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Client Accounts on Hold as FCA Locks Down ePayments

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There are few feelings worse than having one’s control stripped away, only to be at the mercy of another.  This is, unfortunately, the case for a plethora of clients which utilize digital payments processor, ‘ePayments Systems Limited’.

Mid-February saw an enforced lockdown of ePayments’ client accounts, which persists as we enter March.  This lockdown was a result of orders by the Financial Conduct Authority, as the regulatory body probes operations for short-comings surrounding Anti-Money Laundering practices.

While exact figures are unknown, it is surmised that this lockdown has affected over $150 million USD worth of client funds.  These funds are touted as coming from over 1 million client accounts.

When the FCA stepped in, arranging the persisting lockdown of their systems, ePayments provided their clientele with the following notice.

“On the February 11, 2020 ePayments Systems Limited (‘ePayments’) agreed with the Financial Conduct Authority (‘FCA’) to suspend all activity on its customer accounts. This decision was taken following a review, by the FCA, of ePayments anti-money laundering systems and controls, which identified weakness that required remediation.

We know this will be a very frustrating time for our customers. We apologise for any inconvenience caused and are working tirelessly to ensure improvements are made and accounts can be reactivated as soon as possible. During this improvement process, we want to assure customers that their funds are being safeguarded as normal.”

Looking for Answers

The situation is obviously a negative one, continuing to linger as the company looks for a resolution.  What isn’t so obvious is the reasoning behind the lockdown.

There are a few theories that have emerged as potential culprits for the development.

  1. New AMLD5 laws have caught ePayments off-guard, necessitating platform upgrades
  2. ePayments was used as a gateway for laundering funds associated with proven scam, OneCoin
  3. Partners of ePayments are cracking down on payments associated with ‘high-risk’ industries

Today, we’ll take a brief look at the merit behind each of these theories.  The reality, however, is that maybe none of these are correct.  Maybe we simply need to wait for a resolution before becoming privy to answers.

Anti-Money Laundering

Before diving into the aforementioned theories, we can establish one fact – with the statements provided by ePayments, we at least know that this situation revolves around their AML procedures.

In order to remain authorized by the FCA, a company must adhere to strict compliance measures surrounding AML laws.

While digital payment solutions offer a bevy of benefits –such as speed and cost – they come with certain caveats.  One of these is the potential for misuse through nefarious activity.  One of the most commonly known means of illicit activity is money laundering – a practice which enables ‘dirty’ money, associated with illegal activities, to be passed off as ‘clean’ or legitimate.

Naturally, this is a practice which is discouraged, and has resulted in strict measures being taken to ensure it does not occur.  These practices are known as ‘Anti-Money Laundering’ laws, or ‘AML’.

What is AML?

In the case of ePayments, it is these AML measures, or rather a lack of, which prompted the FCA enforced platform lockdown.

Scenario 1 – AMLD5

Theory number #1 is a very plausible scenario.  The acronym ‘AMLD5’ refers to Europe’s 5th Anti-Money Laundering Directive.

AMLD5 which came into law in 2018, and came into effect in 2020, comes with various stipulations – with one pair possibly being the reason for the shutdown.

  • Virtual Asset Service Providers are now viewed on level ground with other entities, despite perceived risk levels.
  • Virtual Asset Service Providers must now conform to more stringent AML and KYC rules.

While ePayments may have once conformed to regulations, their systems may simply need upgraded to reflect their new obligations under AMLD5.

While potentially costly for ePayments, this possible scenario is overall positive (aside from the obvious inconvenience of those affected by the lockdown).  At the end of the day, this scenario will result in a more secure ePayments platform moving forward.

Beyond this particular scenario, AMLD5 has already had widespread effects across Europe.  This was recently made obvious when Germany redefined Bitcoin as a financial instrument.

Scenario 2 – ePayments + OneCoin

This scenario is much more of a worry than new found issues with AMLD5.  While the situation as described, is disheartening, thus far, in and of itself, there may be something larger at play.  There may be links between ePayments and one of the largest scams of all time – OneCoin.

Many speculate that the potentially porous AML practices of ePayments allowed for some of the roughly $4 billion in OneCoin funds to be funnelled through the platform.

