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By Michael Magrath, Vice President, Global Standards and Regulations, OneSpan


Put simply, digital assets are unique digital representations of financial assets, the ownership of which is registered securely on a blockchain. This includes cryptocurrencies, stablecoins, NFTs and digital asset tokens. With global financial institutions investing in cryptoassets, consumer ownership of cryptocurrency skyrocketing, and cryptocurrency even becoming legal tender in some countries, digital assets are now playing a significant role in the global financial ecosystem.

Like with any emerging technology, regulation in this area has for many years lagged behind the pace of innovation. However, this is now changing as regulators rush to protect investors, fight crime and establish their jurisdictions as fintech hubs. With this in mind, what regulatory changes can we expect key European players – France, Germany and the UK – to make in 2022 and beyond?


Michael Magrath

Confronting the growing role of digital assets in global money laundering

From drug trafficking to ransomware, we cannot ignore the fact that cryptocurrency enables serious organised crime. Crypto allows bad actors to easily receive bribes and ransoms, as well as disseminating the proceeds of their crimes – all without being identified and apprehended. This pressing issue was highlighted by the European Commission’s EU Strategy to Tackle Organised Crime 2021-2025 report published earlier this year. The authors noted that: “only 1% of criminal assets are confiscated. This has been aggravated by the increasing use of financial channels with more limited oversight than the banking sector, such as virtual currencies.”

Given this startling figure, it’s no surprise that EU member states are closely examining the role of digital assets in criminal activity – so, what steps are they taking?

In April this year, the French Ministry of the Economy and Finance published a decree designed to strengthen the country’s existing mechanism for freezing criminal assets. The new decree aims to eliminate the use of anonymous digital assets in illegal activity. At its core is an expansion of the scope of customer due diligence requirements for payment and e-money institutions, and a requirement for digital asset service providers to identify customers before permitting a transaction.

In addition to member states’ individual efforts, the EU’s proposed Regulation of Markets in Crypto-Assets (MiCA) legislation proposes a detailed regulatory framework for digital asset issuers across the bloc. It’s worth noting that the legislation doesn’t apply to central bank digital currencies, issued by states and regulated by central banks, but other cryptocurrencies, including utility tokens and payment tokens do fall within its scope. In the three years since MiCA was first put forward, there remains a lack of clarity in several key areas. Currently, it’s expected that a single licensing regime for cryptoassets will be in place across all member states by 2024.

Outside the EU, the UK Treasury published a consultation on amendments to its 2017 Money Laundering, Terrorist Financing and Transfer of Funds Regulations in July 2021. The amendments seek to implement a Travel Rule for the cross-border transfer of cryptoassets. The Financial Action Task Force’s Travel Rule requires both financial institutions Virtual Asset Service Providers (VASPs) (cryptocurrency exchanges)—to collect personal data including names and account numbers for both senders and recipients in wire transactions exceeding 1,000 USD/EUR. Secondary legislation is expected to be introduced in spring 2022.


Boosting security standards for exchanges and custodians

Money laundering isn’t the only pressing concern and increased scrutiny has been placed on exchanges. Though undoubtedly the most high-profile, the recent Coinbase hack was not the first to successfully target crypto exchanges and custodians. In fact, research shows that an estimated $1.9 billion worth of cryptocurrency was stolen by hackers in 2020. This eyewatering figure demonstrates that the security standards of digital asset exchanges and custodians must be significantly improved to protect investors.

The German Federal Financial Supervisory Authority (BaFin) has established itself as a pioneer in regulating digital assets – and has already taken significant steps to boosting security standards among cryptocurrency exchanges and custodians. Germany was one of the first countries to allow financial institutions to custody cryptoassets. This was classified as a financial service back in January 2020. German law states that all entities seeking to custody cryptoassets, and those engaging in the trade of cryptocurrency, must apply for BaFin authorisation. The German Banking Act considers all crypto custodians and exchanges to be financial institutions, so they must adhere to stringent anti-money laundering rules.

In the UK, the Financial Conduct Authority (FCA) will soon require cryptoasset exchanges and custodians to submit an annual financial crime report. As part of the FCA’s Extension of Annual Financial Crime Reporting Obligation policy, the number of firms required to submit to financial crime reporting is expected to rise from 2,500 to around 7,000. The requirement will go into effect from 30 March 2022.

Though it’s heartening to see increased regulation in this area, custodians and exchanges need to go above and beyond the bare minimum of what is required by law. This is the only way to cultivate lasting consumer trust, which is currently at an all-time low.


