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eCom21: from Government Control over Cryptocurrencies to Personal Data Protection

Jaroslav Zamullo. Publicity photo.
One of the key subjects of the eCom21 conference, to be held in Riga on 16−17 November, are forthcoming innovations in regulating e-commerce. Some of them anticipate cardinal changes that will affect practically all participants of the industry.

The main trends in this area will be the subject of speech of the Head of Legal Department of Rietumu Bank Jaroslav Zamullo, who will take part in the “Regulation and Legislation” session.

Pluses of Timely Adaptation

“At each of our conferences, we considered main changes in legislation that required focused attention of the market participants, including licencing of payment systems in the EU, legal risks in e-commerce and practical requirements of banks when establishing their relations with service providers, legal risks of conducting business via Internet, the global unified standard for tax information exchange. The time shows that these things have seriously affected the development of e-commerce,” said Jaroslav Zamullo.

When looking at changes in legislation with regards to service providers, it has toughened considerably over the last years. Yet 5−6 years ago, such companies, in comparison with banks, felt at ease, whereas now their operation is strictly regulated, and they have to observe a lot of strict requirements related to KYC (Know Your Customer) and AML (Anti-Money Laundering). Undoubtedly, in the nearest future, the same will refer to miners, extracting cryptocurrencies, and traders of such currencies.

The common standard in tax information exchange has already resulted in considerable changes in the transnational business of e-commerce, which earlier was not strictly controlled from the taxation viewpoint, and this trend will continue to gain momentum.

“Streamlining of legislation regulating e-commerce is a normal civilised process that will be continued. Therefore, it is important to take into account popular trends and adapt business to them timely. Ignoring of this will turn into significant losses in the future,” emphasised Jaroslav Zamullo.

In the opinion of the expert, among recent global tendencies in the field of regulation, three main ones can be distinguished, which will exert the biggest influence on the market during the next year. These are the European Directive MiFID (II), aimed at tightening control over transactions with securities, the Regulation on customer data protection, as well as, most probably, the hottest topic – regulation of cryptocurrencies.

More Transparency with Securities 


The MiFID (II) Directive regulates the market of securities, but, as the overwhelming majority of such transactions now are performed online, it is directly related also to e-commerce.

“When talking in general, this Directive aims at protecting interests of customers, increase of transparency of transactions, avoidance of insiders’ operations. As a result, the market will become clearer for analysis and supervision. It is anticipated that in the future such measures will help to minimise the possibility of formation of the notorious soap bubbles, when investors traded derivatives, having no real security, in huge amounts, and this became clear only upon collapse of the market,” explained Jaroslav Zamullo.

The MiFID (II) Directive sets new requirements to legal entities − investors and professional participants of the financial market. In particular, each of them must receive the special code − Legal Entity Identifier (LEI), without which, starting from the next year, operations on the market of securities cannot be performed.

The procedure and volume of information about operations with securities, which the professional participants provide to their customers, will also be controlled more strictly. This refers to information on fees, which must be maximally transparent, observation of the customer interests, when performing transactions, disclosure of complete information on the essence of transactions, analysis of the conformity of the specific form of investments to interests of the customer, etc.

According to the Rietumu spokesperson, these innovations practically exclude opportunities for broker companies and banks to receive ‘hidden profit’ from the customers operations. As well as, they impose obligations of presenting very big volumes of reporting within a short term, which will require application of considerable efforts.

New in Personal Data Protection

Another important document to pay attention to is the European General Data Protection Regulation (GDPR) on protection of customers’ data, when receiving, storing and exchanging them. In contrast to the Directive, the Regulation is compulsory for all participants of the market, regardless of the fact whether it is included in the national legislation of the specific country or not. Thus, upon taking effect next May, it will immediately affect all subjects of e-commerce.

“The global volume of the customers’ data, received in electronic form, is growing at a rapid-fire pace. New technologies allow reading copies of passports and other documents, perform identification on video, receive biometric parameters − all such information is retained on electronic media and, when used improperly, can result not only in discomfort, but also a threat for a person. The main task of the Regulation is to eliminate such risks and to achieve that such information is used strictly for its anticipated purpose − provision of the specific service,” said Jaroslav Zamullo.

For this purpose, it is prohibited to receive excessive information, the number of its electronic and physical copies is regulated, as well as the procedure of their storage and usage.

Huge penalties are anticipated for the violations, in percentage from the turnover, which for big corporations can result in dozens and hundreds of million euros. Therefore, as the Head of Legal Department of Rietumu Bank emphasises, now it is very important to forward one’s efforts to fulfilment of these requirements, even when a company operates beyond the EU borders. “As practice shows, such concepts spread very fast, and one can forecast that in a short while also other countries will join this tendency. Moreover, in view of the international nature of e-commerce, to take into account latest requirements of legislation is very proactive. Today, it will considerably simplify liaising with European partners, and tomorrow it can become a compulsory condition for such cooperation.”

Blockchain as a Mechanism of Government Control

The most radical changes in the future, however, in the opinion of Jaroslav Zamullo, will be caused by regulation of cryptocurrencues. “Now it is one of the most fashionable and, at the same time, controversial topics in e-commerce. We see the radically different attitude to it on the part of different countries − from legalisation of bitcoin in Japan to its total prohibit in China. Russia was also wary of this cryptocurrency, but practically these days, on the governmental level, announced a possibility to create its own national cryptorouble. Such step is also considered by Estonia, which earlier informed about its plans to launch estcoin.”

The expert is convinced that, in any case, regulation of the market of cryptocurrencies is not far off. And one of the main risks here is in the possible appearance of national cryptocurrencies, following which the future of an independent bitcoin may become, putting it mildly, vague.

“In my opinion, in the situation with bitcoin, a considerable role is played by the factors, for the analysis of which the Nobel Prize for economics was granted this year. Its winner Richard Thaler has performed research of the economic behaviour and influence of psychology on it, included psychologically realistic assumptions in the analysis of taking economic decisions. We can observe this by considering the phenomenon of the bitcoin rate growth. Everybody knows that this currency has no backing, there are no people or organisation that are hold responsible for it, and still its exchange rate with regards to the traditional fiat currencies, which are backed by countries, is continuously growing. This creates big risks,” says Jaroslav Zamullo.

The specialist also forecasts that usage of Blockchain technology on the national level will result in cardinal changes in the financial system. And one of the chief factors here is a possibility of tracking the entire history of movement of each currency unit, the virtual ‘coin’, which is unique in this system.

“This principle of Blockchain provides fantastic opportunities for the total control over the financial flows. And if now this system, which is not controlled by anyone, provides full confidentiality to its users, further on the situation can change to just the opposite. It is absolutely obvious that there are no obstacles for that, apart from the wish and decision of the world’s authorities to take the world of cryptocurrencies under their control,” concluded Jaroslav Zamullo.

Further information on these and other issues will be provided during the “Regulation and Legislation” session on the first day of the eCom21 conference on 16 November.
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