This speculation is lent some level of credence through the recent resignation of Robert Courtneidge, from ePayments.  This resignation, which occurred mere days after the platform lockdown, capped off a short stint at the company for Courtneidge.  His prior employer?  The law firm Locke Lord – the same firm which saw a partner, Mark Scott, convicted of laundering roughly $400 million worth of funds on behalf of OneCoin founder, Dr. Ruja Ignatova.

This development begs the questions – was ePayments used to launder funds associated with OneCoin? And if so, are some of the funds, currently under lockdown, a portion of those from OneCoin?

To date, much if this is simply conjecture, as the FCA has not yet released commentary on the finer details surrounding the ePayments lockdown.  However, if it quacks like a duck…

A Potential Timeline
  1. OneCoin defrauds investors of $4 billion worldwide
  2. Mike Scott, Partner at law firm Locke Lord, compensated with $50 million for laundering $400 million for OneCoin founder, Dr. Ruja Ignatova
  3. 2017, Ignatova, vanishes with vast amounts of wealth
  4. Multiple convicted with various charges surrounding the OneCoin scam
  5. Robert Courtneidge, formerly of Locke Lord, is hired by ePayments
  6. FCA lockdown of ePayments occurs
  7. Robert Courtneidge resigns from ePayments
Future Intrigue

Where this entire saga becomes intriguing, is the potential for tracking down the elusive Dr. Ruja Ignatova.

IF there is a link established between OneCoin and ePayments, MAYBE there remain funds associated with Ignatova in those that are now under lockdown.  Providing this were to be the case, a new avenue for potentially tracking down the whereabouts of Ignatova becomes a possibility.

While these are massive ifs and maybes, the scope of the situation is large enough to warrant genuine intrigue moving forward.

Scenario 3 – High Risk Relations

The final leading theory behind the ePayments lockdown is one that has proven to be the downfall of many similar platforms in the past – high risk relations.

Companies like ePayments are not able to operate alone.  They require relations with banks, insurance providers, and more.  Unfortunately, this means that they, and similar companies, are often at the mercy of these service providers.  Often times, we will see a service provider deem that clientele are high risk, and cease offering their services.

With regards to ePayments, it is believed that, roughly, at least 20% of all transactions processed through their platforms can be attributed to the following industries.

  • Pornographic Content
  • Foreign Exchange (FOREX)
  • Cryptocurrencies

Service providers are typically justified in ceasing relations surrounding these industries because, sadly, they are rife with scams and frauds – see the previous theory on OneCoin.

Digital  Securities Exchange (DSX)

Connection to the aforementioned high risk industries may be strongest with that of Cryptocurrency.  This is through cryptocurrency exchange, DSX;  An exchange which shares the same founder as ePayments – Mikhail Rymanov.

Ties between platforms go beyond founders, however.  For example, the pair utilize each other’s services for the onboarding of clients, as well as facilitating value transfers between accounts.

Thankfully, nations around the world are beginning to step up, ensuring level playing grounds for all businesses.  A recent example of this is the Supreme Court of India’s recent decision to overturn their central banks decision to impose a blanket ban on crypto-related businesses.

Due to the growth surrounding acceptance being seen globally, it is unlikely that the ePayments lockdown is due to high-risk relations.

 

Progress Updates and a Crystal Ball

Regardless of which scenario you believe to be true, the public has not been given much information to work with, at this time.  On a promising note, ePayments has, indeed, released multiple updates and ‘FAQ’ dossiers, indicating that they are at least working on the situation.  These can be found through the following links.

Temporary Account Suspension FAQ for Customers

Accounts Update and New FAQs

Update on Improvement Process

At the end of the day, no one but the FCA and ePayments knows the full situation.  Perhaps the reasoning behind the lockdown is a simple one, and the lack of details is to prevent exploitation of a vulnerability.

The various scenarios discussed today are just a few possibilities, with one possessing no more merit than the last.  For the time being, we will just need to continue consulting our crystal balls, as we try to make sense of the situation – and hope that ePayments seeks truth when stating,

“We want to reassure customers that funds are being safeguarded as normal and can be retrieved once the improvement process has been completed.”

