Financial fraud is a crime which involves deception of financial transaction for personal gain. It involves complicated transaction usually conducted by “white collar criminal” such as business professionals. Financial Fraud is an increasing problem across industries and this could be due to the difficulty of checking identities of companies and individuals as it is easy to set up fake websites, steal personal information and change IP location. The ease of using the internet contributes to making internet fraud a growing problem.

Financial fraud results in catastrophic losses each day, Financial Fraud Action UK reports that in 2016, the UK lost £2 million each day and a total of £768.8 million, an increase since 2015.

There are many methods of financial fraud, it can be through post, phone calls, emails or even face-to-face interaction.

The developments in technology, and the easiness of the conducting transactions over the internet without face-to face interaction increases the threat for the financial industry as fraud opportunities are ever-growing.

Law firms are especially in risk, as it is one of the most targeted sectors due to its sensitive nature. The consequences are extremely serious. Client funds and records are at risk, and solicitors will be held responsible and will be subject to pay money to lender as well as lose their reputation and suffer brand damage. Simple actions such as sending emails which includes bank details can put the firm at risk.

The Guardian Reports that during the first half of 2013, every fifteen seconds a financial scam was committed. Some of these scams include fake law firms and lawyers. Dovernor, which is a scam law firm website, looked very convincing as pictures of staff and information was stolen from a legal practice in the USA. These law firms take advantage of vulnerable people who need lawyers, and

This isn’t only occurring in the west, in Hong Kong, Two individual, aged 30 to 48, were said to have posed as directors of two different law firms. The Solicitors Regulation Authority reports “more and more reports” of these incidents by day.

There is however a lot that firms can do to protect themselves and reduce the risk, companies should not only hire specialists who should keep up with the growing technological threats but should also train their employees to become more diligent with every-day information, such as noticing changes in email addresses.

It is of the utmost importance to increase the alertness and vigilance of employees, however clients and investors should also be aware. For investors, it is important to always be suspicious of opportunities which sounds “too good to be true” or say you have to act quickly. Regarding technology, ensure your firewall and antivirus software is up to date, never click on links from emails or send your PIN number over email or phone.

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ESMA has added 14 new Q&As to its document on the implementation of investor protection topics under the MiFID II/ MiFIR. The new Q&As cover the topics of ‘information on costs and charges’, ‘post-sale reporting’, and ‘appropriateness’. The overall MiFID II Q&A provide clarifications on the following topics:

  • Appropriateness;
  • Best execution;
  • Suitability;
  • Post-sale reporting;
  • Inducements (research);
  • Information on charges and costs; and
  • Underwriting and placement of a financial instrument.

ESMA will continue to develop this Q&A on investor protection topics under MiFID II in the coming months, both adding questions and answers to the topics already covered and introducing new sections for other MiFID II investor protection areas not yet addressed in this Q&A.

Islamic Finance goes back centuries, however it has recently gained world-wide recognition. With the rise in ethics, Islamic Banking bridges this gap between capitalist and socialist financial systems through the values and rules it follows.

Islamic Banking provides financial services that follow Shari’ah Islamic law and rules. This mean receipt and payment of interest is forbidden as it is seen as exploitative and each transaction needs to have an economic purpose. Fairness is very important in Shari’ah law therefore equally shared risk and benefit is emphasised. Equity financing is allowed however investment in pornography, weaponry, alcohol or other markets considered harmful to society is not. Excessive uncertainty is also forbidden, all transactions must be asset-backed. Purely monetary transactions are not allowed — activities must be anchored in the real economy. Asset-backing provision is often ignored in traditional banking, increasing the risk related to the transaction.

Islamic Finance is rapidly growing, Technavio’s market research predicts that the global market for Islamic Finance will create a CAGR of 19% until 2019. It also shows that with the growth of Islamic financing in Asian countries such as Pakistan, Bangladesh and Indonesia, the market size of Asia will be over $985 billion by 2019. While the last decade saw double- digit growth rates in the value of the Islamic finance industry, it is still a very long way from saturation.

This growth emerged in an environment where there is no fully-developed financial and economic system based on Islamic principles. Therefore it faces a number of challenges.

Firstly, regulation protecting the depositors is lacking as there is no type or level of protection assigned to Islamic banking instruments. There are also challenges on the asset side, Islamic Banks are the legal owners of all the products they sell and finance, however the disclosure of the these contracts and transparency is not yet available due to the lack of regulatory regimes.

