Digital Securities
Client Accounts on Hold as FCA Locks Down ePayments
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.
- New AMLD5 laws have caught ePayments off-guard, necessitating platform upgrades
- ePayments was used as a gateway for laundering funds associated with proven scam, OneCoin
- 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’.
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
- OneCoin defrauds investors of $4 billion worldwide
- Mike Scott, Partner at law firm Locke Lord, compensated with $50 million for laundering $400 million for OneCoin founder, Dr. Ruja Ignatova
- 2017, Ignatova, vanishes with vast amounts of wealth
- Multiple convicted with various charges surrounding the OneCoin scam
- Robert Courtneidge, formerly of Locke Lord, is hired by ePayments
- FCA lockdown of ePayments occurs
- 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
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*
Updated: July 2020
We still have no new information. Readers who are interested in learning more should consider visiting EpaymentReviews.com
Revolut, a tech ‘unicorn,’ and one of the more promising FinTech platforms on the market today, has recently released its annual fiscal report. The annual fiscal report touches on the various accomplishments, setbacks, and financial markers surrounding the company’s operations throughout the 2019 fiscal year.
By the Numbers
Revolut has various developments to share, and the numbers seem to be trending in a positive direction.
The following is one key metric provided, which demonstrates the direction that its decisions have resulted in – active users.
- 2018 : 3.5M
- 2019 : 10M
- 2020 : 13.5M and counting
As its user base increases, so do its cash holdings on the users’ behalf, with this total jumping from £903M in 2018 to roughly £2,281M in 2019.
Furthermore, Revolut notes a substantial increase in 2019 revenue vs. 2018 (£162.7M vs £58.2). Of course, larger operations also result in great operational costs. Revolut witnessed a substantial jump in revenue as well as a tripling of operational costs over the same time frame, jumping to £107.4M in 2019 from £34.01M in 2018.
While expansion into new markets may be fuelling this jump in revenue, expansion has been made possible in the first place by a series of successful capital raises. Revolut successfully raised £580M in investments in the first half of 2020 alone, and we expect to see additional funds raised.
Service Expansion
Undoubtedly, various platform features implemented over the course of 2019 are also responsible for a portion of Revolut’s growth. A few examples of these include:
- Support for Apple Pay
- Commission free trading of U.S. listed stocks
- Expansion to Singapore, Australia*, United States*, Japan*
*launched in beta
Looking Forward
Despite not turning a profit, 2019 was an overall positive year for Revolut, considering its ongoing desire for global growth. Looking forward, the company has already established a game plan to ensure profits are one day realized. The following is an excerpt from the fiscal report, touching on what these plans entail.
- Future investment in the technology infrastructure and development of the core product offering to Revolut customers,
- Continue to operationalize Revolut Bank UAB and the roll-out across other European markets,
- Obtain further regulatory authorizations required to expand our product offering across jurisdictions,
- Develop existing operations in international jurisdictions including North America and Asia Pacific whilst continuing to expand our operations across the UK and EEA,
- Further investment in the customer support, risk and compliance infrastructure
Canadian Expansion
Whether looking at the revenue or losses sustained in 2019, each can be largely attributed to a desire for global expansion. Revolut has established a strong foothold in both the United Kingdom and Europe and has plans for expansion.
One example is the company’s anticipated entrance into Canada. Although Revolut has not provided an anticipated launch date for Canadian services, interested users can currently join a waitlist for early access.
When this entrance inevitably occurs, Revolut can expect strong competition from various other FinTech outfits establishing themselves in Canada. We recently touched on an example of this, as Canadian based, WealthSimple, launched a new crypto trading service.
As each of these companies develop and launch new services, the companies simultaneously become more comprehensive, and closely linked as competitors. Whether looking for investment capabilities, savings accounts, crypto trading, pre-paid debit cards, etc. – Revolut and its competitors have you covered.
Looking beyond these two, and the increasing list of FinTech companies following suit, it would not be surprising to find truth in rumours that PayPal will soon join the fray.
Revolut
Founded in 2015, Revolut is a FinTech company, with operations based out of London, England. In the time since launch, Revolut has developed a suite of services surrounding digital banking. Adoption of these services has allowed the Revolut team to expand, totaling over 2000 employees, to date.
CEO, Nikolay Storonsky, currently oversees company operations.
In recent weeks, we have seen an increase in the adoption of blockchain services, among traditional banks. First, U.S. based banks were given the green light to custody cryptocurrencies by the Office of the Comptroller of the Currency (OCC). Now, we learn that one of the largest banks in South Korea, KB Kookmin Bank, is already working to develop similar services.
Who’s Involved?
With regard to South Korea, the plan is for KB Kookmin Bank to begin offering custodial services for digital assets. This is a group effort involving the following companies,
This collaboration is particularly noteworthy, as KB Kookmin Bank is not just any old bank. They are currently the largest bank in South Korea. Moves made by a bank of this stature are followed closely by many. Although KB Kookmin Bank and its partners may be first to the table, expect to see others take a seat in the near future.
