2018 – Page 3 – FinTech and Blockchain Law Watch

NYAG Report on Virtual Markets

Sep 21 2018

On September 18, 2018, the NY Attorney General’s office (“OAG”) published its Virtual Markets Integrity Initiative report (the “Report”) (found here). The Report includes findings from the OAG’s April 2018 fact-finding inquiry (the “Initiative”) into the policies and practices of various virtual asset trading platforms. The Report is anything but positive.

The Report expresses a number of concerns with the following key findings:

many exchanges conduct business lines and operational roles creating potential conflicts of interest;
trading platforms have yet to implement serious efforts to impede abusive trading activity; and
protections for customer funds are often limited or illusory.

The Report identifies by name certain platforms that declined to participate in the April 2018 survey on the claim that they do not allow trading from New York. The Report acknowledges that the OAG has referred three of these platforms (Binance, Gate.io and Kraken) to the Department of Financial Services for potential violation of NY’s virtual currency regulations.

Worldwide Cryptocurrency AML Standards

Sep 20 2018

By Jonathan Lawrence

On 19 September, the president of the Financial Action Task Force (FATF), Marshall Billingslea, said he is optimistic that at its plenary, due in October 2018, the FATF will agree a series of updated standards. He said: “It is essential that we establish a global set of standards that are applied in a uniform manner”. He said that the task force has accelerated its work and made significant progress on reaching a “consensus across nations” after the G20 requested the organisation tackle the issue as a matter of urgency.

ASIC acts on Initial Coin Offerings and crypto-asset funds

Sep 20 2018

By Jim Bulling, Edwin Tan and Felix Charlesworth

In a statement issued today, the Australian Securities and Investments Commission (ASIC) revealed that it has prevented five Initial Coin Offerings (ICOs) from raising capital and will be taking further action in respect of one completed ICO. The ICOs have been put on hold and some will be restructured to comply with relevant laws and regulations. ASIC has also issued a final stop order in respect of a Product Disclosure Statement (PDS) issued by Investors Exchange Limited for units in the New Dawn Fund, which proposed to invest in a range of cryptocurrency assets.

UAE Securities and Commodities Authority to Regulate ICOs and Join Growing List of Regulators

Sep 19 2018

By Jim Bulling and Edwin Tan

On 16 September 2018, the UAE Securities and Commodities Authority’s (SCA) chairman Sultan bin Saeed Al Mansouri announced that the SCA would regulate initial coin offerings (ICOs) and recognise them as securities, as well as introduce controls for trading digital tokens. The statement reads: “In light of the rapid development of the digital tokens market and the response thereto by the regulators in a number of countries worldwide towards regulating the initial coin offerings, the SCA Board of Directors has approved the SCA plan to regulate the ICOs and recognise them as securities”.

Design & Distribution Bill: A Reflection of the Current “Consumer-Centric” Climate

Sep 05 2018

By Jim Bulling, Daniel Knight and Elise Hamblin

Misaligned advisor interests. Consumer disengagement. Low financial literacy in the face of complex documents.

These themes echo throughout the revised Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Power) Bill (Bill) released by the Australian Government in late July 2018. These issues have also been recently ventilated in the Banking Royal Commission. Key changes to the Bill include expanding the scope of regulated products and criminal penalties have been increased for certain breaches.

While the protection of consumers lies at the heart of this Bill, it poses real challenges for issuers and distributors. In particular, the Government’s power to stop distribution of financial products raises significant practical difficulties. Moreover, the increased criminal penalties are indicative of the seriousness with which breaches will be treated. While the changes will not come into force for at least two years, distributors and issuers should begin preparing for the implications of this Bill now.

Please see our latest thinking on the K&L Gates HUB here for an in-depth consideration of the revised Bill.

Australian Treasury Releases Draft Bill on Consumer Data Right

Aug 20 2018

By Jim Bulling, Daniel Knight and Felix Charlesworth

On 15 August 2018, Treasury opened consultation on the Treasury Laws Amendment (Consumer Data Right) Bill 2018 (CDR Bill). The CDR Bill broadly sets out the legislative framework for providing consumers with the right to access to specified data held in relation to them by businesses and authorises secure access to this data by certain accredited third parties.

