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SEC Issues Substituted Compliance Order for Germany and Notice of Substituted Compliance Application and Proposed Substituted Compliance Order for France

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Washington, D.C.–(Newsfile Corp. – December 22, 2020) – The Securities and Exchange Commission voted to take two actions to advance implementation of security-based swap regulation under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  First, the Commission is publishing a final substituted compliance order in response to an application by Germany’s Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).  In addition, the Commission is publishing a notice of application and proposed substituted compliance order in response to an application by France’s Autorité des Marchés Financiers (AMF) and Autorité de Contrôle Prudential et de Résolution (ACPR).       

“These actions reflect the latest of the Commission’s ongoing efforts, including engagement with multiple agencies and foreign counterparts, to stand up the Dodd-Frank Title VII regime and prepare for the registration of security-based swap dealers in 2021,” said SEC Chairman Jay Clayton.  “I thank our German, French and EU colleagues for their tireless efforts to advance cross-border regulatory cooperation, and SEC Commissioner Hester Peirce for her leadership in advancing efforts to stand up the Dodd-Frank Title VII regime.”

The substituted compliance order for Germany provides that certain German firms that are registered with the Commission as security-based swap dealers and major security-based swap participants conditionally may satisfy certain requirements under the Securities Exchange Act of 1934 by complying with comparable German and European Union (EU) requirements.  The Commission retains the authority to inspect, examine and supervise non-U.S. firms and take enforcement action as appropriate.  The Commission and BaFin also have entered into a memorandum of understanding to address supervisory and enforcement cooperation and other matters arising under substituted compliance.

The French application similarly seeks substituted compliance for French security-based swap entities based on compliance with French and EU requirements.  In contrast to the German order, the French proposed order also makes a proposed substituted compliance determination with respect to non-prudentially regulated firms’ capital, margin, recordkeeping, reporting, notification, and securities count requirements under the Exchange Act. 

These actions reflect the Commission’s consideration of the comparability of applicable non-U.S. requirements, and incorporate conditions intended to help promote comparability in practice.

“Substituted compliance is a critical component to the workable yet effective regulation of the global OTC derivatives markets,” said SEC Commissioner Hester Peirce.  “I am pleased that the Commission is taking these steps, including considering substituted compliance with respect to capital and margin requirements in connection with the French application.  I look forward to considering applications for substituted compliance for additional jurisdictions in the near future.”

The public comment period for the French application will remain open for 25 days following publication of the notice and proposed order in the Federal Register.  Additional information about substituted compliance applications is available at: https://www.sec.gov/page/exchange-act-substituted-compliance-and-listed-jurisdiction-applications-security-based-swap.

 

FACT SHEET

Commission Substituted Compliance Order for Germany and French Substituted Compliance Application and Proposed Commission Order

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Dec. 22, 2020

Action

The Commission is taking two actions to advance the availability of substituted compliance for certain non-U.S. security-based swap dealers and major security-based swap participants, in anticipation of those firms’ registration with the Commission in 2021.

First, in response to an application by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), the Commission is publishing an order to conditionally permit certain German firms registered with the Commission as security-based swap dealers or major security-based swap participants to satisfy certain requirements under the Securities Exchange Act of 1934 by complying with comparable German and EU requirements.  In connection with this order, the Commission and BaFin have entered into a memorandum of understanding to address supervisory and enforcement cooperation and other matters arising under substituted compliance.

Separately, the Commission is publishing notice of an application by the French Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudential et de Résolution (ACPR), requesting substituted compliance for French security-based swap dealers and major security-based swap participants.  The Commission also is publishing a proposed order to conditionally provide substituted compliance to French firms. 

Substituted Compliance Framework

Exchange Act rule 3a71-6 conditionally provides that non-U.S. security-based swap dealers and major security-based swap participants may satisfy certain requirements under Section 15F of the Exchange Act by complying with foreign requirements that the Commission has found to be comparable.  The Commission’s comparability assessment must consider the scope and objectives of the foreign requirements and also the effectiveness of the foreign financial supervisory and enforcement frameworks.   

Rule 3a71-6 further conditions substituted compliance on the Commission and the foreign financial regulatory authority entering into a supervisory and enforcement memorandum of understanding and/or other arrangement addressing supervisory and enforcement cooperation and other matters related to substituted compliance.  

