Commonwealth legislation should not only be published in words but in machine-readable code, which would allow it to be read not only by lawyers but also computers, a move CSIRO suggests will boost the adoption of new regulatory technology across the economy, improving compliance while reducing costs.
CSIRO detailed its vision for “rules as code” in a submission to the Senate select committee on financial and regulatory technology, calling for the government to think more about ‘legal informatics’, or ‘computational law’, to allow computers to help automate compliance. This would “reduce the cost of red tape and improve the quality of risk management in society,” the science agency said.
“The goal is that computer-assisted reasoning using these logics should give the same answers as judges and lawyers doing legal reasoning about the black-letter law,” CSIRO said. “When legal texts can be represented in this way, it enables the potential to build digital tools to help people to interact with the law.”
The banking industry – which has faced soaring compliance costs in the wake of the Hayne royal commission – has been wary about adopting new technologies in compliance. This has been due to the complexity of regulation, a reluctance by regulators to endorse a specific technological approach, and heavy sanctions for failures. This was evidenced by AUSTRAC’s legal actions for anti-money laundering failures at Commonwealth Bank and Westpac, which both related to failures in technology systems.
The big banks want Treasury to encourage the financial sector regulators ASIC, APRA and the Reserve Bank, “to make regtech a viable proposition in the financial services sector”.
Many start-ups, along with more established technology vendors, are developing new systems to help banks meet legal duties, including establishing the identity and background of customers, ensuring legal compliance, verification of income and expenses, and data privacy. Juniper Research expects global spending on regtech to rise from $US25 billion ($37 billion) 2019 to $US127 billion by 2024.
‘Rules as code’
CSIRO, which operates a digital innovation arm known as Data61, has detailed to the committee how a “rules as code” approach could lift compliance with various laws.
It is working with PwC on a joint venture called PaidRight to check employees’ entitlements under enterprise bargaining agreements against what they have actually been paid.
The banking industry and CSIRO are working on a project to develop a digital approach to organising climate change disclosure, which CSIRO said could be “a first step towards a nationally coordinated framework for delivery of climate information”.
The agency is also working with the building and construction industry to automatically check Computer Aided Design (CAD) models of buildings against the many building and construction regulations from the federal and state governments.
Publishing machine-interpretable rules alongside the text of legislation would “provide critical support for the regtech industry and potentially significant productivity benefits for regulated industries in Australia,” CSIRO said.
The Australian Banking Association called on the committee, which is being chaired by Liberal Senator Andrew Bragg, to recommend that Treasury “be explicitly tasked with responsibility for a growth strategy for regtech”.
Design box thinking
The RegTech Association, which represents 110 start-ups and corporates, suggested the committee call for the creation of a COAG-style forum to introduce government departments to regtech, and is encouraging government to become an “influencer, buyer, beneficiary and investor” in the space.
In its submission, the association suggests a percentage of regulatory fines paid by banks could be invested in a new ‘patient capital’ investment fund to invest in the sector, modelled on the Australian Medical Research Future Fund. It also reckons a safe harbour, or relief program, could be created to provide reporting entities attempting to deploy regtech with more confidence to adopt changes, via amendments to ASIC’s regulatory guidance.
The association also wants government to create “design box” or “sandbox” programs to accelerate testing of new technologies. It pointed to the APIX Platform, part of the ASEAN Financial Innovation Network and backed by the Monetary Authority of Singapore, which has created a marketplace for financial institutions to exchange ideas with fintechs on better ways of doing things.
“Australia could easily replicate this idea of a digital marketplace or partner to introduce a similar platform,” the association said.
“It could allow buyers and sellers to come together to experiment more easily, allow greater visibility over regtech solutions, help regtechs understand the current problem statements of their potential clients, and allow a ‘design box’ where negative assurance could be provided by regulators as observers. Over time the digital marketplace could also be a portal for talent and skill recruitment.”
Separately, CSIRO responded to an accusation in the submission by FinTech Australia to the inquiry which criticised Data61 for “competing directly with private enterprise for government and non-government work”. In a statement, CSIRO said it “does not seek to compete with the private sector or start-ups and where possible aims to partner with Australian organisations, to support their growth.
“Like many of CSIRO’s business units, projects for Data61, the digital innovation arm of CSIRO, are typically identified as a result of discussions with, or approaches from government, industry or academic partners, where an opportunity has been identified for our research to be applied to solve problems and create benefits for Australia.”
Bitcoin conspiracy theorists have long suspected the U.S. government, among others, would like to shut down bitcoin.Bitcoin’s first decade has seen its price explode, making early adopters overnight millionaires, and prompting some of the world’s biggest technology companies to create their own versions of bitcoin.Now, it’s been revealed federal prosecutor-turned bitcoin and cryptocurrency expert Katie Haun was asked to look into “shutting down” bitcoin by her boss at the U.S. attorney’s office in 2012.
