National Bank of Georgia Enhances Sanction Monitoring, Includes Virtual Asset Service Providers

The Acting President of the National Bank of Georgia, Archil Mestvirishvilistated that the bank has not only been monitoring the observance of financial sanctions but also expanded its oversight to virtual asset service providers. He made this declaration while presenting a report to the Parliament.

Mestvirishvili emphasized that last year the financial sector of Georgia showed particular commitment to counteracting money laundering and terrorism financing. This was evident when they aligned with sanctions imposed by the European Union, United States, and United Kingdom against Russia and Belarus.

“We have established a separate department for sanction monitoring. Compliance with sanctions, particularly in the financial sector, is extremely important. The National Bank is dedicated to observing these sanctions,” said Mestvirishvili.

Highlighting the importance of managing virtual assets, he referred to the law passed last year concerning virtual asset service providers. According to this law, the National Bank is empowered to monitor and supervise these service providers to prevent money laundering activities. Implementation of this oversight will become obligatory from September 1st of the current year.

Metsvirishvili’s comments underscore the Georgian financial sector’s commitment to upholding financial integrity and highlight the growing importance of virtual asset regulation in today’s financial landscape.


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Consumer Caution: Payment Apps and the Risk of Uninsured Deposits

In the evolving landscape of financial services, nonbank payment app companies are revealing significant gaps in deposit insurance coverage compared to traditional bank and credit union accounts. These companies, often regulated as money services businesses (MSBs), are required to register with the U.S. Department of Treasury but are not subject to the same federal oversight as their traditional counterparts. Consequently, consumer deposits in these apps might lack crucial protections.

Payment apps have emerged as convenient alternatives to traditional banks, offering services such as payment transfers and stored value services that resemble deposit accounts. However, critical differences emerge when scrutinizing deposit insurance coverage. Traditional banks and credit unions provide depositors with Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance, which safeguards deposits up to $250,000 in the event of institutional failure. On the other hand, deposit insurance for payment apps only applies if funds are deposited at an FDIC-insured bank or an NCUA-insured credit union.

Moreover, some payment apps, which often invest user funds and do not pay interest on balances, may lack transparency about where consumer funds are held and whether they are insured. Additionally, they might impose pre-conditions for deposit insurance, which can be difficult to verify. Importantly, deposit insurance does not protect against the failure of the nonbank company itself.

Furthermore, these companies might invest customer funds in risky non-deposit products, posing a risk of insolvency if investment values decline or if customers demand their funds all at once. In such cases, consumers may face significant delays in accessing their funds during bankruptcy proceedings.

Regulatory bodies, including the Consumer Financial Protection Bureau (CFPB) and the FDIC, have raised concerns about potential consumer confusion, leading to advisories against deceptive representations involving FDIC’s name, logo, or deposit insurance. The FDIC also proposed an update to rules regarding signage to clearly indicate where uninsured products are offered.

Consumers are advised to be aware of these risks when maintaining balances in nonbank payment apps. To minimize these risks, transferring balances back to federally insured accounts is recommended. Regulatory bodies will continue to monitor this growing segment of the payments ecosystem and consider further protective measures.


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Federal Reserve Gives Consent Order to Silvergate Capital Corporation for Voluntary Self-Liquidation

The Federal Reserve Board announced a consent order against Silvergate Capital Corporation and its subsidiary Silvergate Bank on Thursday, providing the necessary regulatory supervision for the financial institution’s voluntary self-liquidation. Silvergate initially announced this drastic action plan on March 8, 2023.

Silvergate Capital Corporation and Silvergate Bank, both headquartered in La Jolla, California, are now directed to follow their previously announced self-liquidation plan under the close supervision of the Federal Reserve. The principal intent of the Board’s order is to ensure the preservation of the Deposit Insurance Fund and to protect the rights of the bank’s depositors during the self-liquidation process.

Under the consent order, Silvergate is expressly prohibited from carrying out certain financial activities without prior regulatory approval. These activities include making capital distributions and the dissipation of cash assets, ensuring a smooth and secure wind-down process for all involved parties.

