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For companies subject to Act No. 253/2008 Coll., on selected measures against the legitimisation of the proceeds of crime and financing of terrorism (also known as Anti-Money Laundering Act or AML/CFT Act), it is mandatory to develop and apply in practice a specific system of internal policies, procedures and control measures – hereinafter referred to as “system of internal rules”.
The information in this article applies only to the activities of companies registered and operating in the Czech Republic. At the same time, 90% of the information applies to other EU jurisdictions.
A system of internal rules describes specific processes, procedures and tools related to fulfilling all company obligations to combat money laundering and financing of terrorism under the AML/CFT Act. It is, in essence, a clearly defined instruction for company employees. If properly drafted and sufficiently trained, such guidance should ensure that all of the above obligations are fully implemented.
Such detailed instructions are compiled into a single document for internal use only. The purpose of the system of internal rules is to ensure that the company’s actions are in full compliance with the AML/CFT Act and to prevent unscrupulous customers from using the company’s services or products for illegal money laundering operations.
Article 21a of the AML/CFT Act establishes that companies must identify and assess the money laundering and terrorist financing risks that may arise during their activities. A risk assessment should be implemented as part of the company’s system of internal rules.
A risk assessment should include a written analysis in which companies should consider all possible risk factors, particularly the type of customers, purpose, regularity and duration of the business relationship or transaction outside of the business relationship, type of product, value and transaction method as well as the risk profile of countries or geographic areas related to the transaction.
It is mandatory to update a system of internal rules regularly, including a risk assessment. All changes must be reported to the Financial Analytical Office (FAÚ) or the Czech National Bank (ČNB). In addition, all employees whose work is affected by these documents must undergo appropriate training at least once a year.
The development of the system of internal rules must be approached with utmost responsibility. In general, the procedure for this should be as follows:
Following the AML/CFT Act, a system of internal rules must be developed by the persons and companies listed in Article 2 of the AML/CFT Act. These include credit and financial institutions, gambling operators, companies authorised to act as real estate traders or brokers, legal entity service providers, those who work with virtual assets, accounting and tax advisory service providers, used goods dealers, etc.
It is worth noting that some individuals and companies are not required to have a written system of internal rules and submit it to the relevant authorities but must develop and apply all procedures to comply with their AML/CFT obligations fully. However, as practice shows, even in this case, it is more convenient to have detailed instructions for employees.
A properly drawn up system of internal rules must, first of all, comply with Article 21 of the AML/CFT Act and the guidelines of the Financial Analytical Office and contain:
It is also important for the instructions to be flexible enough to consider possible changes in the company’s structure, staff turnover, etc. At the same time, they should not unduly burden either the operating staff or the customers.
The development of the system of internal rules requires rather specific knowledge: this includes detailed knowledge of anti-money laundering procedures, an understanding of the international FATF standards in the field of anti-money laundering, and knowledge of the requirements put forward by the ČNB and FAÚ supervisory authorities. Therefore, it will not be easy for an ordinary company employee to cope with such a task. It is much easier to turn to experienced specialists who are professionally involved in developing the system of internal rules for various companies and can guarantee a high result.
If a company, which is legally required to have a system of internal rules, does not comply with AML/CFT regulations, this can lead to:
Moreover, such a company risks attracting the attention of the competent authorities and may be suspected of aiding money laundering and terrorist financing or become attractive to fraudsters and terrorists.
Compound Labs, decentralised finance (DeFi) developer, officially introduced Compound III.
For background, Compound was initially developed so that the developers could unlock an environment of open financial applications through algorithms. It is also noteworthy that Compound is an autonomous interest rate protocol.
On the other hand, Compound III is an Ethereum Virtual Machine (EVM). Technically, it allows cryptocurrency asset supply to become a form of collateral for their clients to take a loan of the base asset. Compound III is also a smooth-running and timesaving edition of the protocol, focusing on a more secure, effective, and efficient end-user experience.
You may check their official website at https://compound.finance/ for more information.