 

ePayments Systems Limited

Operating within the United Kingdom, ePayments Systems Limited has grown into one of the largest digital payment processers in the nation.

CEO, Mikhail Rymanov, has overseen company operations since launch in 2010.

*Mikhail Rymanov was contacted for commentary prior to publishing – no response was received*

OneCoin

OneCoin is often noted as one of the largest scams of all time.  This Ponzi scheme saw countless investors defrauded of roughly $4 billion USD.

The project, which saw its founder, Dr. Ruja Ignatova, disappear in 2017, with vast amounts of funds no less, was found to be a highly manipulated ruse.  While it promised to be the future of payments through various mining practices and secure blockchains, these were found to be completely fabricated.

Financial Conduct Authority

The FCA is a United Kingdom based regulatory body.  They note that their main tasks are threefold.

  • Protect Financial Markets
  • Protect Consumers
  • Promote Competition

These tasks are performed within the confines of the Financial Services and Markets Act 2000.  Since their formation in 2013, the FCA has grown to regulate 60,000+ businesses.

*The FCA was contacted for commentary prior to publishing – no response was received*

 

*This article will be updated when/if new information comes to light*

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Joshua Stoner is a multi-faceted working professional. He has a great interest in the revolutionary 'blockchain' technology. In addition to this, he is a licenced Paramedic in Nova Scotia, Canada. As such, he can provide emergency care/medicine to any situation necessitating it.

Exchanges

Tokenise International Ltd Launches Tokenise Stock Exchange

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Tokenise International Ltd Launches Tokenise Stock Exchange

Tokenise International Ltd

While some companies are content servicing a narrow range of the digital securities sector, there are a few players which have their eyes on something greater.  Tokenise is one of these companies, with a stated goal of offering a comprehensive suite of services on a global scale.

Based out of Gibraltar, and licenced within Barbados, Tokenise International already maintains a global presence.  The group is comprised of multiple branches,

What’s the Problem?

Arguably the biggest missing link in the world of digital securities, is a developed group of exchanges.  To date, the sector is rife with competitors operating as issuance platforms and custodians, yet there remains a notable dearth of options for the actual buying/selling of digital securities.

Furthermore, multiple exchanges are restricted to offering their services within their own nation’s borders.  Very few, if any, truly global solutions exist.

How Will They Solve It? – Tokenise Stock Exchange

By obtaining licensure as a broker, Tokenise.io is ready to be put to work.  With this being the case, the Tokenise Stock Exchange has become the immediate focus of holding company, Tokenise International.

The Tokenise Stock Exchange, formerly known as DAXNET, has just seen its website go live.  Here, investors can begin onboarding, gaining access to a variety of opportunities.

Tokenise Stock Exchange lists the following as a couple of the services they offer at this time.

  • Issuance capabilities, facilitating the hosting both IPOs and STOs
  • Secondary market support, providing a ‘home’ for established tokens, creating liquidity and accessibility as a result

Beyond supporting the issuance, and trading, of security tokens, Tokenise has imbued a great deal of flexibility into the types of security tokens supported.  These tokens may be structured as/represent anything from equity, debt, dividends, fractional ownership, Funds, and more.

Martin Graham, Group Chairman, touched on why security tokens hold such promise, stating,

“Tokenisation of securities and other real-world assets will transform the accessibility and efficiency of capital markets. Removing inefficiencies, friction and barriers to participation will democratise the process of matching providers and consumers of risk capital. This, in turn, will increase the flow of funds and investment opportunities for market participants.”

Naturally, as this is an exchange supporting security tokens, participation among investors is limited to those which pass the necessary KYC and AML parameters.

Tokenise UK

While the company’s focus may be on Tokenise Stock Exchange, development still continues with Tokenise UK.  With the state of the economy in 2020, many have noted that funding through traditional VC channels has greatly diminished.  As a result, we have seen an increased interest in equity crowdfunding.

While time will tell if equity crowdfunding can sustain and convert this interest into actual participation, Tokenise intends on being ready.  One example of events which can be expected on the platform is the current offering by KABN – an equity token offering looking to raise $8 million USD.

