Calls for Regulation of Crypto Investment Management Firms Amidst Growing Concerns

Credit Saison, one of the largest credit card issuers in Japan, is accelerating its global venture strategy with the creation of Onigiri Capital, a new fund targeting early-stage startups building on blockchain technology. Set up in Singapore last month through Credit Saison’s corporate venture arm, Saison Capital, the vehicle is aiming for up to $50 million in commitments and will run for 10 years, with an optional two-year extension. The fund has already secured $35 million toward its target.Photo by Markus Winkler on UnsplashBuilding on a fintech track recordThe initiative is part of Credit Saison’s broader plan to expand in emerging markets and spur innovation in financial services, drawing on Saison Capital’s track record. Established in 2019, the venture arm has backed fintech startups across Asia and, since 2021, has increasingly focused on blockchain-based finance, investing in more than 40 companies. The firm said those investments laid the groundwork for Onigiri Capital, which will also enable other financial institutions to invest alongside Credit Saison in promising blockchain ventures. Onigiri Capital will concentrate on five areas: stablecoins, payments, asset tokenization, decentralized finance (DeFi), and financial infrastructure. The fund will invest primarily at the seed and early stages, with an emphasis on long-term growth. Managing the fund are Qin En Looi, a partner at Saison Capital involved in over 40 blockchain investments, and Hans de Back, a venture investor with more than two decades of experience. Cross-border stablecoin pilotThe launch comes as Japan steps up efforts in digital assets beyond investment alone. According to Electronic Times, the first phase of “Project Pax,” a cross-border stablecoin remittance pilot involving financial institutions in Japan and South Korea, concluded successfully last week. Participants were Progmat—a tokenization platform backed by a consortium of major institutions, including MUFG—along with Datachain and Shoko Chukin Bank from Japan, and Shinhan Bank, NH Nonghyup Bank, and Kbank from South Korea. Fair Square Lab and Korea Digital Asset Custody helped develop an application programming interface (API) for the trial. The pilot demonstrated the feasibility of a network that converts fiat currency into stablecoins for on-chain transfers and then back into local currency at the destination, an approach expected to reduce the time and cost of cross-border payments. The results add momentum to Japan’s bid to modernize financial infrastructure, a backdrop that Onigiri Capital aims to capitalize on as it deploys capital into the sector. 

Singapore’s Regulator Imposes 9-Year Ban on 3AC FoundersSingapore’s central bank and financial regulator, the Monetary Authority of Singapore (MAS), has handed down a nine-year prohibition order to Kyle Davies and Su Zhu, co-founders of the failed crypto hedge fund Three Arrows Capital (3AC).Photo by Swapnil Bapat on UnsplashSevere restrictionsThe penalty relates to alleged violations of the city-state’s securities laws. The prohibition order came into effect on Wednesday, carrying severe restrictions for Davies and Zhu.During this nine-year period, Davies and Zhu are prohibited from engaging in any regulated activities in Singapore. They are also barred from managing, serving as directors, or holding substantial shares in any capital market services business within the territory of Singapore.Loo Siew Yee, the Assistant Managing Director of Policy, Payments, and Financial Crime at MAS, emphasized the seriousness of the violations in a statement released by the central bank on Thursday. Yee stated:“MAS takes a serious view of Mr. Zhu’s and Mr. Davies’ flagrant disregard of MAS’ regulatory requirements and dereliction of their directors’ duties.” She further asserted that MAS would take action against senior managers who engage in such misconduct.Securities law violationsMAS’s decision to impose these sanctions on the 3AC co-founders was based on its findings of further securities law violations during investigations into 3AC and its founders. The regulatory authority accused Davies and Zhu of failing to inform MAS when 3AC hired a new business representative, providing false information to the regulator, and neglecting to establish an appropriate risk management framework.3AC’s troubles stemmed from the crypto market crash that occurred last year, triggered by the Terra ecosystem’s collapse. The hedge fund’s leveraged crypto positions exposed it to billions in loan defaults, resulting in significant financial losses. Its lack of risk management had a cascading effect in crypto. Lenders like Celsius and BlockFi had exposure to 3AC, leading to further collapses later in 2022 as a consequence.3AC’s creditors claim that the firm owes as much as $3.5 billion, and liquidators are now seeking to recover approximately $1.3 billion from Zhu and Davies, who allegedly incurred the debt when the firm was already insolvent.Regulatory reprimandsThis action by MAS follows last June’s reprimand of 3AC, which occurred just before the hedge fund filed for bankruptcy amid widely reported insolvency issues. At that time, MAS had criticized 3AC for providing false information, failing to report directorship changes involving Zhu and Davies, and exceeding the legal assets under management threshold.It’s just the latest reprimand the duo have received from a regulator this year, though. Zhu and Davies have been busy in trying to get another start-up off the ground. Earlier this year, they launched OPNX, a crypto bankruptcy claims trading platform. The venture is based out of Dubai, and the firm reported in April that it had gotten significant VC backing.Many of those that the company claimed were backing the venture disassociated themselves from those claims. The following month, the Dubai regulator, the Virtual Assets Regulatory Authority (VARA), reprimanded the OPNX founders, having issued an investor alert relative to the firm a few weeks prior to that. VARA's complaint was that the business had been operating without having acquired the appropriate licensing.