Since this lending platform, Compound III, is targeting to have a more secured and scaled protocol in supporting tokens, they recently launched new governance changes. As publicised by Compound III’s founder in a blog post, the company’s move was to release a short supply of cryptocurrency being used to collateralise the protocol in the lending platform.
Now, there is the latest iteration from Compound – it was made known as Comet. In Comet, end-users are allowed to take a loan of a United States Dollar Coin, or what is called USDC. It is an individual asset that earns interest through the use of wrapped Bitcoin, or wBTC, together with native cryptocurrency tokens like Chainlink (LINK), Uniswap (UNI) and Compound (COMP), still in the form of collateral.
Further, Compound III is employing Chainlink as its company’s data feed. In the case of Chainlink and Compound III, it is called Price Feed.
Chainlink’s Price Feed for decentralised finance (DeFi) is structured in advance. It aims to give DeFi applications financial exchange data in real-time, including trading rates for cryptocurrency tokens, coins, stock market, fiat currencies, and other financial data.
Chainlink is also responsible for simplifying Compound III’s smart contracts in governance. The objective here is to improve the company’s blockchain security and scalability. This limited edition release of Smart Contract Protocol has a set limit of one hundred million United States dollars (USD 100 million) in total worth of assets or approximately two percent (2 %) of the 3.8 billion United States dollars (USD 3.8 B) worth of Compound II assets.
According to Robert Leshner, the founder of Compound, their newest version, Compound III, enables end-users to take out a loan to hit up for additional cryptocurrency tokens with safer liquidation consequences such as penalties.
In a recent interview, R. Leshner expressed that the structure of version two of Compound has many risks, to the point wherein in just a single lousy asset, the whole protocol can, in theory, be drained. In contrast, the newly developed Compound III is risk-free from plummeting because of this single lousy asset.
Compound’s earlier program was iterated with risk pooling. This allowed the company to support nine cryptocurrency coins such as ether (ETH), dai (DAI), and tether (USDT).
In the previous version, clients would have to deposit their assets in the crypto lending pool, where the goal was to receive profits. The clients’ deposits will be exchanged with cTokens, representing the worth of the deposits they made. Through these cTokens, the lending company can take out a loan with a particular percentage of the cryptocurrency collateral’s current value.
Aside from diminishing Compound’s total amount of cryptocurrency tokens they support, they are also bulldozing forks without authority.
Forking means diverging or separating a blockchain into two different trajectories moving forward. If the mentioned platform is into protocol forking, they aim to clone the codes to build a new program design. Forking is usually modifying a blockchain’s initial coding structure. However, other forks from the same company, Compound, seemed to be structured with low efforts; thus, nothing much has improved besides the branding.
In the latest coding, the fork is required to have the acknowledgement from communities. The intent of improving this new fork protocol is to ensure that the developed codes are not prone to exploitation.
Compound has developed to be a top-considered forked blockchain protocol in the past years. However, the uncomplicated process of having non-specialist program developers Clonie’s previous editions of protocols resulted in several headaches.
In particular, an exploitation case under Compound’s previous codes brought about an approximate loss of one hundred million United States dollars (USD 100 Million). This unfortunate situation is just one of the recorded exploitations of the decentralised finance environment, wherein codes were the cause of multimillions worth of companies’ losses.
What is more, it is becoming a common scenario in the industry.
As reported by Chain analysis in their recent study, around ninety-seven per cent (97 %) of the total cryptocurrencies embezzled during the first quarter of 2022 (that is, January to March) were affected by fraud from decentralised finance protocols. The scenario was the same in 2021, with approximately seventy-two percent (72 %) of stolen cryptocurrency assets.
Adding up to the secured blockchain Compound III is targeting, they also have the ambition to improve their governance system. That is through what they call “Configurator”, which is a streamlined contract. It is an alternative to the current agreements typically used in the industry that is being commanded individually.
In continuation with R. Leshner’s interview earlier, he emphasised that the basis of the codes is less complicated, and all datasets are managed in just one smart contract for every operation.
Today, end-users will have more control of their assets in the decentralised finance system through this improved governance, and Chainlink’s price feeds.