Substituted compliance does not constitute exemptive relief, but instead provides an alternative method by which non-U.S. dealers and major participants may comply with applicable U.S. requirements.  The Commission retains the authority to inspect, examine and supervise those firms and take enforcement action as appropriate.

The registration compliance date for security-based swap dealers and major security-based swap participants is October 6, 2021, and market participants will begin counting security-based swap transactions and positions toward the registration thresholds on August 6, 2021.  See “Key Dates for Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants,” available at https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants.

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Substituted Compliance Order for Germany

The Commission’s order for Germany provides for conditional substituted compliance in connection with requirements under the Exchange Act regarding: 

  • Risk control – requirements related to risk management systems, trade acknowledgment and verification, portfolio reconciliation, portfolio compression and trading relationship documentation.
  • Recordkeeping and reporting – requirements related to record creation, record maintenance, reporting and notices (with respect to prudentially regulated firms only).
  • Internal supervision and compliance – requirements related to supervision, conflicts of interest and chief compliance officers, and certain related matters.
  • Counterparty protection – requirements related to fair and balanced communications; disclosure of material risks and characteristics; disclosure of material incentives or conflicts of interest; daily mark disclosure; “know your counterparty;” and suitability.

Consistent with rule 3a71-6, the availability of substituted compliance reflects the comparability of applicable German and EU requirements, and the effectiveness of the German financial supervisory and enforcement frameworks.  The order incorporates certain conditions and other limits to promote the comparability of regulatory outcomes, including: 

  • Portfolio reconciliation and dispute reporting – Firms would have to report counterparty valuation disputes directly to the Commission, based on EU timing requirements.
  • Trading relationship documentation – Firms could not apply the MiFID “eligible counterparty” exception in connection with applicable German and EU requirements.  Also, firms would not receive substituted compliance in connection with certain disclosure-related provisions except with respect to non-U.S. counterparties.
  • Internal supervision requirements – Firms’ internal supervision framework must promote compliance with certain residual U.S. requirements and the conditions to the order.
  • Compliance reports – Firms must provide compliance reports directly to the Commission.  This condition does not require that the reports be provided to EU or German authorities.
  • Suitability – The firm’s counterparty must be treated as a “per se professional client” under German and EU requirements and must not be a “special entity” as defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule 15Fh-2(d). 
  • Daily mark disclosure – The firm must be required to reconcile, and in fact reconcile, the portfolio containing the relevant security-based swap on each business day.
  • Recordmaking – The firm would need to: (a) preserve the data elements to create certain records required by the Commission’s rule and furnish the record in the format (e.g., blotter or ledger) required by that rule; (b) make certain records related to the security-based swap dealer segregation rule if the firm is not exempt from that rule; and (c) make certain records related to business conduct requirements for which substituted compliance is not available.
  • Record preservation – The firm would need to: (a) preserve records related to the security-based swap dealer segregation rule if the firm is not exempt from that rule; and (b) preserve certain records related to Regulation SBSR and business conduct requirements for which substituted compliance is not available.
  • Financial and Operational Reporting – The firm would need to report financial and operational information in the manner and format specified by Commission order or rule and present the financial information in accordance with GAAP that the firm uses to prepare general purpose publicly available or available to be issued financial statements in Germany.
  • Notification – The firm would need to:  (a) simultaneously transmit to the Commission a copy of any notice required to be sent by comparable German and EU laws and include contact information of a person who can provide further details about the notice; and (b) comply with the requirement in the Commission’s rule to provide notice of failure to make a required deposit into the reserve account required by the segregation rule for security-based swap dealers. 

German firms would remain subject to Exchange Act requirements to keep books and records open to inspection by the Commission and to furnish promptly to the Commission legible, true, complete, and current copies of those records of the firm that are required to be preserved.  BaFin has provided adequate assurances that firms subject to the order can meet these Exchange Act requirements.     

Substituted Compliance Notice and Proposed Order for France

The substituted compliance application for France generally addresses the same Exchange Act requirements that are the subject of the German substituted compliance order, but also encompasses non-prudentially regulated firms’ capital, margin, recordkeeping, reporting, and notification requirements under the Exchange Act. 

