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Treasury releases white paper on marketplace lending

May 12 2016

On May 10, 2016, the US Treasury issued its much anticipated white paper on marketplace lending. The whitepaper follows Treasury’s July 2015 request for information. The white paper highlighted some keys risks and made six concrete recommendations for future action.

More specifically, the white paper noted that the use of sophisticated data-driven algorithms may result in unexpected correlations that could result in disparate impacts and give rise to fair lending violations. The use of data outside of regulated credit reports also creates the risk that borrowers may have no redress if information used as a basis for an underwriting decision proves inaccurate. Treasury made it a point to note, however, that marketplace lenders that partner with banks may be subject to regulation and examination by prudential bank regulators under the US Bank Service Company Act.

FinCEN proposal to impose AML obligations on U.S. Funding Portals

May 09 2016

By C. Todd Gibson, Michael McGrath and Ken Juster

On April 4, 2016, the U.S. Financial Crimes Enforcement Network (a bureau of the U.S. Treasury Department) (“FinCEN”) proposed rules that would require “funding portals” established under new Regulation Crowdfunding to implement policies and procedures designed to prevent money laundering, terrorist financing, and other financial crimes.

Current regulations under the Bank Secrecy Act (“BSA”) define a “Broker or Dealer in Securities” as an entity registered, or required to be registered as a broker or dealer under the Securities Exchange Act of 1934. Certain funding portals that operate in compliance with Regulation Crowdfunding are exempt from such registration, and therefore fall outside of the BSA definition. FinCEN is proposing to amend the defintion of a “Broker or Dealer in Securities” to specifically include funding portals, which will have the effect of imposing the same BSA obligations on funding portals as are currently imposed on fully-registered broker-dealers, such as filing suspicious activity reports.

A copy of the proposed amendment can be found here.

ASIC update on fintech regulatory sandbox proposal

May 09 2016

By Jim Bulling and Jack Fraser

ASIC has put out a media release on the proposed regulatory sandbox licensing exemption and will release a public consultation paper on the proposal in June of this year. The purpose of the sandbox is to foster innovation in the FinTech industry by allowing eligible businesses to test their products in the market without initially being subject to the usual regulatory mechanisms and requirements.

ASIC Commissioner John Price said that this “consultation paper will seek feedback on additional steps that ASIC may take to facilitate fintech innovation while maintaining protections to ensure investor and consumer trust and confidence”.

Digital currency and GST

May 09 2016

By Jim Bulling and Michelle Chasser

The application of consumption tax to digital currencies varies between countries. The UK and countries in the EU have made Bitcoin exempt from such taxes, while other countries such as Japan, Singapore, Canada and Australia treat digital currencies as intangible property which is subject to the tax.

In Australia, this has resulted in consumers paying Goods and Services Tax (GST) when they exchange money for digital currencies and again when they use the digital currency to make a purchase. Treasury has released a discussion paper on the application of GST on digital currencies. While the proposals are very different technically, they both result in removing the double taxation.

FinTech start-ups to play in the FCA Sandbox

May 05 2016

By Jonathan Lawrence

The UK Financial Conduct Authority (FCA) recently released its 2016 Business Plan. Possibly the most eye-catching initiative is the regulatory sandbox. The sandbox has been formed to provide a safe environment for businesses to test their products. For new entrants to the financial services market, the intention is that unauthorised businesses can use the sandbox to test products, services, business models and delivery without first needing to meet all of the normal regulatory requirements and incurring the costs of putting in place the complex structures and processes to successfully apply for regulatory authorisation. These firms will be granted limited authorisation for testing purposes. The FCA has suggested a number of safety measures for consumers ranging from informed consent through to the businesses in the sandbox providing a meaningful indemnity for losses. Furthermore, the FCA will apply discretion in determining both the level of limited authorisation and the safety measures on a case-by-case basis rather than forcing a one-size-fits-all model.

Firms and businesses interested in utilising the sandbox must satisfy specified criteria and apply for the first cohort between 9 May and 8 July 2016. The second cohort will have an application deadline of mid-January 2017. The sandbox will not be available for activities which fall outside of the Financial Services and Markets Act 2000. For example, payment service providers and e-money issuers already potentially benefit from the lighter touch regimes in the Payment Services Regulations and the Electronic Money Regulations. Accessing the sandbox is not straightforward, and businesses will need to give careful consideration as to whether they might qualify. The success of the sandbox is in part dependent on the quality of applicant. If businesses do their bit and if the FCA continues the trend of assisting disruptors where it can then the sandbox could fulfil the initial optimism around the initiative.

FinTech: a key to delivering Islamic Finance solutions?

May 04 2016

By Jessica Gaddes

Recent discussions at the Islamic Finance News Europe Forum, Luxembourg, focused on the potential for FinTech to become a new frontier for Islamic Finance. Digitalisation was said to be the key innovation that may be able to drive increasing adoption of Islamic Finance products.

