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New York moves money transmitters to NMLS

Jul 13 2017

By Jeremy McLaughlin and Judith Rinearson

As of July 1, 2017, the New York Department of Financial Services (“DFS”) is using the Nationwide Multistate Licensing System and Registry (“NMLS”) to manage license applications and conduct ongoing regulation of nondepository financial institutions, including money transmitters, doing business in New York. The NMLS website is available here.

The decision by DFS should bring some additional ease to an otherwise cumbersome state-by-state money transmitter licensing regime. Applicants applying for a license in the NMLS system need only fill out a single set of applications for all states that participate (although, of course, individual state licensing requirements still differ). Money transmitters already licensed in New York will be able to transition their licenses to the NMLS system. In a June 29, 2017 press release, available here, DFS stated it had sent letters to each licensee providing detailed instructions on how to accomplish the transition.

DFS has lauded the move to NMLS as bringing efficiency to its regulatory oversight responsibilities, including enhanced consumer protection. According to a May 11, 2017 DFS press release, the move to NMLS will “allow DFS to provide better supervision of the money transmitter industry by linking with other states to protect consumers.”

Surging Adoption Levels of FinTech Services

Jul 07 2017

By Cameron Abbott and Ling Zhu

No great surprises arising from the EY FinTech Adoption Index 2017 which has revealed impressive growth in consumer uptake of FinTech products and services, with 33% of 22,000 digitally active consumers using FinTech firms – doubling from 16% in 2015. With less brand loyalty and reduced trust in traditional organisations, consumers are increasingly turning to FinTech firms as better alternatives.

Money transfer and payment services are the most popular FinTech category, with 50% of consumers using these services. This has been driven by the increasing popularity of mobile phone payments and online digital-only banks. Insurance is the second most popular service, with insurance premium comparative services simplifying the process of acquiring insurance.

FinTech has particularly excelled in emerging markets, with an adoption by digitally active consumers across China, India, South Africa, Brazil and Mexico averaging 46%. The growing middle class have embraced FinTech to meet the growing demand for financial services, encouraged by cooperative regulators and policymakers.

EY anticipates that FinTech adoption will increase to 52% globally as consumers become more aware of the products and services on offer.

Read the full report here.

Italian Small and Medium-Sized Enterprises to tap into Equity Crowdfunding

Jul 05 2017

By Giampaolo Salsi and Riccardo Malaguti

On June 15, 2017, the Italian Senate approved the conversion into law of Law Decree No. 50, dated April 24, 2017, whereby small and medium-sized enterprises (“SMEs”) are given recourse to equity crowdfunding that was originally restricted to innovative start-ups. In the wake of the recent reforms aimed at providing SMEs with new funding channels, the said piece of legislation has introduced into the Italian legal framework the possibility for SMEs, established in the form of limited liability companies (“società a responsabilità limitata” or “SRLs”), to offer their quotas for subscription via dedicated Web portals for the raising of capital — up to a maximum of €5 million per company.

A new finance association for UK

Jul 05 2017

By Jonathan Lawrence

A new trade body has been launched in the UK – UK Finance. It has been created by combining most of the activities of existing UK finance associations – the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. It operates across 300 companies and societies, who themselves operate in finance, lending, banking, markets, fraud prevention and payments. Its role will be to help its members build customer trust, facilitate industry-wide collaboration and innovation, and work with policy makers and regulators in the UK, European Union and at a global level to ensure that the UK retains its position as a global leader in financial services.

UK Finance recognises that FinTech is generating enormous possibilities for its members. Its CEO, Stephen Jones, envisages UK Finance’s collaboration with the sector will form one of the central pillars in the organisation’s role of ensuring all its members can deliver the latest advances to their customers. Peter Smith, the CEO and co-founder of Blockchain, represents the FinTech industry on the UK Finance board.

ASIC extends FinTech cooperation to Asian counterparts

Jun 30 2017

By Jim Bulling and Michelle Chasser

On 13 June 2017, the Australian Securities and Investments Commission (ASIC) entered into a FinTech co-operation agreement with the Hong Kong Securities and Futures Commission (SFC). Soon after, on 23 and 27 June 2017, ASIC also entered into similar arrangements with the Japan Financial Services Agency (JFSA) and the Malaysia Securities Commission (MSC). These arrangements provides a framework for ASIC to work more closely with these regulators.

