Consumer protection

EU watchdog sets AI guidelines for banks

The European Securities and Markets Authority (ESMA) has issued its first statement on AI, emphasising that banks and investment firms in the EU must uphold boardroom responsibility and legal obligations to safeguard customers when using AI. ESMA’s guidance, aimed at entities regulated across the EU, outlines how these firms can integrate AI into their daily operations while complying with the EU’s MiFID securities law.

While AI offers opportunities to enhance investment strategies and client services, ESMA underscores its inherent risks, particularly concerning protecting retail investors. The authority stresses that management bodies are ultimately responsible for decisions, regardless of whether humans or AI-based tools make them. ESMA emphasises the importance of acting in clients’ best interests, irrespective of the tools firms choose to employ.

ESMA’s statement extends beyond the direct development or adoption of AI tools by financial institutions, also addressing the use of third-party AI technologies. Whether firms utilise platforms like ChatGPT or Google Bard with or without senior management’s direct knowledge, ESMA emphasises the need for management bodies to understand and oversee the application of AI technologies within their organisations.

Their guidance aligns with the forthcoming EU rules on AI, set to take effect next month, establishing a potential global standard for AI governance across various sectors. Additionally, efforts are underway at the global level, led by the Group of Seven economies (G7), to establish safeguards for AI technology’s safe and responsible development.

Airlines, hotels, and retailers in EU worry about exclusion in Google’s search alterations

Lobbying groups representing airlines, hotels, and retailers in Europe are urging the EU tech regulators to ensure that Google considers their views, not just those of large intermediaries, when implementing changes to comply with landmark tech regulations. These groups, including Airlines for Europe, Hotrec, EuroCommerce, and Ecommerce Europe, had previously expressed concerns about the potential impact of the EU’s Digital Markets Act (DMA) on their revenues.

The DMA aims to impose rules on tech giants like Google to give users more choice and offer competitors a fairer chance to compete. However, these industry groups fear the proposed adjustments could harm their direct sales revenues and exacerbate discrimination. In a joint letter to EU antitrust chief Margrethe Vestager and EU industry chief Thierry Breton, dated 22 May, they emphasised their mounting concerns regarding the potential consequences of the DMA.

Why does it matter?

Specifically, the groups worry that the proposed changes may give preferential treatment to powerful online intermediaries, resulting in a loss of visibility and traffic for airlines, hotels, merchants, and restaurants.

Despite Google’s acknowledgement in March that changes to search results may impact various businesses, including those in the European market, the company has not provided immediate comment on the recent concerns raised by these lobbying groups. The European Commission, currently investigating Google for possible DMA breaches, has yet to respond to requests for comment on the matter.

CMA accepts Meta’s updated UK privacy compliance proposals

Meta Platforms has agreed to limit the use of certain data from advertisers on its Facebook Marketplace as part of an updated proposal accepted by the UK’s Competition Market Authority (CMA). The request aims to prevent Meta from exploiting its advertising customers’ data. The initial commitments, accepted by the CMA in November, included allowing competitors to opt out of having their data used to enhance Facebook Marketplace.

The British competition regulator has provisionally accepted Meta’s updated changes and is now seeking feedback from interested parties, with the consultation period closing on 14 June. The details about any further amendments to Meta’s initial proposals in UK have yet to be disclosed. The following decision reflects a broader effort by regulators to ensure fair competition and prevent dominant platforms from misusing data.

In November, Amazon committed to avoiding the use of marketplace data from rival sellers, thereby promoting an even playing field for third-party sellers. Both cases highlight the increasing scrutiny of major tech companies regarding their data practices and market power, aiming to foster a more competitive and transparent digital marketplace.

Google requests non-jury trial in response to US antitrust lawsuit

Google has requested a non-jury trial in response to the US Justice Department’s lawsuit accusing the tech giant of anticompetitive practices in the online advertising market. The Justice Department, which filed the lawsuit in January 2023, claims Google has abused its dominance in digital advertising and should be forced to divest its ad manager suite.

Tech giant argues that the Justice Department’s request for a jury trial deviates from historical precedent, emphasising the complex technical nature of the case, which it believes would be challenging for a jury to understand. The Justice Department has not yet commented on Google’s filing.

Google’s online advertising network, including the ad manager, accounted for 12% of its revenue in 2021 and is integral to its overall sales, including its search engine and cloud services. Google contends that the Justice Department’s case exceeds the boundaries of antitrust law, asserting that these laws do not regulate the alleged conduct.

EU designates Booking as a gatekeeper under DMA

The European Commission announced on Monday that it has classified Booking as a ‘gatekeeper’ under the Digital Markets Act (DMA), signifying its strong market influence. At the same time, the Commission has initiated a market investigation into the regulatory status of social media network X to delve deeper into its market dominance. Despite this, according to the EU, online advertising services such as X Ads and TikTok Ads have not been designated as gatekeepers.