The application includes analyses that compare French and EU requirements with relevant requirements under the Exchange Act, as well as information regarding the financial supervisory and enforcement frameworks in France. The application is available on the Commission’s website at https://www.sec.gov/files/full-french-application.pdf.

The French proposed order would be conditioned on compliance with relevant French and EU requirements and, in large part, incorporates similar conditions to those for Germany.  Unlike the German order, the proposed French order also includes conditions addressing non-prudentially regulated firms’ recordkeeping and reporting requirements, including conditions regarding their audited financial statements. 

The Commission is requesting comment on each of these proposed determinations and conditions.

Next Steps

The Germany order is effective immediately.  The Commission will seek public comment on the French application and proposed order for 25 days following publication in the Federal Register. 

Security-based swap market participants are urged to be mindful of the October 2021 registration compliance date for security-based swap dealers and major security-based swap participants, and relevant firms should take action to prepare for registration.  For further information, firms may contact the Office of Derivatives Policy in the Commission’s Division of Trading and Markets, at 202-551-5870.

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Asian Financial Forum held next week as the region’s first major international financial assembly of 2025

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The 18th Asian Financial Forum 2025 (AFF), co-organised by the Government of the Hong Kong Special Administrative Region (HKSAR) and the Hong Kong Trade Development Council (HKTDC), will be held at the Hong Kong Convention and Exhibition Centre (HKCEC) on 13 and 14 January (Monday and Tuesday). As the region’s first major international financial conference in 2025, the forum will examine the landscape for new business opportunities in various industries and regions in the coming year and promote global cooperation, and is expected to attract more than 3,600 finance and business heavyweights.

Themed “Powering the Next Growth Engine”, the AFF will bring together more than 100 global policymakers, business leaders, financial experts and investors, entrepreneurs, tech companies and economists to share their views on the shifting global economic landscape and financial ecosystem. These industry experts will dissect the risk management strategy, discover new business opportunities, and explore how Hong Kong can seek breakthroughs in a period of change.

First flagship financial event to showcase Hong Kong’s financial strengths

Launched in 2007, the AFF has become a flagship financial event for Hong Kong and the broader region, highlighting the city’s pivotal role as a globally renowned financial hub with a highly competitive economic and business environment. Amid a rapidly changing global macroeconomic landscape, and shifts in geopolitical dynamics and monetary policies, Hong Kong’s financial services sector continues to leverage its strengths across various domains, drawing on its world-class business infrastructure and robust regulatory regime to help drive cooperation and mutual success across Asia and around the world.

Christopher HuiSecretary for Financial Services and the Treasury of the HKSAR Government, said: “Hong Kong’s financial market went through a lot of reforms and innovation last year. We have also launched a roadmap on sustainability disclosure in Hong Kong and issued a policy statement on responsible application of artificial intelligence in the financial market with a view to boosting green finance and sustainable financing. The upcoming Asian Financial Forum will gather the top-tier of the financial and various sectors from all around the world, the Mainland and in Hong Kong and hence is the perfect occasion for us to showcase to the world the new momentum and latest advantages of Hong Kong in the financial realm. Participants will also have a chance to learn more about how Hong Kong can partner with them to explore new collaborations and development areas while expanding their network here.”

Luanne Lim, Chairperson of the AFF Steering Committee and Chief Executive Officer, Hong Kong, of HSBC, said: “The global economy faces greater uncertainties in 2025 compared to 2024. However, robust growth in India and ASEAN nations, combined with increased policy support from Mainland China, is expected to keep Asia’s (ex-Japan) GDP growth at a strong 4.4%, well above the global average of 2.7%.” Against this backdrop, this year’s Asia Financial Forum is aptly themed “Powering the Next Growth Engine” and will focus on high-potential markets such as ASEAN, the Middle East (particularly the Gulf Cooperation Council countries), and the role that Hong Kong can play. Ms Lim said Hong Kong’s unique role as a bridge between the mainland and international markets allows it to support mainland enterprises expanding globally. She added that Hong Kong is committed to attracting global talent and investors, driving growth for both mainland and international businesses.