As a result of these agreements, ASIC, SFC, JFSA and MSC can refer FinTech businesses to each other for advice and support via ASIC’s Innovation Hub, SFC’s FinTech Contact Point, JFSA’s FinTech Support Desk and MSC’s alliance of FINtech community (aFINity). This means Australian FinTech businesses wishing to operate in Hong Kong, Japan or Malaysia will now have a simple pathway for engaging with those countries’ regulators, and vice versa. This can provide valuable assistance for FinTech businesses operating in one jurisdiction which want to better understand the rules in the other.

UK regulatory sandbox’s second cohort announced

Jun 29 2017

By Jonathan Lawrence

The UK Financial Conduct Authority (FCA) has provided an update on its regulatory sandbox and unveiled the list of firms that were successful in their applications to begin testing in the second cohort of the sandbox. The regulatory sandbox allows businesses to test innovative products, services, business models and delivery mechanisms in a live environment. It is part of Project Innovate, an initiative begun in 2014 to coordinate the FCA’s approach to FinTech.

RegTech: A U.S. regulator’s view on artificial intelligence in risk assessment

Jun 29 2017

By C. Todd Gibson and Evan Glover

On 21 June at the OpRisk North America 2017 conference in New York, Scott W. Bauguess, Acting Director and Acting Chief Economist of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Economic and Risk Analysis (“DERA”) gave a keynote speech on the use of artificial intelligence by regulators. A transcript of the speech can be found here. Bauguess provided some interesting background on the utility and use of big data and machine learning at the SEC to identify potential misconduct by market participants and investment managers, and the emerging use of artificial intelligence.

Bauguess’ speech discussed the SEC’s use of AI in its regulatory framework, initially discussing machine learning. The SEC currently applies topic modeling methods, such as Latent Dilchlet Allocation (“LDA”). LDA reviews text-based documents (e.g., registration disclosures) and reports on where, and to what extent, particular words appear in each document. This occurs either by: analyzing the probability of words across documents, and within documents, to define the topics they represent (“unsupervised learning”); or incorporating human judgement and direction into the programming of the machine’s algorithms (“supervised learning”).

Fintech credit report shows potential and risks

Jun 28 2017

By Jim Bulling and Michelle Chasser

On 22 May 2017, the Committee on the Global Financial System (CGFS) and the Financial Stability Board (FSB) released a report titled ‘FinTech credit’. FinTech credit is credit activity facilitated by electronic platforms, such as marketplace lenders. This usually involves borrowers being matched directly with investors, although some platforms use their own balance sheet to lend.

The report examines FinTech credit markets and how they will affect the nature of credit provision and the traditional banking sector. The report is also aimed at assisting policymakers understand current FinTech credit markets, and the associated challenges in monitoring and regulating such activity. It also assesses the potential microfinancial benefits and risks of these activities, and considers the possible implications for financial stability in the event that FinTech credit should grow to account for a significant share of overall credit.

Pilot program to use blockchain to trade electricity

Jun 28 2017

By Jim Bulling and Michelle Chasser

AGL is currently undertaking a trial to test whether blockchain technology can assist in creating a mechanism for users to trade surplus electricity generated from rooftop solar panels. This trial will use customer data generated from a previous AGL project involving the use in households of smart air conditioners, batteries and solar panels to simulate peer-to-peer trading, demonstrating what trades would have taken place and the value they would have generated.

It is possible that ‘smart contracts’ could automatically sell excess energy in real time to other users when excess energy from solar panels is generated. The use of blockchain in this way could help individual households to trade their own energy more efficiently, making renewable energy more affordable and better integrated with power grids. This is a relatively novel application of blockchain technology, which is the distributed ledger technology underpinning the digital currency Bitcoin.

Cryptocurrencies becoming more mainstream?

Jun 19 2017

By Jim Bulling and Michelle Chasser

Steps have been taken this year in Japan and Norway towards the integration of digital currencies such as Bitcoin into the mainstream financial sector. Japan has amended financial laws to include coverage of digital currencies as a type of ‘prepaid payment instrument’, and an online bank in Norway has announced plans to offer clients the ability to link their bank accounts with cryptocurrency accounts.

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