In March, the European Commission identified Elon Musk’s X, TikTok’s parent company ByteDance, and Booking.com as potential candidates for gatekeeper status, subjecting them to stringent tech regulations. While Booking has been officially designated as a gatekeeper, a market investigation has been initiated to address X’s opposition to such a classification. ByteDance was previously labelled as a gatekeeper in July last year, but TikTok has contested this designation at the EU’s second-highest court.

Why does it matter?

The Digital Markets Act (DMA) represents a significant step towards regulating the market dominance of large tech companies. It imposes stricter obligations on these firms, compelling them to moderate content, ensure fair competition, and facilitate consumer choice by making it easier to switch between services. As the EU continues to navigate the complexities of digital market regulation, the classification of gatekeepers and subsequent investigations serve as crucial measures to promote fair competition and protect consumers’ interests in the digital sphere.

US wireless carriers fined millions for sharing customers’ personal data

The US government has issued draconian fines against major wireless carriers AT&T, Sprint, T-Mobile, and Verizon following an investigation revealing the unauthorised sharing of customers’ personal data. The sanctions stem from 2020 allegations by the Federal Communications Commission (FCC) that the carriers had unlawfully shared users’ geolocation histories with third parties, including prisons, as part of their commercial programs. The fines target sharing user location information with data resellers, known as ‘location aggregators,’ who then distribute the data to third-party customers.

AT&T faces a fine of $57 million, while Verizon was fined nearly $47 million. Sprint received a $12 million fine, and T-Mobile was fined $80 million. Despite promises to cease the practice after the issue came to light in 2018, carriers continued for nearly a year or longer, according to the FCC. The investigation, initiated during the Trump administration, revealed that carriers attempted to shift responsibility for obtaining customer consent onto downstream recipients of location information, often resulting in no valid customer consent.

Responding to the fines, all wireless carriers intend to appeal the FCC’s decision. AT&T, Verizon, and T-Mobile assert that the FCC’s order lacks legal and factual merit, with each carrier highlighting its efforts to address the situation and emphasising its commitment to customer privacy. T-Mobile, in particular, discontinued its location data-sharing program five years ago and plans to challenge the decision, stating that the fine is excessive.

The investigation into unauthorised data sharing gained stimulus in 2018 when Oregon Democratic Senator Ron Wyden’s probe revealed that cellphone location information had made its way to Securus, a provider of prison phone services. Wyden commended the FCC for holding the companies accountable and stressed the importance of protecting customer privacy and safety.

EU designates Apple’s iPadOS as a gatekeeper under DMA

The European Commission has taken another giant step in digital regulation by designating Apple’s iPadOS as a gatekeeper under the Digital Markets Act (DMA). The legal measure follows an investigation into Apple’s ecosystem, which found that iPadOS plays a crucial role as a gateway for business users to reach end consumers despite failing to meet initial quantitative thresholds. The Commission’s findings indicate that Apple’s large ecosystem effectively locks end users and business users into iPadOS, discouraging them from switching to other tablet operating systems. As a result, Apple has been given six months to ensure full compliance of iPadOS with DMA obligations.

The DMA, aimed at fostering fair and contestable markets in the digital sector, focuses on regulating gatekeepers — large digital platforms that serve as vital gateways between businesses and consumers. This designation carries significant implications, as gatekeepers possess the potential to create bottlenecks in the digital economy due to their entrenched positions. The Commission’s decision regarding iPadOS represents the first market investigation conducted under the DMA rules, which were initiated with a best-endeavour deadline of 12 months to conclude based on qualitative criteria.

In addition to Apple, the European Commission has designated other tech giants like Alphabet, Amazon, Meta, and Microsoft as gatekeepers. These companies were required to comply fully with DMA obligations by 7 March 2024. However, the Commission has opened investigations into alleged non-compliance by Alphabet and Meta, focusing on issues such as self-preferencing and steering within their platforms. Furthermore, recent notifications from Booking, ByteDance, and X suggest potential inclusion under the DMA rules, indicating ongoing scrutiny and expansion of regulatory measures within the EU’s digital landscape.

Why does it matter?

The Commission’s proactive stance depicts the evolving nature of digital regulation and the imperative to maintain fair and competitive digital markets. As it continues to assess compliance and investigate potential violations, the Commission remains committed to ensuring that gatekeepers adhere to DMA obligations, fostering an environment conducive to innovation and consumer choice within the digital ecosystem.

A final version of stablecoin bill in the US could be ready soon

US House Representative Maxine Waters, a top Democrat on the House Financial Services Committee, has indicated that the final version of the stablecoin bill could be ready soon. In an interview with Bloomberg, Waters expressed optimism about the progress made towards getting the bill in the short run. This is a significant development, considering Waters had previously criticised a version of the same bill.

Waters now emphasises the importance of protecting investors and ensuring that cryptocurrency known as stablecoins have proper backing. This focus on investor protection underscores the need for robust regulation in the rapidly growing market.