Patrick Lau, HKTDC Deputy Executive Director, said: “As we move into the new year, different economies around the world are facing challenges in maintaining economic growth. As an international financial centre, Hong Kong is playing an important role both as a ‘super-connector’ and a ‘super value-adder’ to link the world, enabling investors and fundraisers to leverage the city’s professional services and investment platforms to facilitate collaboration and create business opportunities. This year’s forum not only brings together heavyweight speakers and thought leaders but also builds on the success of previous years to provide a business platform for international participants, promoting financial and business cooperation and working together to launch new engines for growth.”

Exploring new trends as the world’s economic centre of gravity continues its shift east

Reflecting on a trend where the world’s economic centre of gravity continues to take an eastward shift, Christopher Hui will host two plenary sessions on emerging prospects in the region on the first day of the forum (13 January). The morning session of Plenary Session I will feature H.E. Adylbek Kasymaliev, Prime Minister of Kyrgyzstan, finance ministers from countries such as Pakistan and Luxembourg, and Yoshiki Takeuchi, Deputy Secretary-General of the Organisation for Economic Co-operation and Development (OECD), who together will explore the financial policy outlook for 2025. In the afternoon, Plenary Session II will bring together leaders from multilateral organisations to share their views on the role of multilateral cooperation in regional economic development. Speakers will include Roberta Casali, Vice-President, Finance and Risk Management, Asian Development Bank; Jin Liqun, President and Chair of the Asian Infrastructure Investment Bank (AIIB); and Satvinder Singh, Deputy Secretary-General for ASEAN Economic Community, Association of Southeast Asian Nations (ASEAN). Moreover, a new session, the Gulf Cooperation Council Chapter, will bring together HE Jasem Mohamed AlBudaiwi, Secretary General of the Gulf Cooperation Council (GCC), speakers from the Middle East and local experts to discuss prospects in fostering financial cooperation and investment between the member states of the GCC and Hong Kong.

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Also on the first day, Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, will host the Policy Dialogue session with speakers including European representatives such as Philip Lane, Chief Economist and Member of the Executive Board of the European Central Bank, and Dr Olli Rehn, Governor of the Bank of Finland. The discussion will explore the opportunities and challenges arising from the global shift towards more accommodative monetary policies and national authorities’ strategic deployment of measures to revitalise their economies and accelerate growth through innovation.

The panel discussion on China Opportunities returns this year with senior figures invited to analyse investment prospects under China’s commitment to technological innovation and its impact on global business. The panellists included Li Yimei, Chief Executive Officer of China Asset Management; and Ken Wong, Executive Vice President of Lenovo and President of Lenovo Solutions & Services Group.

Top economist and leading AI expert take the stage at keynote luncheons

Another highlight of this year’s AFF will be the two keynote luncheons featuring thematic speeches by two distinguished guests: Prof Justin Lin Yifu, Chief Economist and Senior Vice President of the World Bank (2008-2012), and Prof Stuart Russell, Co-chair of the World Economic Forum Council on AI. These two prominent figures will dissect the evolution of the global economic landscape amid changing international dynamics, and examine how artificial intelligence (AI) is emerging as a new driving force for rapid global economic growth respectively.

Exploring hot topics in the financial and economic sectors

The afternoon panel discussion, Global Economic Outlook, will feature a special address from Liu Haoling, Vice Chairman, President and Chief Investment Officer, China Investment Corporation. The panel will analyse international economic trends and provide insights into business opportunities and wealth accumulation in emerging industries and regions in 2025.

Other sessions titled Global SpectrumDialogues for Tomorrow and Thematic Workshop will feature in-depth discussions focusing on the latest industry trends, including AI, Web 3.0, sustainability, philanthropy and family offices. As AI becomes increasingly widespread and diversified in its societal applications, the second day of the forum will introduce a special session, Dialogue with Kai-Fu Lee, in which Dr Kai-Fu Lee, Chairman of Sinovation Ventures, will discuss the transformative power of AI and its impact on technological advancements in the global business ecosystem.

