It is almost as boring as it is necessary to repeat the very same statement over and over again – financial service providers have a very special responsibility for the well-being of society, the economy, and consumers. This responsibility is the reason why we do have financial market supervisory regimes and why financial service providers need licenses and permits. Efficient KYC/AML/CTF procedures are a conditio sine qua non for the dawning cybersociety. In view of the booming cybercrime, we must work much more radically on a global compliance regime.
Welcome to CyberFinance
This social responsibility and watchdog function of financial institutions will increase massively in the era of a decentralized, global networked cybersociety with algorithmically functioning FinTechs. Access to the global monetary system, bank and trading accounts is becoming increasingly easy for individuals and legal entities. Crypto has already massively reduced the entry barrier to the global monetary system over the last couple of years.
Innovative FinTechs such as Revolut already offer the opening of bank accounts and trading accounts within minutes based on algorithmically conducted KYC/AML/CFT. Moreover, the Open Banking approach makes the networking of financial institutions a simple finger exercise for developers. This CyberFinance really does pose major problems for politicians and regulators.
That is why violations of laws and regulatory provisions must also be pursued with particular care and severity. This must apply equally to traditional banks and FinTechs, to regulated as well as non-regulated payment processors. We need to implement a borderless, multi-jurisdictional accessible global compliance regime working with algorithms, artificial intelligence, and big data. Why not tasking the UN Office on Drugs and Crime with this project?
The Praxis Question
Financial service providers and in particular payment processors that facilitate cybercrime with their services while neglecting regulatory provisions or laws should be closed down. In the interest of protecting consumers and investors, but also our society, we must adopt a zero-tolerance approach towards wicked Fintechs.
One of those payment processors that is omnipresent in the cybercrime scene is the Cyprus-based unregulated Praxis Cashier System Ltd and its platform www.praxiscashier.com. This payment processor utilized the full power of API banking without an appropriate compliance regime. The company is not even licensed, it’s “simply” providing techno-organizational API services and onboards hundreds of scams each year.
We are not necessarily talking about willfull and intentional behavior here – although there are many black sheep in the financial industry in this respect too – but negligence. It must simply be made impossible for publicly called-out fraud systems to maintain bank accounts despite public warnings from financial market regulators.
It actually is an easy task to feed such public warnings into the risk systems of financial service providers and integrate them into the algorithmic KYC/AML/CFT checks. These would enable frictionless transactional AML checks without hardly any additional costs. FinTech’s which are either not willing or able to implement efficient compliance algorithms (and human-based supervision) should not be permitted to do their business.
Praxis is for sure a role-model for non-compliant FinTechs that need to be questioned by regulators and law enforcement agencies across jurisdictions if we are to fight cybercrime efficiently.
Legal actions against financial institutions
We, therefore, believe that the lawsuits against banks, as for example in the United States in the case of the GreyMountain Management (GMM) fraud scheme by David Cartu and his brothers, are correct. There, seven aggrieved investors in binary options fraud schemes have brought a putative class action against five major banks.
- Bank of America,
- Capital One,
- J.P. Morgan Chase, and
- Wells Fargo Bank,
These banks for sure will have the money to defend themselves against the class action. But the filing of such lawsuits alone is an important step to fight cybercrime. These lawsuits create public awareness and remind the banks of their responsibility. The fact that FinTelegram News reports and writes about the lawsuit and the case – as it does now – is thanks to the people who bring such lawsuits.
The Estonian Challenge
Financial service providers who negligently or intentionally support cybercrime in any form must be punished. This also includes crypto financial service providers.
How bad it is already in the area of crypto, shows the situation in Estonia were a “state-provided” license scheme for crypto FinTechs sparked an incredibly criminal FinTech scene. These criminal FinTechs connect with “good” FinTechs across multiple jurisdictional regimes via API, maintain accounts with “good,” and provide their cybercrime customers with the entire portfolio of payment services.
Again we refer to Praxis which we regard as a showcase for the dark side of FinTechs and compliance misdeeds. The unregulated Cypriot payment processor claims that it connects virtually everyone to everyone else via its APIs. Cybercriminals appreciate that. They really do! That is why Praxis appears as facilitating payment processor in far-above-average proportions of scams against which regulators warn. Algorithmic compliance implemented at Praxis? Of course not!
Closing down Praxis would make FinTech scene a better place, would harm perpetrators, and would send a strong signal to other FinTechs perpetrators.
Let’s continue to fight
In the weeks and months following COVID-19, we will have to make much more massive efforts to take action against “bad” FinTechs and financial service providers. For this reason, FinTelegram also supports the European Funds Recovery Initiative (EFRI), which we co-founded, in the best possible way to help investors and their lawyers to enforce their claims against scam-facilitating financial services providers.