Accreditation of the Shari’a scholars and the development of these rules to approach Islamic finance is also a limitation to this field.

Within each country, Shari’a compliance varies, some products are considered to Sharia’ compliant in Malaysia for instance may be forbidden in the UAE. There are organisations which can address this problem and standardise this, such as AAOIFI. This harmonisation will not only aid Islamic financial reporting but will additionally enable western regulators to understand and work with the Islamic Finance Industry

Despite these ethics, disputes are bound to occur and investors may not be familiar with Islamic contracts, and different court systems may handle these disputes differently depending on their legal system, such as when the dispute between Shamil Bank of Bahrain and Beximco Pharmaceuticals ended up in an English court in 2004.

Although Islamic banks use the same management tools as traditional banks, they still face unique risks. Their risk management is limited by inadequate short-term liquidity management as well being affected as the prohibition of derivative instruments. There is a need to innovate the risk measurement and monitoring process.

There is considerable scope for Islamic financial Institutions to foster innovation to face regulation challenges, create standardisation, settle disputes and identify and manage risks efficiently. There is a high expectation of increased widespread participation and many banks will continue to increase their Islamic products.

While Islamic finance industry has already established itself as a niche market, especially for Muslim customers, and has registered robust growth it faces some important issues and challenges, from regulation and standardisation to risk management. This breeds the opportunity for innovation and new business opportunities.

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With Brexit occurring, more and more investors are less willing to invest due to the economic turbulence. However, crowdfunding is offering an alternative to the traditional services in response to difficulties that may be faced by enterprises attempting to generate funding.

Fintech continues to disrupt and revolutionise traditional services. The accessibility, mobility and technology has made it possible for a new generation to engage directly and donate or invest in a campaign they personally have an interest in. Crowdfunding has democratized the movement of funding from institutions to smaller micro investors.

Ultimately, Fintech Equity crowdfunding provides a platform that allows donors to invest money in exchange for equity in the venture.

Fintech equity crowdfunding will help firms attract loyal customers. Through allowing their customers to become shareholders, they are also ensuring the customer will be loyal to their product therefore increasing the number of engaged customers as well as funding their ventures.

Many fear Fintech Crowdfunding will replace venture capital firms. SME’s have direct access to crowds of investors, who invest at any stage of business (Seed, development and most recently IPO). According to Business Insider Investment levels in Fintech are not only increasing but they are becoming favoured investment among VC’s and angels.

Beauhurst’s research shows that Equity crowdfunding investors are happy with lower equity stakes for the same investment in comparison with traditional investors.

Crowdexpert (2016) reports the total Global Crowdfunding Industry estimated fundraising volume in 2015 is $34 Billion, with real estate crowdfunding growing by 156% in 2014, just breaking the $1 billion mark, with campaigns ranging in size from less than $100,000 to over $25 million.  Equity crowdfunding is expected to continue growing this year, especially considering Brexit.. More regulation will be implemented into this sector by the FCA to increase transparency and protection.

Follow us on LinkedIn, Twitter and Facebook to learn more about FCA regulations and keep up with the industry.

Has your organisation updated its procedures, forms and wording for obtaining individual consents to ensure compliance with the GDPR?

Despite the GDPR deadline quickly approaching and requirements it holds, only half of the UK’s IT decision-makers are aware of this EU data protection regulations. GDPR calls for an upgrade in technology in the Healthcare sector.  An appropriate level of privacy and risk mitigation is required for higher risks situations such as these.

GDPR will apply to NHS and other health organisation’s as it protects European citizens. The new regulation will give large accountability to the NHS. In cases of breaches, the Healthcare sector will suffer the most consequences, in one study across 16 industries the highest cost of data breach was in the healthcare at $355 per patient record. Another report by the Freedom of Information request shows that 28 NHS trusts have been attacked within just a year.

According to Experian’s Data Breach Industry Forecast 2017, the health data will be the most targeted sector next year. This is due to the sensitive nature of the records kept with healthcare organisations. The NHS will need to employ stringent privacy measures to protect customers to prepare to comply with GDPR and work to avoid the risk of breaches as new advanced attacks emerge.

GDPR will prohibit the processing of certain health data, including genetic data such as physiology or hereditary and data concerning mental or physical health. There are exceptions and health organisations which collect data will need to ensure they have either obtained explicit consent for specified purpose (unless it’s a “life or death” situation and they are physically or legally incapable of consenting) or prate process is pessary of preventive or occupation medical or public interest.