Exploring the impact of sustainable disclosure on investment strategies

Sustainable finance and environmental, social and governance (ESG) considerations have become an irreversible global trend. In 2025, Hong Kong is set to fully align its regulatory framework with the sustainability disclosure standard of the International Sustainability Standards Board (ISSB). Sue Lloyd, Vice Chair of the ISSB, will join other experts in discussing how adopting international financial sustainability disclosure standards can strengthen market confidence in Hong Kong’s capital markets, address post-COP29 implementation in Asia, and share strategies for sustainable investing across three separate sessions. In addition, the Breakfast Panel on the second day will focus on the flows of transition finance in shaping a sustainable future in the Greater Bay Area and beyond. Furthermore, the HKTDC has partnered with EY to conduct a joint market survey on sustainable development, aiming to explore the views and practices of Asian businesses and investors on topics such as sustainability reporting, sustainable finance and preparations for dealing with climate change. The results of the survey will be unveiled on the first day of the forum.

Expanding cross-border opportunities through the HK global investment platform

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As a key element of this year’s forum, AFF Deal-making offers one-on-one matching services for project owners and investors. More than 270 investors and 560 projects are expected to participate, with investment opportunities across industries such as environmental, energy, clean technology, food and agriculture tech, healthcare tech, fintech and deep technology. The exhibition sections of the AFF – Fintech Showcase, InnoVenture Salon, FintechHK Startup Salon and Global Investment Zone – will attract more than 130 local and global exhibitors, international financial institutions, technology companies, start-ups, investment promotion agencies and sponsors, including Knowledge Partner EY, HSBC, Bank of China (Hong Kong), Standard Chartered Bank, UBS, Prudential, China International Capital Corporation (CICC), Huatai International and more. Notably, the InnoVenture Salon will provide a platform for more than 100 start-ups to showcase innovative technologies in a variety of fields such as finance, regulation, sustainability, health and agriculture, supported by more than 110 Investment Mentors and Community Partners.

IFW 2025 creates synergies with AFF to boost mega event economy

International Financial Week (IFW) 2025 runs from 13 to 17 January with the AFF as its highlight event. This year’s IFW will feature more than 20 partner events, covering a wide range of global financial and business topics, including private equity, family offices, net-zero investing and generative AI. As the region’s first major financial event of the year, the AFF attracts top global enterprises and leaders to Hong Kong, creating connections between capital and opportunities. The forum assists industry professionals in seizing opportunities in the new year and helps promote the mega event economy in Hong Kong.

This year, the AFF has collaborated with various organisations to provide special travel, dining and shopping discounts and privileges for overseas participants joining the event. Activities include Peak Tram and Sky Terrace trips, the iconic Aqua Luna red-sail junk boat, and guided tours of Man Mo Temple and Tai Kwun arranged by the Hong Kong Tourism Board. Participants can also enjoy dining discounts and guided tours from the Lan Kwai Fong Group, as well as the Winter Wonderland at the Hong Kong Jockey Club’s Happy Wednesday at Happy Valley Racecourse, all designed to immerse overseas visitors in the vibrancy and diversity of Hong Kong.

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Fintech Pulse: Your Daily Industry Brief (Chime, ZBD, MiCA)

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As we close out 2024, the fintech industry continues to deliver headlines that underscore its dynamism and innovation. From IPO aspirations to groundbreaking regulatory milestones, today’s updates highlight the transformative power of fintech partnerships, regulatory evolution, and disruptive technologies. Here’s what you need to know.

Chime’s Quiet Step Toward Public Markets

Chime, the U.S.-based financial technology startup best known for its digital banking services, has taken a significant step by filing confidential paperwork for an initial public offering (IPO). As one of the most valuable private fintechs in the U.S., Chime’s move could potentially signal a renewed appetite for fintech IPOs in a market that has been cautious following fluctuating valuations across the tech sector.

With a valuation that reportedly exceeded $25 billion in its last funding round, Chime’s IPO could set a new benchmark for the industry. Observers note that its strong customer base and revenue growth may make it an appealing choice for investors seeking to capitalize on the digital banking boom. However, the timing and success of the IPO will depend on broader market conditions and the regulatory landscape.

Source: Bloomberg

ZBD’s Pioneering Achievement: EU MiCA License Approval

ZBD, a fintech company specializing in Bitcoin Lightning network solutions, has made history by becoming the first to secure an EU MiCA (Markets in Crypto-Assets Regulation) license. This landmark approval by the Dutch regulator positions ZBD at the forefront of compliant crypto-fintech operations in Europe.