Both the Senate and the House of Representatives have seen an acceleration in the movement towards a legislation in the past few weeks. Waters mentioned that the US Federal Reserve, the Treasury Department, and the White House have all had input in shaping the bill, underscoring the extensive collaboration involved.

In addition to progress within the House, a new stablecoin bill has been introduced in the Senate by Senators Cynthia Lummis and Kirsten Gillibrand. The bill proposed a ban on algorithmic stablecoins and requirements for issuers’ tokens to be fully backed by reserve assets. This bipartisan effort demonstrates the growing interest in regulating stablecoin cryptocurrency and ensuring their stability and transparency.

Notably, there is mention of a possible pairing of the stablecoin legislation with a marijuana banking bill. It is suggested that Waters is hopeful of overcoming potential opposition to the marijuana banking bill from Republican leader Mitch McConnell, which could facilitate further progress on both fronts.

Executives of the cryptocurrency wallet Samourai indicted for money laundering

Keonne Rodriguez and William Lonergan Hill, the CEO and CTO of cryptocurrency company Samourai Wallet, have been indicted and charged with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmitting business. The charges stem from their alleged involvement in the development, marketing, and operation of a cryptocurrency mixer that facilitated over $2 billion in unlawful transactions and enabled more than $100 million in money laundering activities from illegal dark web markets.

The indictment accuses Rodriguez and Hill of knowingly facilitating the laundering of criminal proceeds from sources such as Silk Road and Hydra Market, as well as from various wire fraud and computer fraud schemes, including a web-server intrusion and a spearphishing scheme. They are also alleged to have been involved in schemes to defraud multiple decentralized finance protocols.

Rodriguez was arrested and is expected to appear before a U.S. Magistrate Judge in the Western District of Pennsylvania, while Hill was arrested in Portugal, and the United States intends to seek his extradition for trial. In coordination with law enforcement authorities in Iceland, Samourai’s web servers and domain were seized, and a seizure warrant for Samourai’s mobile application was served on the Google Play Store. As a result, the application will no longer be available for download in the United States.

U.S. Attorney Damian Williams emphasized that Rodriguez and Hill are accused of operating a cryptocurrency mixing service that enabled criminals to engage in large-scale money laundering.

FBI Assistant Director in Charge James Smith explained that Rodriguez and Hill allegedly operated a mobile cryptocurrency mixing platform for almost a decade, providing a virtual haven for criminals to exchange illicit funds. Smith stated that Samourai’s services facilitated over $2 billion in illegal transactions and $100 million in dark web money laundering.

According to the indictment, from around 2015 to February 2024, Rodriguez and Hill developed, marketed, and operated the cryptocurrency mixing service known as Samourai. While promoting wallet as a “privacy” service, persecutors argue that the defendants were aware that it was used by criminals to launder large amounts of money and evade sanctions. The indictment alleged that Samourai processed over $100 million of criminal proceeds.

Illegal Samourai features

Samourai’s mobile application, allowed users to store their private keys for Bitcoin (BTC) addresses. Although Samourai employees did not have access to these private keys, the company operated a centralized server that facilitated transactions between users and created new BTC addresses. The indictment highlighted two features of Samourai that were allegedly designed to assist individuals engaged in criminal conduct to conceal the source of their proceeds. The first feature, called “Whirlpool,” was a cryptocurrency mixing service that coordinated batches of exchange between Samourai users to prevent law enforcement tracing on the Blockchain. The second feature, known as “Ricochet,” added unnecessary intermediate transactions, called “hops,” when transmitting cryptocurrency between addresses to prevent detection by law enforcement and cryptocurrency exchanges.

Over the years, over 80,000 BTC (worth over $2 billion at the relevant time) passed through these two services provided by Samourai. The defendants collected fees of approximately $3.4 million for Whirlpool transactions and $1.1 million for Ricochet transactions over the same period. Furthermore, Rodriguez and Hill operated Twitter accounts associated with Samourai.

Italy fines Amazon subsidiaries for unfair practices

Italy’s antitrust authority has fined two Amazon subsidiaries 10 million euros for alleged unfair commercial practices, a decision that Amazon plans to challenge through an appeal. The regulator accused Amazon of limiting consumers’ freedom of choice by automatically pre-setting a ‘Subscribe and Save’ option on its website for a wide range of products. This practice encouraged consumers to opt for recurring deliveries rather than one-off purchases, potentially restricting their ability to choose freely.

According to the authority, pre-ticking recurring purchases could lead consumers to buy products periodically, even without a genuine need, thus curtailing their freedom to choose. Amazon responded by contesting the decision and stating its intention to appeal. The company defended its ‘Subscribe and Save’ program, highlighting its benefits to customers regarding cost savings and convenience for routine purchases.

Amazon emphasised that the ‘Subscribe and Save’ option, which allows customers to schedule regular deliveries of essential items with a discount, has resulted in significant savings exceeding 40 million euros since its introduction in Italy. Despite the fine and regulatory scrutiny, Amazon maintains that its program continues to provide value to customers by simplifying their shopping experience and offering discounts on recurring purchases of everyday products.