Organisations will need to establish a robust data programme and target their budget and resources to ensure they comply with GDPR by May 2018. This will not only help reduce the risk of breaches but will build the trust of stakeholders such as patients and partners. By complying with GDPR they are less likely to come across enforcement or legal action from data subject and suffer reputational and negative publicity.

International law firms are preparing for GDPR, the EU General Data Protection Regulation.

GDPR intends to strengthen and unify protection for individuals within the EU through a harmonised set of regulations. This makes it easier for non-EU companies to comply. GDPR will give citizens back the control of their personal data, extending the scope of EU data protection to all foreign companies processing data of EU residents. It will also simplify the regulatory environment for international business.

Given the sensitive data international law firms hold of EU citizens, they must be prepared to implement GDPR to avoid fines as high as 20 million Euros or up to 4% of global turnover. According to a survey by information management experts Crown Records Management, 44% of Law Firms in the UK had already appointed a data protection officer.

Data Protection impact assessments are necessary, as well as receiving and recording consent from clients on how their personal data is to be used. Clear information and explanation of how the collection of data is completed and what the firm will be doing with it is a requirement of GDPR.

International Law Firms will need to notify the data subject if a breach is likely to negatively affect the protection of the personal data or privacy of a data subject. Implementation will include allowing individual the right to have their data erased and forgotten which will may require an updated software system.

International Law Firms are urgently working to reduce the risks of breaches and ensure they follow GDPR by the 2018 deadline. In security and privacy, prioritisation of safeguards and targeting of limited budgets and resources is key to ensure both compliance with GDPR by the 2018.

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With the ever-progressing convergence between physical and financial markets, there has been a growing need to stretch the scope of financial regulations to its various extended markets. After the reforms in the MiFID, the new and improved MiFID II has extended its focus to commodity markets. Commodities exchange refers to the trade of commodities including metals, energy, livestock and agricultural products, from where it is produced to where it is needed. Aligning the G20 agreement to enhance regulation, operations and transparency of commodities markets, MiFID II has introduced several regulations to cover a wider scope of the commodities trading industry which will affect buyers, brokers and venues involved.

One of the biggest enhancements is the introduction of Organised Trading Facilities (OTFs). Within an OTF, multiple third-party buying and selling interests in bonds, structured finance products, emission allowances or derivatives can be traded. This has led to the inclusion of Emission Allowances (EUAs) as financial products. In addition, commodities having “characteristics of a financial instrument” have also been classified as financial products being traded in OTFs. The classification of these somewhat vague products will be determined by the level of standardisation and trade situation of the contracts binding these products.

MiFID II has also altered and removed a few of the exemptions which previously enabled some commodity derivative trading firms to rely on these exemptions to avoid the MiFID authorisation. The “dealing on own account” exemption which relieved firms dealing with commodity derivatives, EUAs or derivatives on EUAs from MiFID authorisation has been heavily reworded to remove a lot of products from it’s scope. MiFID II has significantly altered the ancillary activity exemption as well. The scope of ancillary activity exemption has been narrowed down to qualify only certain types of investment firms that fulfil specific criteria. The commodity dealer exemption, which was tailored for individuals dealing in commodity derivatives has been disbanded as well. In addition, new “specialist exemptions” have been introduced for operators under the Emissions Trading Directive.

Under MiFID II, position limits criteria have been introduced to minimise risks and disorderly trading. ESMA has drafted two Regulatory Stock trading monitor (black and white)Technical Standards (RTS) to brief local authorities on setting the methodology to limit the net position an entity can hold in the market. Similarly, MiFID II has implemented the position reporting requirement which requires commodity traded venues to publicly issue a weekly report of the accumulated positions held by the various categories of position holders within the venue. Interestingly, position reports apply on EUAs while position limits don’t.

With many exemptions being removed, many firms and brokers in the commodity trading industry could now expect additional bureaucracy and costs that didn’t exist before. The reformed ancillary activity exemption has the potential to cause complications for MiFID regulated firms who additionally deal with out of scope products. Similarly, newly introduced position limits and reporting criteria could present buyers and venue operators with numerous constraints. The overall impact on the commodities trading industry perhaps won’t be uniform and will depend on how each entity is structured.