MiCA, which aims to harmonize the regulatory framework for crypto-assets across the EU, has been a focal point for industry players aiming to establish legitimacy and expand their offerings. ZBD’s achievement not only validates its operational rigor but also sets a precedent for other fintech firms navigating the evolving regulatory landscape.

Industry insiders view this as a strategic advantage for ZBD as it broadens its footprint in Europe. By leveraging its regulatory approval, the company can accelerate its product deployment and establish trust with institutional and retail users alike.

Source: Coindesk, PR Newswire

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The Fintech-Credit Union Synergy: A Blueprint for Innovation

The convergence of fintechs and credit unions continues to reshape the financial services ecosystem. Collaborative initiatives, such as the one highlighted in the recent partnership between fintech innovators and credit unions, are proving to be a potent force in delivering tailored financial solutions.

This “dream team” approach allows credit unions to leverage fintech’s technological expertise while maintaining their community-focused ethos. Key areas of collaboration include digital payments, personalized financial management tools, and enhanced loan processing capabilities. These partnerships not only enhance member engagement but also enable credit unions to remain competitive in an increasingly digital-first financial environment.

Industry analysts emphasize that such collaborations underscore a broader trend of traditional financial institutions embracing fintech-driven solutions to bridge service gaps and foster innovation.

Source: PYMNTS

Tackling Student Loan Debt: A Fintech’s Mission

Student loan debt remains a pressing issue for millions of Americans, and a Rochester-based fintech aims to offer relief through its cloud-based platform. This innovative solution is designed to simplify loan management and provide borrowers with actionable insights to reduce their debt burden.

The platform’s features include repayment optimization tools, personalized financial education, and seamless integration with loan servicers. By addressing the complexities of student loan management, this fintech is empowering borrowers to make informed decisions and achieve financial stability.

As the student loan crisis continues to evolve, solutions like this highlight the critical role fintech can play in addressing systemic financial challenges while fostering financial literacy and inclusion.

Source: RBJ

Industry Implications and Takeaways

Today’s updates underscore several key themes shaping the fintech landscape:

  1. Regulatory Milestones: ZBD’s MiCA license approval exemplifies the importance of regulatory compliance in unlocking growth opportunities.
  2. Strategic Partnerships: The collaboration between fintechs and credit unions demonstrates the value of combining technological innovation with traditional financial models to drive customer-centric solutions.
  3. Market Opportunities: Chime’s IPO move reflects a potential revival in fintech public offerings, signaling confidence in the sector’s long-term prospects.
  4. Social Impact: Fintech’s ability to tackle systemic issues, such as student loan debt, showcases its role as a force for positive change.

 

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SPAYZ.io prepares for iFX EXPO Dubai 2025

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Leading global payments platform SPAYZ.io has confirmed it will be attending iFX EXPO Dubai 2025 on 14 to 16 January. Exhibiting at Stand 64 at Trade Centre Dubai, SPAYZ.io’s team of professionals will be on hand providing live demonstrations of its renowned payment services for payment providers. Attendees will also receive exclusive insight into SPAYZ.io’s plans for 2025 alongside early early access to its upcoming plans for the new year.

SPAYZ.io delivers a host of payment solutions that leverage the latest technological innovations and open access to the fastest growing emerging markets across Africa, Europe and Asia. Over the past year, there has been huge demand for its Open Banking and local payment method services, alongside bank transfers, mass payouts, online banking and e-wallets.

Yana Thakurta, Head of Business Development at SPAYZ.io commented: “We look forward to once again participating at iFX Dubai to expand our network of partners and clients. It’s a fantastic way to kick off the year, connecting with thousands of industry leaders from FOREX platforms to trading companies, and everything in between.

“Our key goal for iFX Dubai EXPO 2025 is to expand our portfolio of solutions and geographies. We’re using this as an opportunity to partner with like-minded entities who share our ambition to provide payment solutions that are truly global.”

Come meet SPAYZ.io’s team at the Trade Centre Dubai at Stand 64. You can also book a meeting slot with a member of a team.

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