U.S. Copyright Office: Need for Federal Protections Against AI-Generated Digital Replicas
On 15 July 2024, the U.S. Copyright Office released a report titled “Copyright and Artificial Intelligence, Part 1: Digital Replicas.” The report delves into the challenges posed by AI-generated digital replicas, which are highly realistic reproductions of an individual’s voice, appearance, or other personal attributes. These replicas, created using AI technologies, raise legal and ethical concerns, particularly regarding unauthorized use and protection of personal identity.
- The report identifies gaps in existing copyright laws, which are based on human authorship, making them inadequate to address the complexities of AI-generated content. This creates legal ambiguities regarding the ownership of copyright for digital replicas, leaving individuals depicted in these replicas vulnerable to exploitation.
- State-level rights of publicity and privacy are inconsistent across the U.S., leading to uneven protection against the misuse of digital replicas. Some states offer strong protections, while others provide little to no recourse for individuals whose likenesses are replicated without consent.
- The report highlights the absence of federal legislation specifically targeting digital replicas, noting that current federal laws, such as the Lanham Act and the Federal Trade Commission Act, offer limited protection and do not address the unique issues posed by AI-generated digital replicas.
- The U.S. Copyright Office recommends the introduction of federal legislation to create a uniform legal framework that protects individuals from unauthorized digital replicas, including liability mechanisms for online platforms, remedies for those affected by such misuse and suggests extending protections beyond an individual’s lifetime to prevent postmortem exploitation.
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Commonwealth Secretariat Launches AI-Driven Policy Tool, StrategusAI, to Enhance Governance Across Member States
On 16 August 2024, the Commonwealth Secretariat, in collaboration with Intel Corporation, launched StrategusAI, an innovative Artificial Intelligence (AI) toolkit designed to transform policy development and implementation across member states. StrategusAI aims to help governments address challenges and leverage opportunities presented by AI, enabling the creation of data-driven, informed strategies that integrate global best practices while addressing local needs.
- StrategusAI equips member states in policy development and supports the Commonwealth’s vision to close the digital divide and foster economic resilience among its member states.
- It allows policymakers to draw on global best practices while tailoring strategies to meet local needs, making it a cost-effective and efficient solution for policy development.
- StrategusAI will first be piloted in Fiji and Brunei Darussalam before being made available to all 56 Commonwealth countries.
- The launch event featured prominent speakers from various Commonwealth nations and Intel who supported the tool’s potential to empower public sector leaders and support AI innovation within the union.
- The Commonwealth Artificial Intelligence Consortium (CAIC), formed in 2023, includes representatives from global tech firms, research institutions, and non-profits, and aims to bring AI innovation across the Commonwealth.
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HK SFC Warns Public Against Fraudulent “ICE Global Professional Station” Platform Impersonating Intercontinental Exchange
On 21 August 2024, Hong Kong’s Securities and Futures Commission (HK SFC) issued a warning to the public regarding a fraudulent digital platform known as “ICE Global Professional Station,” which has been linked to various virtual asset-related scams and illicit activities.
- “ICE Global Professional Station” falsely presents itself as a legitimate digital asset trading platform by impersonating Intercontinental Exchange, Inc. (ICE), a globally recognized financial services corporation.
- HK SFC issued this warning following numerous reports from investors who have suffered financial losses due to the platform’s deceitful practices, including severe difficulties in withdrawing funds after making deposits for cryptocurrency and other digital asset investments.
- HK SFC added “ICE Global Professional Station” to its Suspicious Virtual Asset Trading Platforms Alert List, advising the public to avoid any dealings with this fraudulent platform.
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ASIC’s Corporate Plan 2024-25 Embraces Blockchain, Virtual Assets, and CBDCs in Financial Landscape
On 22 August 2024, the Australian Securities and Investments Commission (ASIC) unveiled its Corporate Plan for 2024-25, outlining its approach to regulate the nation’s financial markets in the digital age. As digital currencies, blockchain technologies, and virtual assets gain prominence, ASIC’s Corporate plan emphasizes the importance of innovation and consumer protection in this evolving landscape.