Over the past years, the fintech and insurance industries have seen drastic changes, mostly beneficial improvements, especially during the Covid-19 pandemic and the still ongoing digital transformation globally. However, small and medium-sized enterprises, also called SMEs, have generally suffered greatly. Many of them resorted to taking loans to thrive because they were unable to meet the expensive demands that lockdowns and forced closures imposed on them.
As global inflation rises, SMEs are once again struggling against a rising tide. Banking firms and financial institutions can provide a helping hand in the form of new products and services that can alleviate the difficulties of running a small business during difficult times. But what precisely do they offer?
According to Rob Straathof, Chief Executive Officer of Liberis (a leading global embedded finance platform company), a key distinction between small and medium-sized business banking and big enterprise banking is that SMEs owners frequently act on instinct rather than having a board of directors or multiple CFOs manage the majority of the financial aspects of running a business.
Straathof mentioned that SMEs typically require advice around managing assets and capital, getting their bills paid timely, and making sure they have adequate liquidity to pay personnel and suppliers versus their incoming revenue.
He pointed out that there are many options open for SME owners if they need help such as loans, but the issue is that usually, they don’t fully comprehend what the appropriate goods are or whether they will be readily available once they do.
Roger Vincent, currently a managing director in Trade Ledger, a Corporate Lending Platform in Ireland and U.K., indicated that small enterprises often times offer specialized services from their banks given that they have more commonalities with their consumers than huge corporations.
Vincent mentioned that small business owners generally demand the same kind of digital capabilities that they enjoy in their personal lives, and typically, they may even manage their corporate money alongside their personal accounts. On the other side, huge Fintech companies frequently have a greater understanding of this matter than traditional banks, and more crucially, they are agile and technologically advanced. This implies that they can develop fresh goods and services that meet the demands of small enterprises extremely quickly.
Given the distinct demands and requirements when it comes to supporting services, Banks that sell products to large-scale enterprises may not always be a good fit for small businesses. Straathof argued that because fintechs provide cutting-edge tools like cash flow forecasting – which are offered by Tide, Xero, and Nuula, among others – they are typically more suited to assist small firms.
He suggested that through third-party Open Banking providers like Plaid and TrueLayer, Fintech companies may fill the gap to connect lenders to small business owners’ existing systems, data mechanisms, and bank accounts.
Fintechs can offer estimates of cash flow requirements so SME owners can determine whether they have enough money on hand, identify any overdue invoices, and, if necessary, get assistance with collections.
Straatof noted Kolleno as another illustration of a top-notch fintech that supports credit control solutions for small firms.
In most cases, small and medium-sized business owners benchmark and compare banking services and select the fintech that best meets their requirements.
According to Straathof, a firm must ask itself a full range of questions in addition to ensuring that the standard functionality was met. These includes:
Straathof mentioned that many banking enterprises available in the competition do not currently offer SME lending products. He also added that even though most established banking companies do have relevant loan products available, most of them rarely approve SMEs.
Finding the ideal banking partner is not simple. And as mentioned by Straathof, the big question marks that should be asked are the aforementioned items for Open Banking, cash flow forecasting, accounting integration, and finance services.
Although it may be challenging to provide an immediate response to these queries, these should still be asked and answered, nonetheless.
Straathof also indicated that by harnessing and leveraging the data that SMEs have, Fintech organizations like Liberis should be able to work with many different ecosystems to offer the appropriate finance, to the right SME owners, at the right time.
According to Vincent, if we are going to look at the current trends and directions that retail banking is coursing, we should expect good progress and bright tomorrow for small and medium-sized banking enterprises. He added that digital services that we use on a daily basis are gradually entering the SME space since financial service companies are making significant investments to enhance their offerings to small businesses.
On top of these, a modernized and digital bank with the functionality of a “Super App” that offers products and services such as forecasting, reporting, accounting, payment transactions, invoicing, crypto and stock monitoring, etc., along with lending options available to businesses at the right time – all in one dashboard – is what Straathof calls a “mega-trend” for the next two years.
Below outlines the latest trends in small business banking: