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UK Regulatory Innovation Plan

Apr 10 2017

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.

European Commission launches a public consultation on FinTech

Apr 02 2017

By Giovanni Campi and Ignasi Guardans

On 23 March 2017, the European Commission launched a public consultation on FinTech, seeking feedback on how to create “a more competitive and innovative European financial sector”. This represents an important step in the Commission’s work to define a European policy and regulatory framework for FinTech, after the set up of an internal Financial Technology Task Force in November last year.

The European Commission outlines three core principles that will underpin its FinTech approach: i) technological neutrality; ii) proportionality; and iii) market integrity.

Bank of England’s FinTech Accelerator launches a new community

Mar 28 2017

By Jonathan Lawrence

The Bank of England’s FinTech Accelerator launched a new community on 17 March 2017 which brings together FinTech-related organisations. The community has three aims: to share developments, trends and insights; to make sure the Bank is engaging with different FinTech firms from across the sector; and to enable firms with an interest in FinTech to network, supporting the development of the sector. Community members will be invited to meet the Bank two to four times a year to share updates on trends and developments in the sector. The Bank will also hold quarterly networking and knowledge-sharing events, and publish summaries of the topics discussed. The list of initial community members is here. Summaries of the topics discussed at these events will be made available afterwards via the Accelerator’s website.

The Bank has also decided on the firms it will be working with for the third round of its Proofs of Concept (PoCs):

MindBridge AI: MindBridge’s AI (artificial intelligence) auditor detects anomalies in financial transactions and reports using data science, machine learning and artificial intelligence. The Bank is using this PoC to explore the benefits of machine learning for analysing the quality of regulatory data input.
Ripple: The Bank is carrying out a PoC with Ripple to demonstrate the synchronised movement of two different currencies across two different real-time gross settlement systems. The aim is to show how this kind of synchronisation might lower settlement risk and improve the speed and efficiency of cross-border payments.

Adapt or die, the reality for retail banks during a digital revolution

Mar 26 2017

By Cameron Abbott and Giles Whittaker

Traditional banking is a thing of the past, at least according to 203 senior retail banking executives surveyed by the Economist Intelligence Unit.

According to an Economist Intelligence Unit report for Temenos, the EU’s Second Payment Services Directive (PSD2), which will force banks to provide interfaces, APIs and data to third parties, is set to “tip the scales between banks and FinTechs for customer loyalty.” More than half of financial transactions will be made through FinTech companies rather than traditional retail banks by 2020, as the latest EU payments directive unleashes competition.

Financial Inclusion and Robust Regulation Are on the Table as OCC Pushes Ahead With Fintech Charter

Mar 26 2017

By Anthony Nolan, Judith Rinearson, Jeremy McLaughlin, and Eric Love

On March 15, 2017, the U.S. OCC issued a Draft Supplement to its Licensing Manual (Supplement) to progress its proposal to roll out a special purpose national bank (SPNB) charter for fintech companies.

The Supplement outlines the process by which a fintech company may apply for a SPNB charter, and the considerations the OCC will take into account when evaluating such applications. In addition, the Supplement reiterates the OCC’s determination that the SPNB charter would be “in the public interest” because it would provide “uniform standards and supervision,” “support[] the dual banking system,” promote “growth, modernization, and competition” in the financial system, and encourage fintech companies to “promote financial inclusion.” It also makes clear the OCC’s determination to promote financial inclusion and to rebut criticisms that the SPNB charter would represent a light touch regulatory regime. The SPNB is not a ‘bank-lite’ charter; an “applicant that receives OCC approval for a charter becomes a national bank subject to the laws, regulations, and federal supervision that apply to all national banks.”

Comments on the Supplement are due by April 14, 2017. Because the Supplement represents a significant step forward in the OCC’s push for a fintech charter, we expect that there will be many commenters. Even before the OCC’s issuance of the Supplement, the proposed charter garnered substantial interest from key Members of Congress, state regulators, industry groups, and other stakeholders. For a more detailed analysis of the Supplement, see our Legal Insight here.

CPMI publishes an analytical framework for DLT

Mar 24 2017

By Giovanni Campi and Ignasi Guardans

The Committee on Payment and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) recently released a report that focuses on the potential impact of distributed ledger technology (DLT) on payment, clearing and settlement.

In providing an analytical framework to approach DLT, CPMI hopes to enhance authorities and market participants’ understanding of this technology. The report reviews the potential implication of DLT for the efficiency and safety of payment, clearing and settlement activities. The last part also analyzes broader implications of DLT for financial markets, in terms of market architecture and connectivity.

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