- ASIC’s Corporate Plan for 2024-25 highlights the rise of cryptocurrencies and blockchain technology. A central focus of the plan is enhancing digital and data resilience across the financial sector to mitigate risks associated with technology-enabled financial services, cybersecurity breaches, and the misuse of AI in financial decision-making.
- ASIC announced the creation of a central coordination function to oversee the regulation of digital assets, tokenization, and decentralized finance (DeFi), aiming to protect consumers and investors from emerging technological risks while fostering innovation.
- The plan also addresses the growing threat of technology-enabled scams, particularly those related to cryptocurrencies, with ASIC committing to ongoing surveillance and enforcement actions to disrupt fraudulent activities.
- The Report recognized Blockchain technology for its potential to promote transparency and trust within carbon credit markets which aligns with ASIC’s environmental, social, and governance (ESG) agenda to have rigorous standards of disclosure and accountability in sustainability-linked financial products.
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Australian Federal Court Delivers Landmark Judgment Penalising Kraken Crypto Exchange
On 23 August 2024, the Federal Court of Australia delivered a landmark judgment against Bit Trade Pty Ltd, the operator of the Kraken cryptocurrency exchange in Australia. The court found that Bit Trade had failed to comply with critical design and distribution obligations (DDO) under the Corporations Act 2001 when offering its margin trading product, known as the “margin extension,” to Australian customers.
- Bit Trade Pty Ltd, a subsidiary of the U.S.-based Payward Inc., operates the Kraken digital currency exchange in Australia and has provided access to various digital assets for trading since its acquisition by Payward in 2020.
- Central to the case was the “margin extension” product, introduced on 5 October 2021, which allowed customers to receive margin extensions in digital assets or legal tender for spot trading on the Kraken platform.
- The Terms of Service for the margin extension product required customers to maintain a specified level of collateral and allowed Bit Trade to liquidate assets if the collateral fell below the required level.
- ASIC’s case argued that the margin extension product qualified as a financial product under the Corporations Act, necessitating a target market determination before offering it to retail customers.
- The court determined that the margin extension product created a deferred debt obligation when denominated in national currencies, thus qualifying as a financial product under the Corporations Act.
- Bit Trade’s argument for exemption under regulation 7.8A.20 was rejected, as the obligation to repay in national currencies was deemed a deferred debt, while repayment in digital assets like Bitcoin was not considered a monetary obligation.
- The court will determine the penalties for Bit Trade, with a penalty hearing scheduled for a future date which is not notified yet. ASIC and Bit Trade has been ordered to agree on the appropriate form of declarations and injunctions within seven days.
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ASIC Against Greenwashing: Strict Sustainability Reporting Reforms
On 23 August 2024, the Australian Securities and Investments Commission (ASIC) announced a series of regulatory interventions aimed at curbing greenwashing misconduct in the sustainable finance sector. Over a 15-month period leading up to 30 June 2024, ASIC undertook 47 actions, including initiating two Federal Court proceedings and issuing over 123,000 AUD in infringement notice payments. These efforts are detailed in Report 791: ASIC’s Interventions on Greenwashing Misconduct: 2023–2024.
- ASIC’s commencement of two civil penalty proceedings, the finalization of one civil penalty case resulting in 11.3 million AUD in penalties, the issuance of eight infringement notices, and 37 corrective disclosure outcomes.
- The report provides an overview of ASIC’s surveillance activities to maintain trust in sustainable finance products and services. Investors and consumers are entitled to accurate and reliable information to make informed decisions.
- ASIC’s actions targeted key areas such as insufficient disclosure regarding Environmental, Social, and Governance (ESG) investment screens, inconsistencies between disclosed ESG policies and underlying investments, and sustainability claims made without reasonable grounds. The surveillance covers listed companies, managed funds, superannuation funds, and the wholesale green bond market.
- Sustainability and climate-related financial reporting include the release of inaugural sustainability disclosure standards by the International Sustainability Standards Board (ISSB) and the Australian Government’s proposal for a mandatory climate-related financial reporting regime.