The initial application for the CDR Bill will relate to the access of banking data (as known as Open Banking). However, the CDR Bill also empowers of the Minister to determine which other sectors of the Australian economy to which this legislation will apply to in the future. As stated in the explanatory memorandum for the CDR Bill, the Government has committed that the telecommunications and energy sectors will soon also be subject to the CDR Bill.

Blockchain-Based Businesses Receive Legislative Boost!

Aug 14 2018

By Cameron Abbott and Jessica McIntosh

The Midwestern state of Ohio has last week become one of the first states in the US to pass legislation which recognises the use of blockchain technology, and as a result blockchain data and transactions will now have legal bearing in the State of Ohio.

Governor John Kasich says the legislation was introduced with a clear focus, that is, to treat data and smart contracts stored through blockchain technology as electronic records and to promote the role of blockchain technology in a range of industries, not just through cryptocurrencies such as bitcoin. This legislative boost will allow the use of blockchain technology in various sectors from real estate to health care.

New “Global Sandbox” Announced

Aug 07 2018

By Jonathan Lawrence

Twelve financial regulators and related organisations, including the UK Financial Conduct Authority (FCA), announced on 7 August the creation of the Global Financial Innovation Network (GFIN), building on the FCA’s proposal earlier this year to create a ‘global sandbox’. A list of GFIN members is here. The network will seek to provide a more efficient way for innovative FinTech firms to interact with regulators. It will also create a new framework for co-operation between financial services regulators on innovation related topics.

“Responsible Innovation” or a “Regulatory Train Wreck”? The OCC Announces it will Accept FinTech Applications for Special Purpose National Bank Charters

Aug 06 2018

By Rebecca H. Laird, Eric A. Love and Daniel S. Cohen

On July 31, 2018, the Office of the Comptroller of the Currency (“OCC”) announced that it will begin accepting applications from non-depository FinTech companies for special purpose national bank charters. It’s a long-awaited announcement that represents the culmination of a two year process during which the OCC sought stakeholder feedback and public comment on the issue.

Among the notable points that the OCC makes in the policy statement are the following:

The OCC has the authority to issue special purpose charters to FinTech companies, an issue that was the subject of previously dismissed legal challenges brought by the Conference of State Bank Supervisors (“CSBS”) and the New York Department of Financial Services (“NYDFS”). In the policy statement, the OCC reiterates its position that the National Banking Act and OCC regulations (12 C.F.R. § 5.20) authorize the agency to grant charters to non-depository FinTech companies that engage in at least one of the “core banking activities” — lending, paying checks or deposit-taking — in addition to the special purpose charters for trust/fiduciary activities;
The OCC’s decision will benefit consumers by encouraging “responsible innovation” in the banking industry. The OCC states that its decision will expand consumer choice, foster innovation in the banking sector, and “level the playing field” between regulated and non-regulated banking services institutions while ensuring FinTech companies operate safely and soundly;
FinTech companies will be held to the same standards and supervision as their similar non-FinTech counterparts, including requirements concerning capital, liquidity, and risk management. OCC-chartered FinTech companies will also be required to maintain a contingency plan for significant financial stress scenarios. The special purpose national bank will not be required to be FDIC-insured, since they will be non-depository institutions; and
FinTech companies may engage in any activity deemed to be permissible for a national bank.

US Treasury Report on Nonbank Financials, Fintech, and Innovation

Aug 05 2018

By Anthony R.G. Nolan

On Tuesday 31 July, the United States Department of the Treasury issued its report on Nonbank Financials, Fintech, and Innovation. This is the fourth and last scheduled report on financial market regulatory reform in response to Executive Order 13772. It makes about 80 recommendations for improvements to the regulatory landscape that will better support nonbank financial institutions, embrace financial technology, and foster innovation.

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