2017 – Page 14 – FinTech and Blockchain Law Watch

Blockchain Has a Perception Problem

Apr 20 2017

The International Monetary Fund (“IMF”) just wrapped up a panel on “FinTech and the Transformation of Financial Services” here in Washington, DC. Presenting 4 propositions, the IMF invited the panelists and the audience to vote on whether they agreed or disagreed with each. Following the panel’s discussion on each proposition, the votes were compared. To the exclusion of all other Fintech topics, there was an almost singular focus on blockchain in each panelist’s response to the propositions. This focus by itself is illuminating, however the audience and the panel diverged dramatically on one proposition, whether FinTech will help rather than hinder regulation of AML and combatting the financing of terrorism (“CFT”). The panel agreed, 92% to 8%, that FinTech would assist with AML and CFT efforts. The audience was essentially split, agreeing 57% to 43%. Similarly, 40% of the audience believed FinTech posed a threat to financial stability while only 17% of the experts shared that view. The takeaway here is that, while those of us who are intimately familiar with this technology clearly understand its benefits, the general electorate does not. So, does Congress? Financial regulators? Now is the time to engage counsel and shape public policy.

NetSpend Settles FTC Claim Regarding Prepaid Debit Cards

Apr 20 2017

By Julia B. Jacobson and Eric A. Love

NetSpend Corporation has reached a settlement with the U.S. FTC about the FTC’s claims that NetSpend’s advertisements deceived consumers about the availability of funds deposited on general purpose reloadable prepaid cards (GPR Cards).

On its website, NetSpend indicates that its target customers are those without a traditional bank account or who “rely on alternative financial services.” According to the FTC’s November 2016 complaint, NetSpend’s advertising promises “guaranteed approval” and “immediate access” to funds that are “always available.” Instead, the complaint alleges, cardholders experienced delayed or denied access to funds on their GPR Cards and NetSpend depleted account balances by charging inactivity fees and often delayed resolving and providing provisional credit for account errors. The FTC also noted in its complaint that thousands of customers “complained about NetSpend’s practices to government authorities, Better Business Bureau and NetSpend itself.”

RegTech Association launches in Australia

Apr 13 2017

By Claire de Koeyer and Jim Bulling

Launching in March 2017 the RegTech Association is focused on “promoting the achievements, partnerships, collaborations, incubations and seeding of RegTech in Australia” through advocating, educating and supporting businesses in the sector. This is likely to involve facilitating engagement with industry stakeholders, advancing the use of technology and improving regulatory compliance outcomes.

FCA discussion paper on distributed ledger technology

Apr 13 2017

By Jacob Ghanty

The FCA has published a discussion paper (DP) on the potential uses of distributed ledger technology (DLT) in financial services. The purpose of the DP is to start a dialogue on the risks and opportunities in relation to DLT. The FCA has gained exposure to DLT through its Regulatory Sandbox initiative.

The FCA describes DLT as “a set of technological solutions that enables a single, sequenced, standardised and cryptographically-secured record of activity to be safely distributed to, and acted upon by, a network of varied participants.” It states that industry efforts to investigate DLT have become especially concentrated over the past 24 months and, in the second half of 2017 into 2018, it expects to see firms moving on from “Proof of Concept” to “real-world” deployment of this kind of technology.

Global FinTech Report 2017

Apr 12 2017

By Jonathan Lawrence

In its recently published Global FinTech Report 2017, PwC provides the results of a survey based on the responses of over 1,300 participants involved in the financial services industry from 71 countries and across six regions. Respondents included CEOs, directors, heads of department and other top management.

Key messages include:

88% of incumbents are increasingly concerned they are losing revenue to innovators
77% of financial institutions will increase internal efforts to innovate and 82% expect to increase FinTech partnerships in the next three to five years
77% expect to adopt blockchain in some way by 2020
54% of incumbents see data storage, privacy and protection as the main regulatory barrier to innovation
30% of large institutions are investing in artificial intelligence

UK Regulatory Innovation Plan

Apr 10 2017

By Jonathan Lawrence

The UK Treasury has recently published its Regulatory Innovation Plan in relation to FinTech. The plan overviews the current work and future projects of the four UK financial services regulators: Financial Conduct Authority (FCA), Payment Systems Regulator (PSR), Prudential Regulation Authority (PRA) and the wider Bank of England (BoE). It examines how the regulators are adapting to and encouraging disruptive business models and also utilising new technologies to reduce regulatory burdens on business. Highlights include:

Part 1: What is the new Australian crowd sourced funding regime?