 

 

Blockchain: today’s revolutionary technology and the backbone of Bitcoin. Blockchain has recently gained the attention of countless individuals, from banks and governments to fishermen and farmers.

Accepted as one of the most powerful technologies yet, Blockchain stores records with facts verified by everyone through a network of computers, which means it is not only decentralized but is also disturbed. It is not owned by one person, each Blockchain gets automatically downloaded on every node or computer. Using “blocks” of information which are connected or chained to another in chronological order, allows everyone to use it, help run it, and see changes made to it. As everyone can see exactly where an unauthorized change was made and requires them to validate it, it is harder to edit and corrupt. Hackers must access all the computers at the same time and make the exact same change in each node or computer to hack the data.

That means security is guaranteed, right?

Not necessarily. Blockchain has many potential vulnerabilities.

In March 2015, Interpol demonstrated one of these vulnerabilities using the bitcoin network and communicated with a hacker-controlled bitcoin address, extracting information on transaction receipts and introducing unrelated date to transaction into the Blockchain. This unrelated data could be anything, from illegal files to malware.

The Blockchain can thus be repurposed to spread malware, because data is automatically downloaded to all computers which use Blockchain, the malware will not only spread but is also almost impossible to remove as all computers will need to verify this change. A user in 2013 uploaded child pornography sites to the Blockchain, and everyone using Bitcoin had links to this on their computer and they were unable to get rid of it.

Another vulnerability of decentralised and disturbed information is the fact there will be multiple replicates on various computers, meaning it will offer hackers more places to attack. This is problematic when it comes to sensitive information like contracts.

While Blockchain might provide new ways for information security and cutting out the middle man, it can also be repurposed to benefit nefarious activities.

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With cybercrime rates skyrocketing over the past years, it is acknowledged to be increasing at an alarming rate, targeting various sectors. In 2015, the legal sector appeared on Cisco’s annual ranking of industries targeted by hackers and for good reason.

As a sector which holds valuable and sensitive material to important individuals and organisations, criminals seek to obtain confidential client information for the purpose of financial gain or espionage, they do this through methods such as malware and other software programs.

Panama law firm, which holds over 11 million documents and reportedly establishes offshore accounts and companies for global power players, was victim of a ‘leak’. The files revealed the names of many world leaders who have established offshore tax havens.

Another reason is that law firms are seen as ‘weak links’ to exploit when seeking a client’s work. Law firms and their access to confidential materials, like a client’s patents, are therefore they are often targeted. For instance, for insider trading purposes, Russian cybercriminal “Oleras” and their gang had targeted 48 of the nation’s most prestigious law firms to steal sensitive client information.

Law practices all hold a huge amount of incredibly important and sensitive market information that hackers illegally seek to use to their advantage and for this reason, they are strongly urged to look at cybersecurity.

Despite these serious threats to the sector, law firms are behind on cybersecurity. While three quarters of employees in law firms with annual turnover above £500m are aware that they are very likely to be target of cyberattacks, research shows that respondents from the legal sector are 18% less likely to include external cyber security experts than non-lawyers in their attack contingency planning.

A large 86% of lawyers see cyber security as an issue for the senior executives, management needs to have a firm stance and clear message to employees and clients regarding preventing, detecting and responding to security breaches in information technology systems. These risks need to be addressed quickly and effectively, because it can cause irreversible reputational damage and disastrous financial losses to a firm and its clients.

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London is well-known as both a global financial hub and a multi-cultural city but what happens when you bring these two things together?

Yielders has become the first Islamic Fintech firm to be fully accredited by the UK’s FCA. The London-based start-up is a crowdfunding property investment platform.

The process is simple and transparent, taking away the hassle of being a landlord or the burden of a mortgage. It allows the public to invest as little as £100 in cash and start earning returns almost immediately on pre-funded assets, providing predefined rental income.

With no debt, no interest, full voting rights and full financial rights, they are also the first UK Company to gain the Sharia compliance certification by the UK Islamic Finance Council (UKIFC).

This doesn’t just emphasis their business ethics, but also demonstrates the increasing role of the UK’s Islamic Finance Sector.

As London seeks to position itself as the global centre for Fintech, extending this to Islamic Finance will not only broaden the number of investors in the UK but will also attract investment from the Middle East and South East Asia.

Yielders is making history and dispelling the myth that traditional Islamic Finance is uncompetitive. Islamic Fintech is expected to grow in demand.

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