Developments using FinTech in Malaysia have created a platform – using the foundations of crowd funding – to allow the top Malay Islamic banks to assess and rate projects and then use the platform to seek funding for those projects assessed to be suitable for financing. This works within the Shariah principles of risk sharing.

The Cambridge Centre for Alternative Finance: research results and new survey

May 04 2016

By Jonathan Lawrence

The Cambridge Centre for Alternative Finance (“CCAF”) within the Cambridge University Judge Business School is an international interdisciplinary academic research institute dedicated to the study of alternative finance. The CCAF aims to have high impact on academic thought leadership, policy decision-making and business practice globally.

To carry out its research agenda, the CCAF aims to continue developing and hosting the largest and most comprehensive database on alternative finance in the world, for use and analysis by academic and policy researchers. The CCAF database comprises more than one million granular-level alternative finance transactional data totalling £1bn.

The CCAF has recently launched its 2nd Annual European Alternative Finance Industry Survey. The resulting study will build upon the previous European Alternative Finance Industry Report, Moving Mainstream. The University of Cambridge has also led a global benchmarking initiative, culminating in the publication of their third annual UK Alternative Finance Industry Report: Pushing Boundaries, and the publication of two additional new annual reports on the Asia-Pacific region and the Americas.

Focusing on crowdfunding, peer-to-peer lending and other forms of alternative finance, this new tracking Survey aims to gather aggregate-level industrial data only. The survey consists of 15 questions and should take no more than 15 minutes to complete. Findings from the tracking survey will provide headline industrial figures for the CCAF’s Annual European Alternative Finance Industry Report, which is due to be published in June 2016. To take part in the Survey, please click here.

Latest UK Government announcements on FinTech

May 04 2016

By Jonathan Lawrence

On 11 April 2016, the UK Government Economic Secretary, Harriett Baldwin, spoke about FinTech at Innovate Finance’s Global Summit. She talked about the UK as the global capital for FinTech and how the UK FinTech sector generated £6.6 billion (US$9.5 billion) revenue in 2015 with a workforce of over 60,000 employees. She made several announcements about UK FinTech initiatives:

The creation of an industry-led FinTech panel, working with key representatives of the FinTech community. The panel will oversee the overarching strategy for FinTech in the UK and ensure the delivery of key initiatives. A particular goal is the implementation of an open banking standard – to allow innovators to use bank data to provide a range of value-added services to consumers.
The Tech Nation Visa Scheme was enhanced in October 2015 to include new qualifying criteria for digital experts. This will allow for a wider range of FinTech specialists to obtain a visa to work in the UK.
The building of an information hub that makes it easier for FinTechs to navigate through the range of service providers including in relation to legal and accountancy services.
The UK Treasury will work with UK Trade and Investment (“UKTI”) to establish “FinTech bridges” with priority export markets. UKTI is a Government department working with businesses based in the UK to assist their success in international markets, and with overseas investors looking to the UK as an investment destination. These “bridges” will help UK FinTech firms expand internationally, as well as attracting international FinTech companies and investors to the UK.

For the text of the full speech, please click here.

SEC provides U.S. crowdfunding guidance to investors

May 03 2016

By C. Todd Gibson, Michael McGrath, Ken Juster

The SEC recently issued guidance to potential investors in crowdfunding offerings in the form of a Q&A posted on the SEC website, which can be found here. This guidance, which is intended to educate investors regarding the rules governing crowdfunding in the U.S., was issued in anticipation of the pending effectiveness of new Regulation Crowdfunding on May 16, 2016. K&L Gates has prepared a detailed summary of Regulation Crowdfunding and the exemption from broker-dealer registration available to intermediaries known as “funding portals,” which can be found here.

Intermediaries were first able to submit forms to register as a funding portal with the SEC and FINRA beginning on January 29, 2016. A list of approved funding portals is expected to be available on FINRA’s public website in the near future.

Asia Region Funds Passport memorandum signed

May 02 2016

By Jim Bulling and Michelle Chasser

After 6 years of international negotiation, Australia has signed the Asia Region Funds Passport’s Memorandum of Cooperation with Japan, South Korea and New Zealand. Other countries which have been involved in the negotiations but are yet to sign include Singapore, Thailand and the Philippines.

The Passport facilitates the cross border offering of eligible collective investment schemes in participating countries. Australian Minister for Small Business and Assistant Treasurer, Kelly O’Dwyer, said “The Passport will create a single market for managed funds encompassing economies across the region”.

FinTech businesses which utilise managed funds, such as marketplace lenders and some robo-advisers, and are regulated in a participating country may be able to use the Passport to offer managed funds in other participating countries without needing to go through local licensing and registration processes.

The Memorandum of Cooperation comes into effect on 30 June 2016 and can be found here.

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