Future Asset Expansion
While initial services will centre on the custody of cryptocurrencies, it is believed that this support will eventually grow, encompassing various types of digital assets. More specifically, it is expected that in time, these custodial services will support digital securities.
In commentary released by Hashed, this expansion of supported assets was touched upon. Hashed states that through this collaboration, participants anticipate, “…that the digital asset industry will not only involve cryptocurrencies, but also other traditional assets such as real estate, artwork, and other reified rights that will be issued and traded on blockchain platforms.”
Although cryptocurrencies stand to benefit first, the development of such custodial services has the potential to transform and usher forth new growth among the digital securities sector.
Office of the Comptroller of the Currency
In the weeks preceding the news surrounding KB Kookmin Bank and its forthcoming custodial service, we saw the OCC release of an interpretive letter on the subject.
In this letter, the OCC breaks down, not only what digital assets are, but how banks can support the growing use. The OCC summarized its stance, stating,
“The OCC recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers. By providing such services, banks can continue to fulfill the financial intermediation function they have historically played in providing payment, loan and deposit services.”
It continued,
“…we conclude a national bank may provide these cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency. This letter also reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.”
Bank Adoption
Which came first, the chicken? Or the egg? This old saying could easily be applied to the current world of blockchain. Are these traditional banks jumping on board the train due to the recent resurgence being seen in the sector? Or is the sector surging due to banks jumping on board. Regardless of the answer, signs of blockchain adoption within traditional industries is a definite positive.
Hopefully, this swing in sentiment among banks continues to gain momentum, as banks have not always viewed digital assets in a positive light. Only months ago, we were reporting on difficulties being faced by German companies, as they were refused services by traditional banks.
KB Kookmin Bank
Founded in 2000, KB Kookmin Bank maintains operations in Seoul, South Korea. Since launch, KB Kookmin Bank has grown to employ over 25,000, while providing customers on a global scale with access to commercial banking services.
CEO, Hur Yin, currently oversees company operations.
Office of the Comptroller of the Currency (OCC)
The OCC is a U.S. based regulatory body, tasked with supervising national banks. This supervision is undertaken with the goal of ensuring fair and transparent financial services to all customers.
Acting Comptroller, Brian P. Brooks, currently oversees operations at the OCC.
On August 4th, 2020 Securities.io was threatened with legal action by Robert Paul Dunlap, the legal advocate for META 1 Coin, the creator, owner, controller, and also one of the defendants in the Complaint filed by the SEC. The threat followed the publication of an article titled “SEC Files Charges Against ex-Senator David Schmidt” which was published on March 25, 2020.
Who is META 1 Coin?
META 1 Coin raised funds in April 2018 by performing an Initial Coin Offering (ICO). As described by an SEC filing META 1 COIN raised at least 4.48 million from over 150 investors in the United States and internationally.
In order to raise funds misleading claims were made. These were some of the claims:
- They owned $1 billion in art insured against loss by a surety bond, and later, that META 1 owned $2 billion in gold assets;
- KPMG, one of the largest independent financial audit firms in the world, was auditing Meta1’s gold assets;
- Meta1 formed its own investment bank and developed its own digital currency exchange;
- the Coin is safe and risk-free and will never lose value;
- Each Coin, sold for either $22.22 or $44.44 would in two years be worth $50,000—up to a 224,923% return—as a “very conservative value.”
Unfortunately many investors did not perform adequate due diligence as the SEC claims the tokens were backed by nothing.
Litigation Threat:
The letter received by META 1 accused the SEC and Securities.io of being fraudulent, below are some of the accusations/threats and our responses.
If SECURITIES.io was to do any due diligence at all you would know it was a fictitious story fabricated by the SEC in order to make all digital assets look fraudulent.
Our response: Securities.io has the responsibility of reporting on both legitimate projects, and fraudulent projects. Every time an investor is taken advantage with false claims whether it is the form of an ICO, or other fraudulent behavior, it destroys the credibility of the industry. We also believe in the credibility and the mission of the SEC which is stated as “The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”.
So time will tell if SECURITIES.io is really about digital assets or just another STATE run publisher of malicious defamation.
Our response: Perhaps this is pushing a conspiracy theory or an agenda of being owned and controlled by a deep state. Either way, Securities.io is NOT owned in part or in whole by any government entity in any jurisdiction.
Today is August 4th 3:25 EST 2020 and a claim will be made in 24 hours and It will decimate SECURITIES.io if the named article is not immediately removed.
Our Response: This has been noted. We have fact checked the original article and it remains accurate.
Additionally, I am ordering a follow-up update of the facts regarding the validity or META 1 Coin
Our Response: We have updated the article to reflect new information regarding the fraud behind the initial ICO raise. We were unaware that information was missing, thank you for notifying us of this. Whenever we are notified of errors in reporting we take corrective action.
Summary:
Unfortunately, the digital assets industry continues to result in many operators that are taking advantage of the naivety of investors. It is our responsibility to report on this unethical behavior and to report on any actions taken against these rogue operators by the SEC or other government entities. We will continue with our mission.