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FINMA Tightens Oversight on VASPs: Elevates IT and Cybersecurity Standards in Latest Audit Forms
On 27 August 2024, the Swiss Financial Market Supervisory Authority (FINMA) published two new sets of audit forms audit forms i.e. GB-A Regulatory audit report investment companies with variable capital (SICAV) 2024 & GB-A Regulatory audit report fund management companies 2024 to enhance oversight of Virtual Asset Service Providers (VASPs). These forms, applicable to financial years beginning on or after 1 January 2024, introduce strict reporting and compliance requirements for financial institutions engaged in virtual asset activities.
- The new audit forms for fund management companies and investment companies with variable capital (SICAV) require comprehensive evaluations of Virtual asset involvement, including detailed disclosures related to anti-money laundering (AML) measures, secure management of virtual asset transactions, and the integrity of internal control systems.
- The forms introduce new IT and Cybersecurity Requirements, mandating adequacy of IT infrastructure, strategy, and organization, with an emphasis on IT security and Business Continuity Management (BCM).
- The audit forms also mandate evaluations of processes for detecting, minimizing, and reporting cyber risks and cyber attacks, ensuring that institutions manage IT systems securely to protect sensitive client data and maintain the integrity of virtual asset operations.
- However, these requirements impose operational and financial burdens on smaller financial institutions and VASPs, potentially stifling innovation and competition. The heightened scrutiny could slow down the adoption of virtual assets in Switzerland, as institutions may become more cautious in their approach.
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US SEC Enhances Reporting Requirements for Investment Companies and Issues Guidance on Liquidity Risk Management
On 28 August 2024, the U.S. Securities and Exchange Commission (US SEC) announced new amendments to reporting requirements for certain registered investment companies to improve transparency and regulatory oversight. These changes, impacting Form N-PORT filings, are designed to provide the SEC and investors with more timely and detailed information about fund portfolio holdings.
- The amendments to Form N-PORT will require registered open-end funds, registered closed-end funds, and exchange-traded funds organized as unit investment trusts to file monthly reports instead of quarterly. These reports must be submitted within 30 days after the end of each month and will be publicly available 60 days after the month’s end, increasing the data available to investors and enhancing their ability to monitor fund portfolios.
- Changes to Form N-CEN reporting requirements will now require open-end funds to report specific information about service providers used for liquidity risk management programs, allowing the SEC to better monitor liquidity risk management within the industry.
- The SEC also issued new guidance addressing liquidity risk management for open-end funds, informed by industry outreach and monitoring activities.
- These amendments will take effect on 17 November 2025, with smaller fund groups (net assets under US$1 billion) granted an extended compliance period until 18 May 2026.
- Cryptocurrency investment companies falling under these requirements should closely monitor these changes, particularly given the unique liquidity challenges posed by the digital asset market. The increased reporting frequency and emphasis on liquidity risk management will necessitate robust compliance systems to meet these new standards.
- Smaller funds and crypto entities may face challenges in adapting to the more stringent reporting timelines and liquidity risk management requirements, potentially straining their resources. Compliance will likely require investments in systems and processes to meet these obligations effectively.
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HKMA Launches Project Ensemble Sandbox to Advance Tokenisation in Financial Sector
On 28 August 2024, the Hong Kong Monetary Authority (HKMA) officially launched the Project Ensemble Sandbox to promote the practical adoption of tokenisation within the financial industry. The launch introduced four key themes for the initial round of experimentation.
- The Sandbox is designed to facilitate interbank settlement using experimental tokenised money, enabling participating banks from the Project Ensemble Architecture Community to conduct experiments in payment-versus-payment and delivery-versus-payment settlement processes.
- The first round of experimentation will cover four main areas: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance. These areas were chosen based on industry interest, market trends, and potential for innovation.
- The HKMA is collaborating with the Hong Kong Securities and Futures Commission (HK SFC) to establish regulatory guidelines for tokenisation within the asset management industry. The HKMA also plans to work with the BIS Innovation Hub Hong Kong Centre and engage with the CBDC Expert Group on various Sandbox themes.
- Mr. Eddie Yue, Chief Executive of the HKMA and Ms. Julia Leung, CEO of the SFC, showed their support to the project in their speeches at the launch event and emphasized that the Project Ensemble Sandbox and applauded the HKMA’s collaboration with the SFC to future-proof the city’s financial system.
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