David Marcus, the Facebook executive in charge of the project, told the press last week that the problems of banking the unbanked were technical — that banks were unable to move money fast enough without a blockchain. This is completely backward. Experts know how to move numbers on a computer. The slow part is settlement and compliance: making sure that money transmitters are solvent, honest, and not fronting for drug runners. Banking the unbanked is a slow, one-on-one social process. Libra’s public relations material describes this as if it were entirely a technical problem — and none of it is.The real motivation for the project seems to be ideological. Marcus was formerly at PayPal, and he understands payments and regulation. But he’s been a bitcoin fan since 2012 and was on the board of the cryptocurrency exchange Coinbase in 2017.Marcus had been thinking about something like Libra for several years and had discussed the project with Facebook CEO Mark Zuckerberg since January 2018. Zuckerberg was interested in the project and the ideas—“a high-quality medium of exchange for the world, on a blockchain that could scale,” as Marcus described it in a press conference on June 17.Facebook is under increasingly close attention from governments deeply suspicious of its track record on privacy, election manipulation, and fake information and its repeated defiance of calls to appear before elected representatives. Yet Facebook and its closest partners seem to think that they are large and powerful enough to swing a coup against the concept of government control of money. Libra directly states that its intent is “to shape a regulatory environment” —not to comply with the existing regulatory environment. Regulators will need to bend to Libra.The Libra token is a foreign exchange derivative, synthesized from a basket of national currencies. Libra wants to operate as a shadow bank, issuing Libra-denominated liabilities that are explicitly intended to function as money. Libra “will create a mirror banking system using your money,” said Carlos Maslatón, the head of treasury at the bitcoin payments provider Xapo, explaining the service in a private WhatsApp chat group.Libra seems to be particularly targeting countries with lots of Facebook users and unstable currencies—the other meaning of banking the unbanked. There are obvious money-laundering hazards. “Know your customer” (KYC) rules require anyone dealing in currency substitutes to track the sources of funds so as to cut off funding for criminals and terrorists. Libra says it will keep to the highest of KYC standards—but a Libra partner in a bad economy risks compromising the compliance of the whole Libra system, given that its intent is to move money around the world at the speed of cryptocurrencies. Libra will need to keep this tight and assure developed-world regulators that it has done so, or it will place the entire Libra system at risk.
Areas of law covered include:
1 Government attitude and definition
2 Virtual currency regulation
3 Sales regulation
5 Money transmission laws and anti-money laundering requirements
6 Promotion and testing
7 Ownership and licensing requirements
9 Border restrictions and declaration
10 Reporting requirements
11 Estate planning and testamentary succession
The GLI to: Blockchain & Cryptocurrency Regulation 2019 covers government attitude and definition, cryptocurrency regulation, sales regulation, taxation, money transmission laws and anti-money laundering requirements, promotion and testing, ownership and licensing requirements, mining, border restrictions and more
The US Congress has asked Facebook to pause development on its Libra cryptocurrency until lawmakers have had more time to investigate the ramifications of the company’s actions.In a letter from the Democratic heads of the house committee on financial services and its subcommittees, the legislators ask the company to “immediately cease implementation plans”.“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” the letter says.“During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so risks a new Swiss-based financial system that is too big to fail.”
BONN, Germany (Reuters) – Cryptocurrencies backed by big internet companies could come under the scrutiny of antitrust regulators, the head of Germany’s Federal Cartel Office said on Thursday after Facebook last week launched its own version.Central bankers and financial watchdogs were quick to raise concerns about Facebook’s planned Libra global cryptocurrency, saying that it could become so pervasive as to disrupt the global monetary policy framework.Germany’s antitrust watchdog’s president Andreas Mundt, who has pursued the world’s largest social network over other areas of its business, told reporters that cryptocurrencies launched by companies like Facebook “could become a topic for us”.Mundt has taken Facebook to task over its handling of data collected from users of the social network and its messaging apps without their consent, finding the firm founded by CEO Mark Zuckerberg abused its market dominance.
The Economic Times, India’s biggest business daily, reports that Libra will not be available in India, citing people with direct knowledge of the matter:
“The social network’s digital wallet, Calibra, won’t be available in markets where “cryptocurrencies are banned or Facebook is restricted from operating in,” the person said. “Facebook has not filed any application with RBI (Reserve Bank of India) for its cryptocurrency in India,” said a second person aware of the matter. RBI did not respond to queries from ET.”
This, despite a previous report that Facebook specifically picked India as the launch market for its cryptocurrency.
India will be a tricky nut to crack for Facebook’s Libra
The Indian government and regulators have traditionally carried a hostile view toward cryptocurrencies, implementing a slew of measures to discourage adoption of the likes of bitcoin.
India has taken a variety of steps to stifle the growth of cryptocurrencies, fearing that bitcoin and the likes are instruments for laundering money, duping naïve investors, evading tax, and financing terrorism.
The government has already instructed banks to stop dealings with cryptocurrency exchanges, while the income tax department has singled out people involved in crypto transactions.
