer and to provide business tax breaks for airports to help them ride out the crisis.

The airport, west of London, is hopeful that travel markets will reopen from mid-May after a government announcement on easing lockdown on Monday.

Still Britain’s biggest airport, Heathrow last year lost its title as the busiest in Europe to Paris as its flight schedules contracted more than its rival’s.

The airport said on Wednesday that during 2020 passenger numbers shrunk 73% to 22 million people, with half of those people having travelled during January and February before COVID-19 shut down global travel.

The airport sunk to a 2 billion loss before tax on revenues which were down 62% to 1.18 billion pounds, but Heathrow said it had 3.9 billion pounds of liquidity and that could keep it going until 2023.

The airport is owned by Spain’s Ferrovial, the Qatar Investment Authority and China Investment Corp, among others.

($1 = 0.7044 pounds)

(Reporting by Sarah Young; Editing by Kate Holton and James Davey)

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