The Team

Behind the various products on offer, by Tokenise International, is an adept team.  The core of this group is comprised of the following five individuals, with each boasting impressive resumes.

Michael Kessler            – CEO & Founder

Martin Graham            – Group Chairman

Simone Murray            – Chief Financial Officer

Simon Kiero-Watson   – Director of Markets

Hirander Misra            – Group Director

What’s Next?

With the onboarding of clients commencing, we reached out to Tokenise Stock Exchange to ask them, ‘What is next?  What is the next marker on the Tokenise roadmap which companies and investors alike can look forward to?’

Michael Kessler, CEO & Founder of Tokenise Stock Exchange, took the time to elaborate on what they offer, and what we can look forward to.  He stated,

“Tokenisation of securities and other real world-assets will transform the accessibility and efficiency of capital markets. By bringing new asset classes across multiple jurisdictions to a global community of investors will enable companies to raise capital more easily and enables greater liquidity to be generated where it was previously illiquid.

In terms of the next steps

  1. Enabling of full KYC & AML as well as categorisation of investors
  2. We are talking to a number of issuers who want to list on the platform and go through one of our corporate advisers
  3. We expect to have the first listings coming through over the coming weeks/months (partly dependant on Covid) that will allow people to list multiple asset classes to suit their requirements, these include:
  • New asset classes
  • Fractional ownership of physical assets
  • Private equity Royalties

As well as traditional assets:

  • Equities
  • Bonds
  • Funds
  • Commodities

We are talking to over 20 new companies from securitising influencers and household names, medicinal CBD facilities, property assets, beverage producers, beauty products, fintech businesses etc. Ideally over the coming weeks we will have 3-4 new issuances ready to go through the listing process and join our exchange. We would love new issuers to contact us and for investors to register.”

The Competition

While the market is nowhere near saturated, with regards to security token exchanges, there are a few currently active or in development.  Each of the following holds the potential to be a competitor with what Tokenise has to offer.

Each of these exchanges vary slightly, in that MERJ serves a global client base, while OFN is restricted to the U.S., and Archax has yet to launch.

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Token Solution Providers

SEBA to Integrate Tokensoft Service Suite

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SEBA to Integrate Tokensoft Service Suite

Service Integration

Swiss bank, SEBA, has just announced the integration of service provider, Tokensoft.  New to Europe, Tokensoft will see their capabilities leveraged by, what is considered, one of the more promising banks involved with blockchain.

With SEBA maintaining a presence in over 10 countries, this integration of services stands to have a widespread positive effect.  Between their licensure, obtained through FINMA, a well-funded runway, tech integration, and a friendly government, SEBA seems well-poised to set themselves up as a leader in the digital securities sector.

That Didn’t Take Long

When we first addressed the expansion of Tokensoft in to Europe, we did not expect to be reporting on new partnerships less than one week later; yet here we are, and SEBA has announced the integration of Tokensoft services into their own offerings.

SEBA notes three main areas which they expect will benefit from this integration.

  • Expansion of capabilities surrounding the creation of customized digital securities
  • Mutual benefiting from financial market and technology expertise to broaden customer base
  • Push the sector forward through ensuring interoperability with past and present FinTech

Enticing Regulations Bring Tokensoft to Europe

It’s All Part of the Plan

Much like Tokensoft, this move is all part of a plan by SEBA to develop, both, the digital securities sector and a foothold within it.

Something that will allow for SEBA to continue developing their services, and establishing partnerships such as the one discussed here today, is their past success during capital raises.  In recent months, SEBA has indicated that they looked to build upon a, roughly, $100M Series A, with a $100M Series B.

Swiss Digital Asset Bank, SEBA, to Raise Nearly $100 Million

Commentary

Upon announcing this new alliance, representatives from each, SEBA and Tokensoft, took the time to comment.

Matthew Alexander, Head Asset Tokenization at SEBA, stated,

“We are convinced that this strategic partnership will enable us to provide our clients with enhanced tokenization technology and solutions to suit existing and emerging demands.  As one of the leading security token issuance and asset servicing platforms, Tokensoft’s core competencies perfectly complement our existing asset tokenization capabilities.  Our Asset Tokenization division offers enterprise grade solutions, with our Swiss banking license assuring the highest standards in security and stability.”