The Federal Reserve is not acting alone in this move. It’s taking these actions in coordination with the Department of Financial Protection and Innovation of the State of California. As the state chartering authority and state supervisor of Silvergate, the Department has a keen interest in overseeing the self-liquidation process in a manner that safeguards the interests of Silvergate’s depositors and the broader financial system.

The decision is a significant development in the unfolding saga of Silvergate Bank, underscoring the Federal Reserve’s commitment to ensuring the stability and security of the nation’s financial institutions. The joint actions taken by the Federal Reserve and the State of California highlight the rigorous regulatory framework in place to protect depositors and maintain confidence in the banking sector.


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HashKey PRO Moves to Expand Retail Services in Hong Kong with New License Application

HashKey PRO, a Hong Kong Securities and Futures Commission (SFC)-licensed virtual asset trading platform, has taken a major step towards broadening its services in the region. The firm announced that it has submitted an application to provide retail services in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615). This move signifies HashKey PRO’s increased focus on regulatory compliance and its mission to establish a reliable trading platform for retail investors.

Michel Lee, the Executive President at HashKey Group, underlined the platform’s commitment to meeting retail investors’ needs and safeguarding their interests. He stated, “Our proactive application for the required license showcases our dedication to regulatory compliance, crafting a platform that is specifically tailored to the retail user experience, and meeting the rapidly evolving demands of the industry.”

As per the latest Consultation Conclusions on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators, licensed platforms are expected to comply with specific Guidelines. These include licensing and conduct requirements. Recognizing the crucial importance of robust investor protection measures, HashKey PRO commits to conducting suitability assessments, setting up a token admission and review committee, and adhering to rigorous due diligence and admission criteria for virtual assets offered to retail users.

Colin Zhong, CEO of HashKey PRO, expressed his excitement about the growth potential of the virtual asset industry and the opportunity to expand and deepen this market in Hong Kong. He emphasized the platform’s focus on compliance and client fund safety, stating, “Our operational model is built around these principles. We are confident that our value proposition will significantly differentiate us from the competition and establish us as a trusted platform.”

The submission of the license application is a significant milestone for HashKey PRO as it sets its sights on becoming a fully licensed platform catering to retail investors in Hong Kong. The firm anticipates closely cooperating with the SFC and relevant authorities to provide retail investors with a secure, compliant, and user-centric trading experience.

HashKey PRO is a virtual asset trading platform licensed by the SFC. Operating under Hash Blockchain Limited in Hong Kong, it has been approved to operate a virtual asset trading platform under a Type 1 (Dealing in securities) license and a Type 7 (Providing automated trading services) license. It offers fiat trading pairs and on/off-ramp support and is ISO 27001 and ISO 27701 certified.


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Microsoft Signs Multi-Billion Dollar Deal with Nvidia-Backed CoreWeave, Former Ethereum Miner, for AI Computing

According to CNBC, Microsoft is set to expand its footprint in the artificial intelligence (AI) sector with a multi-billion dollar deal with CoreWeave, a cloud computing startup once known for its Ethereum mining operations. Microsoft’s investment follows the recent AI boom sparked by the introduction of OpenAI’s ChatGPT.

While specific deal figures have not been released, insiders confirm that the contract could be worth billions over several years. This move comes as Microsoft continues to deploy chatbots across its services, pointing to an increasing need for advanced computing infrastructure.

Founded in 2017, CoreWeave had recently secured $200 million from hedge fund Magnetar Capital, boosting its valuation to $2 billion. Previously, the firm had raised $221 million in funding, with notable participation from Nvidia.

CoreWeave positions itself as a cost-effective alternative to legacy cloud providers, offering high-performance Nvidia GPUs at a claimed 80% less expense. Amid surging demand for AI infrastructure, CoreWeave provides an additional conduit for Microsoft to tap into Nvidia’s resources.

Notably, Nvidia’s stock price has soared by 170% this year, driven in large part by rising demand for data center services related to generative AI and large language models. Nvidia’s GPUs are at the heart of these sophisticated AI systems, including OpenAI’s GPT-4 model, a key component of ChatGPT.

CoreWeave’s pivot from Ethereum mining to AI infrastructure provision underscores the broader shift within the tech industry towards AI and blockchain technologies. As companies continue to harness the transformative power of AI, CoreWeave’s strategic alliance with Microsoft stands to influence the evolving AI landscape significantly.


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