Apr 10 2017

By Rania Seoud, Claire de Koeyer and Daniel Knight

Crowd-sourced funding (CSF) is a developing alternative to traditional capital funding methods, allowing eligible early stage / start-up companies to raise funds from a larger pool of investors without the need for costly disclosure documents such as a prospectus.

CSF took significant steps forward with the Corporations Amendment (Crowd Sourced Funding) 2016 (Cth) (Act) that establishes a regulatory framework to facilitate CSF by small, unlisted public companies in Australia receiving assent and coming into operation. The CSF regime takes effect from 28 September 2017.

The Act allows eligible unlisted public companies with an annual turnover or gross assets of up to $25 million to advertise their business plans on a licensed online crowd funding platform to raise up to $5 million in 12 month rolling periods. Investors receive a share of the company in return for their investment.

Part 2: Looking to raise capital under the new Australian crowd sourced funding regime?

Apr 10 2017

By Rania Seoud, Andrew Gaffney and Daniel Knight

While the CSF regime removes some of the existing regulatory barriers to capital raising, there are a number of other key considerations for eligible companies intending to utilise the CSF regime. Below are just a few:

CSF intermediary platform requirements: Offers for a company’s securities must be made through an authorised CSF intermediary. At this point in time and apart from service fees, it is unclear whether a CSF intermediary will impose any other obligations on the company to be admitted onto their platform (e.g. due diligence, verification and CSF offer document sign off obligations).
Disclosure requirements: The CSF offer document must contain certain information required by the regulations which are yet to be released.
Liability: The Company and its individual directors and officers may be held liable for loss or damage suffered by a person due to a defective CSF offer document. Accordingly, it is important that you have a reasonable objective basis for the contents of the CSF offer document. In particular, you will need to be careful when providing financial forecasts and statements regarding future events.
Restrictions on advertising: There will be restrictions on advertising for the CSF offer.
How do you value your business: In practice, you will need to determine a pre-money valuation for your company to set an appropriate offer issue price.
Setting a minimum size for investment: While there is a maximum investment cap of $10,000 per investor per offer, to avoid having many shareholders with small parcels and the associated administrative burden, you may want to consider setting a minimum subscription amount.
Share buy-back mechanisms: Where certain requirements are met, companies utilising the CSF regime will be exempt from meeting higher corporate governance and reporting requirements applicable to public companies for a period of 5 years (e.g. annual audit and filing of financial statements). At the expiry of the 5 year period, the company may want to ensure that it has in place effective mechanisms to allow it to convert back to a proprietary company should the need arise (e.g. consider including share buy-back, share valuation mechanisms in the company’s constitutional documents).

You may find our article on CSF intermediaries and ASIC’s CSF Guidance of use.

Part 3: Looking to become a CSF intermediary under the new Australian crowd sourced funding regime?

Apr 10 2017

By Rania Seoud, Claire de Koeyer and Daniel Knight

Central to the new CSF regime is the inclusion of the AFS licence holder who acts as the intermediary (i.e. the gatekeeper). The intermediary must hold an AFSL with the correct authorisations in order to carry out this role. After 28 September 2017, ASIC will be able to accept AFS licence applications from entities wanting to provide CSF services.

Considering acting as a CSF intermediary? There are a number of things you may wish to consider, including:

The Future is Arriving Quickly: Global Asset Manager Migrating to Computer-Based Management

Apr 02 2017

By C. Todd Gibson

On 29 March, a large asset manager announced a strategic overhaul of portions of its active equity management approach, focusing on the use of quantitative modeling over “traditional” human active management. Click here for a copy of the press release.

Just a couple of weeks ago, our Pittsburgh office hosted its inaugural artificial intelligence program, The Artificial Intelligence Gateway For the Investment and Business Community that featured keynote speakers and panel discussions regarding the increasing awareness of artificial intelligence (AI) across all industries and the impact this new form of technology will have on business. It was fascinating to hear from our keynote speakers about how AI actually works, how AI is used in self-driving cars, and future use of AI in various industries, from manufacturing to financial services. In addition, one of the panels, focused on robo-advice and AI, where we discussed technological growth and how AI might be used in the investment management industry and some of the related regulatory and fiduciary issues.

Archive:2017