Mason Borda, CEO of Tokensoft, stated,

“Switzerland has been at the forefront of digital asset development – SEBA is globally one of the first banks with a focus on digital assets, which received a banking and securities dealer license from the Swiss Financial Market Supervisory Authority (FINMA).  We believe that such partnerships are the kind of careful, detailed groundwork that will lay the foundations for a robust Digital Asset Economy in the years to come.”

SEBA

Founded in 2018, SEBA maintains headquarters in Zug, Switzerland.  Above all, SEBA has shown belief in a future built upon digital securities.  In addition to working towards making this belief a reality, the bank continues to provide various traditional financial services to their customers.

CEO, Guido Buehler, currently oversees company operations.

TokenSoft

Founded in 2018, Tokensoft maintains headquarters in San Francisco, United States.  The team at Tokensoft has developed a variety of solutions built to facilitate growth in the digital securities sector.

CEO, Mason Borda, currently oversees company operations.

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Token Solution Providers

Saudi Arabian Digital Securities Issuance Platform to be Developed by Securrency + Musharaka Capital

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Working Together for Saudi Arabia

Today saw two companies announce a new working relationship, with the intent of growing the digital securities sector – Securrency and Musharaka Capital.

The goal of this partnerships is to develop a digital securities issuance platform, targeting, specifically, towards Saudi Arabia.

Commentary

Upon announcing their partnership, representatives from each, Securrency and Mushraka, took the time to comment.

John Hensel, Chief Operating Officer of Securrency, stated,

“We are pleased and honored to be working with Musharaka Capital on this groundbreaking initiative. Saudi Arabia is the largest market in the region and, by combining Musharaka’s deep financial markets expertise and our cutting-edge technology, this venture will create new opportunities for capital formation and enhanced liquidity. Together with Musharaka’s strong leadership team, Securrency aims to stimulate the growth of businesses in Saudi Arabia and streamline foreign investment into the Kingdom.”

Ibrahim Al-Assaf, CEO of Musharaka Capital stated,

 “This is surely a Fintech leap. Such projects were not feasible a few years ago due to the lack of consumer demand. However, as the economy shifts to digital trading and consumer trends develop, we are introducing developments that didn’t exist in the Saudi market. Our ability to be dynamic and adapt to consumer needs while having an agile and well-equipped team is essential to grow and succeed in our current business environment.”

Middle East

Over the past year, there has been an increasing global presence surrounding digital securities.  While the sector may have started out hot within North America, the concept behind tokenization quickly caught on, and spread to regions like Europe and Asia.  Fast forward to today, and Europe has, arguably, made the most headway; As made evident through multiple  countries developing clear regulations – resulting in companies shifting operations into these regions.

With that being said, it is both, positive and unsurprising, to see the sector making headway within the Middle East.  While, technically, situated within multiple continents, the Middle East is most often viewed as its own region.

This expansion into new regions simply underscores the potential which digital securities hold, as countries around the world are working to establish partnerships and capabilities, to essentially ‘futureproof’ the way they operate.

Musharaka Capital

Founded in 2013, Musharaka Capital maintains operations in Saudi Arabia.  Above all, Musharaka Capital acts as an investment firm, with a focus on real-estate.  Company services extend to include advisory services, portfolio management, custody, and more.

CEO, Ibrahim Al-Assaf, currently oversees company operations.

Securrency

Founded in 2015, Securrency is headquartered in Washington, D.C.  The team behind the company has developed a variety of offerings meant to service the digital securities sector.  These services include the ‘Compliance Aware Token’, Securrency RegManager, Securrency InfinXchange, and more.

CEO, Dan Doney, currently oversees company operations.

In Other News

In our on-going interview series, we recently had the pleasure of speaking with Securrency CEO, Dan Doney.  Through this conversation, we learn about Doney and his experiences with the FBI, NSA, DHS, and DIA, along with what makes Securrency special.

Interview Series – Dan Doney, CEO of Securrency

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