Offering clarity on licensing and consumer protection for financial institutions

With the value of digital assets soaring, it’s no surprise that banks and financial institutions are keen get involved by creating exchange traded products linked to cryptocurrencies. Essentially, crypto exchange traded funds (ETFs) are securities that track the price of a cryptocurrency, like Bitcoin or Ether, but can be bought and sold on a regular stock exchange.

As interest in such products continues to grow, there are increasing calls for more to be done to clarify how banks and financial institutions are allowed to license the purchase of cryptoassets.

Both Germany and France have approved the sale of exchange traded products linked to cryptocurrencies. In fact, just last month, Europe’s first UCITs-compliant bitcoin ETF was listed on the Paris stock exchange. It’s the first product of its kind to be made available to retail and institutional investors across the EU.

It was a desire to protect retail investors from the high volatility of cryptocurrency markets that led the UK government to ban ETFs of crypto products back in 2020. Given that many countries, including Germany, France and most recently the US, have approved exchange traded products linked to cryptocurrencies, the UK’s cautious position makes it an outlier in this area. And considering that retail investors can legally trade ETFs of volatile commodities like gold and oil, many have branded the UK’s outright ban as heavy-handed and disproportionate.

Overall, it’s clear that there’s a palpable sense of urgency among regulators to create a fair and enduring legislative framework governing digital assets. In 2022, we can expect regulation to increase in both complexity and rigour. To ensure that this brings stability, protects investors, and doesn’t stifle innovation, key industry players should collaborate with regulators, rather than resisting external oversight.

To discover more about the regulation of digital assets, download OneSpan’s Global Financial Regulatory Report here.


Cloud technology in banking: Why adoption is on the rise




Alpesh Tailor, Executive Director at digital transformation specialist GFT


The banking sector has never shied away from innovation, whether it is new products to improve customer savings habits or new ways of interacting with people and business, but embracing new technologies such as cloud has, until recently, been relatively slow. However, leading global financial institutions such as Goldman Sachs and Deutsche Bank have accelerated their adoption of cloud, which can provide insights for efficient technology transformation across the sector.

We conducted research to measure 21 medium-size and large banks’ sentiment and operations regarding cloud technology. Examining the relationship between cloud technology and banking professionals, our research provides an insight into the overall finance sector’s perception of cloud technology and how its application can improve banking procedures and efficiency.


Scale-up abilities

A significant trend showed that the way people use their finances and banking systems has changed, particularly when it comes to payments and transfers. Our research revealed that 86% of bankers have adopted cloud services to harness its virtually unlimited scalability, citing a definitive change in transaction behaviour as the main reason for moving to the cloud.

In the world of retail banking, buy-now-pay-later, open banking, and contactless payment systems have revolutionised the way people use their bank, making financial management easier and more efficient. However, despite these evolutions, high street banks are playing catch-up to the challenger banks who possess fewer legacy processes and, therefore, an easier migration to new technologies, such as the full utilisation of cloud and artificial intelligence.

The cloud provides a dependable, scalable, and flexible data system that allows traditional banks to modernise quickly and stay abreast of the innovations that ‘born-in-the-cloud’ challenger banks are bringing to the market. An increasingly popular way of doing this is by adopting a hybrid and multicloud approach.

Most organisations are considering diversifying their cloud technology, with 76% of bankers now agreeing with the importance of implementing multicloud systems in order to benefit from resilience and security improvements made by the main cloud providers. These cloud ‘hyperscalers’ also provide regular updates and continue to release exclusive new services and platforms as they continue to innovate.


Optimising costs

Our research indicates that cost optimisation is a primary reason that banks are looking toward the cloud for their future storage needs, with 81% of bankers confirming they have adopted cloud technology to save costs.

Installing and maintaining on-premise IT systems is lengthy and costly for financial institutions. When using the cloud, however, purchasing and installing hardware is no longer required as the cloud service provider hosts all the required infrastructure. The management of the hardware is included within this, reducing the overall cost of IT support further.


 Organisational inertia

Technological innovations are usually heralded for their ability to streamline operations, making them quicker and more secure. Our research illustrates that 62% of bankers believe organisational culture and inertia to be a key challenge within the sector. Besides being flexible for scalability and cost, adopting cloud technology can bolster organisational efficiency, since banks can spend fewer resources managing the relationship between trading volumes and payment infrastructure. Bankers acknowledge this opportunity, with 95% of organisations understanding that cloud technology can reduce time-to-market.


Overcoming misconceptions with cloud technology

Misconceptions usually exist around any emerging technology and our research found that this theme continues with cloud technology.

43% of the bankers we spoke to admitted that security concerns have impeded full cloud migration – a concern that has frequently been confirmed when speaking to financial services institutions. However, cloud providers invest heavily in the security of their cloud infrastructure which, as a result, makes it almost always safer than its on-premise, client-owned counterpart.