What’s more, the Indian government might put you in jail for a decade if you’re found in possession of bitcoin or other cryptos, if the draft of the country’s Banning of Cryptocurrency and Regulation of Official Digital Currency Bill is to be believed.
All of this makes it difficult for Facebook’s Libra to crack the cryptocurrency market in India. This would be a big blow for the social media giant as India is its largest market, accounting for more than 10% of its user base.
Statista estimates that Facebook has 260 million users in India out of a global user base of 2.38 billion. So missing out on this market could deal Libra a big blow as Facebook will be missing out on a huge chunk of the population that has been rapidly transitioning toward digital modes of payment.
India’s convoluted laws won’t be easy to bypass
Facebook’s crypto Libra is raising a lot of eyebrows in countries such as the US and France, where regulators are concerned about how the social media giant will keep user data safe and private. But it is an entirely different ball game in India where Facebook could face an outright ban.
According to Salman Waris, who is the managing partner at specialist technology law firm TechLegis Advocates & Solicitors, Facebook could fall on the wrong side of the Reserve Bank’s norms and India’s Income Tax Act. He told ET:
“Under Section 79 of the Indian IT Act, Facebook is obligated to take ‘all due care’ to ensure its network or platform is not used for illegal activities like dealing in cryptocurrencies in India. Section 79 would apply to Facebook even though it is based out of India. Section 75 of the IT Act also gives extraterritorial jurisdiction to the law.”
Even if Facebook’s Libra is a closed system that’s used for making peer-to-peer payments on its platforms such as Messenger and WhatsApp, it could invite the wrath of the Indian government and regulators.
The establishment has tried to kill cryptocurrencies in India with a lot of zeal. So it won’t take long for the government to believe that bad actors are using Facebook Libra to launder money or finance terrorism, taking a massive market opportunity away from the social media company.
What Libra backers are calling “decentralisation” is in truth a shift of power from developing world central banks toward multinational corporations and the US Federal Reserve and the European Central Bank.Developed world central banks will understandably prioritise their own economies. Meanwhile, the fewer rupees or lira a country’s citizens hold, the less power the national central bank has to set monetary policy, making it harder to stimulate the local economy in times of economic stress.In the recent Greek crisis we saw first-hand what happens when emerging markets prematurely give up local control of their currency. As a member of the eurozone, Greece lacked control over its monetary policy and had no way to appropriately devalue its local currency after the financial crisis. A decade later the Greek economy is still 25 per cent smaller and its unemployment rate is the highest in the eurozone. Libra could render other central banks equally powerless in the face of recession.The Libra Association could also wield significant power over the workings of global finance. Unless regulators jump in quickly, these for-profit companies will set the standards for identity verification, at least in the short run, as well as defining the rules and enforcement around the privacy of transactions and what to do in case of theft.Facebook and its partners will decide which banks, payment processors and distribution agents to work with, making or breaking companies in some markets overnight. This will entrench existing players rather than creating a truly decentralised system.Many will say these fears are overblown: it’s not clear if Libra will even get off the ground. But if we’ve learnt anything about Facebook, it’s that we should not underestimate its power to transform how people interact. The company’s decision to offer live broadcasting made it possible for teenagers to stream bullying, terrorists to livecast an execution and a gunman a mass shooting. It has similarly transformed mobile messaging and news and journalism faster than many imagined.Governments around the world cannot afford to adopt a wait-and-see approach. The G7 has already set up a working group to review the project in conjunction with the IMF and central banks. Regulators in emerging markets should slow down Facebook’s push by preventing local banks and payment processing networks from accepting Libra. If a Libra user can’t move the coin into a local bank account or cash it in for local currency, it’s unlikely to take widespread hold. This need not be a permanent ban. It simply buys time for all of the implications to be thought through.At the same time, US and Swiss regulators have a central role, for they are likely to be the ones setting standards for know-your-customer, anti-money laundering and financial stability requirements. Watchdogs have underestimated Facebook’s power in the past, allowing it to swallow potential rivals Instagram and WhatsApp. This time the scrutiny by the appropriate government regulators should be nothing short of exhaustive.
“The Bank of England approaches Libra with an open mind but not an open door, said Carney. “Unlike social media for which standards and regulations are being debated well after it has been adopted by billions of users, the terms of engagement for innovations such as Libra must be adopted in advance of any launch.”Libra, if it achieves its ambitions, would be systemically important,” he went on to say, continuing: “As such it would have to meet the highest standards of prudential regulation and consumer protection. It must address issues ranging from anti-money laundering to data protection to operational resilience. Libra must also be a pro-competitive, open platform that new users can join on equal terms. In addition, authorities will need to consider carefully the implications of Libra for monetary and financial stability.”
At TILTing 2019 the Lab presented a study on the legal instruments that are, as of today, applicable to blockchain-based digital assets under European law, and the relative enforcement challenges. The broader question to be tackled is whether and how regulators deal with such challenges, and what are the interests at stake. http://ipkitten.blogspot.com/2019/05/tilting-perspectives-2019-report-2.html