Singapore High Court Embraces NFTs for Financial InvestigationsA recent decision by the Singapore High Court has seen it embrace non-fungible tokens (NFTs) in financial investigations. Financial investigation firm Intelligent Sanctuary, also known as iSanctuary, has been granted permission to attach NFTs containing legal documents to cold wallets linked to a hacking incident.This innovative approach, similar to the one used in Italy and the United States to deliver court summonses recently, signals a new departure in the application of NFT technology in the legal and financial world.Photo by Choong Deng Xiang on UnsplashMoving towards tokenized legal ordersLondon-based iSanctuary set out details of the court decision in a blog post published to its website recently. A pivotal moment in this scenario was the court’s issuance of a global freezing order encapsulated within soulbound NFTs, securely linked to the specified wallets. Soulbound NFTs are special types of NFTs which are tied to a user’s account. They cannot be transferred or traded.Although these NFTs do not halt transactions, they serve as powerful deterrents, notifying counterparties and exchanges about the wallets’ dubious past involvement in a hacking event.Monitoring fund movementsFurthermore, iSanctuary has unveiled an ingenious strategy to actively monitor funds leaving these wallets through the NFTs. This innovative method ensures a permanent and unbreakable connection between the NFTs and the wallets.iSanctuary recounted on its website that it was employed by a businessperson who had lost $3 million in crypto assets and was able to track the stolen funds successfully. Their method, which combines both on-chain and off-chain evidence, was presented by an iSanctuary senior investigator to the Singapore High Court. This led to the issuance of a worldwide injunction.iSanctuary’s financial and crypto investigators identified a series of cold wallets holding the proceeds of the crime, and the court approved their use of NFTs for service delivery.Mintable collaborationiSanctuary accredited Singaporean NFT marketplace Mintable as the creator of the NFTs. As reported by local news media outlet The Straits Times last week, this case revolved around a stolen private key and the alleged involvement of Singapore-based crypto exchanges in laundering the stolen assets. The fraudsters, purportedly from Singapore, are alleged to have orchestrated this saga that spans countries from Singapore to Spain, Ireland, Britain, and other European territories.Taking to X (formerly Twitter) to comment on the saga, Mintable founder Zach Burks stated:”Happy to help clean up the crypto space and move the NFT ecosystem into a realm of utility and away from the speculation of jpegs!”In a subsequent post, Burks highlighted further NFT-related innovation when pointing to a central bank digital currency (CBDC) pilot program led by Mastercard that implicated the use of NFTs to stamp out fraud. Mintable supported that particular use of the technology within that project.iSanctuary’s founder, Jonathan Benton, emphasized the impact of the recent initiative, calling it a “game changer.” The approach enables swift action, allowing for the identification of illicit asset holders and expediting the issuance of civil or criminal orders, even red flags, within hours if necessary. It also demonstrates that NFTs can be put to good use, above and beyond speculative trading.