One aspect of adopting the cloud that continues to cause concern, is that which is commonly termed the ‘digital skills gap’. More than half of banks claim a lack of cloud-savvy employees internally has slowed down adoption. At GFT, we understand that this is a major issue for the adoption of cloud technology in all sectors, including banking, and have committed to training and encouraging young people to learn the required skills and enter the sector. We recently launched our Manchester Innovation Hub – a dedicated location to support the upskilling and growth of tech roles in the north.

Going forwards, cloud technology is the primary option for banks seeking to evolve and scale their business, whilst minimising risk, time and cost. Bankers recognise these benefits and the overall findings of our research suggest they will continue to grow their investment in cloud technology. Whilst evolving traditional legacy systems is very challenging, cloud technology continues to advance and we believe that over time it will become a powerful mainstay within the financial services industry.


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A Smarter World: What role will electronics play in 2022




There has been a sharp increase in technology and devices designed to make our lives simpler, faster and more productive in recent years.

Industry 4.0 is taking the digital revolution of the late 1900s one step further, combining cyber-physical systems with the power of the internet of things (IoT) to automate computerised decision-making and enhance efficiency. As a result, intelligent technology has surpassed the simple tools and gadgets people enjoy using every day; it has become a driving force for innovation and problem-solving for businesses worldwide.

The first generation of ‘smart’ technology products provided enhanced connectivity, allowing people to stream video on smart televisions or communicate wirelessly between devices. But with the development of artificial intelligence (AI) and machine learning (ML), our devices do more than simply talk to each other; they collect and interpret data to inform user experience and automate processes that would typically require human guidance.

From watches to phones, building controls to medical equipment, we are heading towards a ‘smarter’ world at lightning speed. So, in 2022 and beyond, technology will continue to evolve and improve its capabilities to deliver personalised, mechanised solutions that will optimise functions and enhance our day-to-day lives.


How will smart tech change our way of life?

The pandemic has significantly impacted global technology trends, with lockdowns contributing to heightened activity within the consumer electronics industry.

The demand for games consoles, smart televisions and other entertainment devices led to an 18% increase in the global consumer electronics market (excluding North America) in the first half of 2021, reflecting pandemic-related behavioural changes and consumers’ growing expectations for premium electronics. Following the outbreak of COVID-19, the public is also more conscious of their health and the limitations of our health services than ever before. Wearable technology such as smartwatches — which can remotely monitor and record physical health data — is, thus, becoming increasingly appealing.

As more and more businesses embrace remote working models, employees are enhancing their homes with innovative home technology, too. Demand for devices such as mobile stereo headsets and headphones spiked in the wake of lockdowns. Organisations are also embarking on digital transformation to secure online networks and optimise energy efficiency in modern offices.

The future of the electric vehicle market also looks bright. With governments facing global pressure to reduce carbon emissions, major automotive manufactures like Bentley, Volkswagen and Audi have pledged to cut fossil fuel cars from their product portfolios by 2030. And despite the pandemic-related semiconductor shortage that crippled the automotive industry, UK electric vehicle sales jumped 186% in 2020.


How will the electronics industry meet demands?

In a digital world, technology is embedded in everyday objects, and ubiquitous computing connects devices through continuous networks of sensors and servers — all of which must be carefully designed and produced by electronics manufacturers. As a result, the future of electrical engineering will depend on the industry’s ability to address the technical and logistical considerations for delivering these advanced systems and equipment.

From smart grids to intelligent lighting, IoT has the potential to revolutionise the way we live. With technology permeating so much of our lives already, local governments are investing in ‘smart cities’ that will harness data collected through the IoT and cloud-based technology to tackle social issues and improve urban life, sustainability and transport. However, the IoT will also be essential to developing new electronics.

Brexit, the pandemic and labour shortages have impacted supply chains and threatened to stunt the industry’s ability to keep up with ever-increasing demand. But embracing IoT can streamline processes, provide accurate real-time data to mitigate supply chain disruption and improve the overall quality of printed circuit boards (PCBs) and other core components within electronics. Plus, as sustainability is a core focus for businesses across sectors in 2022, developments in AI and ML will be crucial to ensuring systems are operating with the minimum energy output.

From remotely controlled wire cutters to industrial robotics performing monotonous tasks in factories, investing in robotics will also be crucial for electronics manufacturing services providers. While the industry focuses on training the next generation of engineers, adopting robotics will reduce the likelihood of human error that might affect manufacturers’ abilities to continue delivering high-quality electronics products at scale.


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