FinTech Industry & Regulation – Page 13 – FinTech and Blockchain Law Watch

“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.

Regulation of Crypto Asset Activities on the Abu Dhabi Global Market

Aug 03 2018

By William M. Reichert and Zaid Abu-Shattal

Recent technological innovations are transforming how financial activites are conducted and regulated. Technological advances have also resulted in disrupting traditional financial services and other related activities globally. In response to this, the Abu Dhabi Global Market introduced its legal framework regulating spot trading of crypto assets, including activities carried on by crypto asset exchanges, crypto asset custodians, and, where applicable, intermediaries engaged in crypto asset activities.

Please see our latest thinking here for a full discussion of Abu Dhabi’s new crypto asset legal framework.

CFPB’s New Office of Innovation to be led by Arizona FinTech Regulatory Sandbox Official; Cryptocurrencies and Blockchain will likely be on the Agenda

Aug 01 2018

By Eric A. Love

On July 18, 2018, Consumer Financial Protection Bureau (“CFPB”) Acting Director Mick Mulvaney announced that Paul Watkins, who previously led the FinTech initiatives in the Arizona Attorney General’s Office, will head the CFPB’s newly created Office of Innovation. According to a CFPB press release about the selection, the Office of Innovation will replace the CFPB’s Project Catalyst initiative (which the CFPB launched in 2012) and will “focus on creating policies to facilitate innovation, engaging with entrepreneurs and regulators, and reviewing outdated or unnecessary regulations.” Project Catalyst and the Office of Innovation share the stated overarching objective of promoting “consumer-friendly innovation” in consumer financial services.

Crypto-Assets: FSB Report To The G20

Jul 30 2018

By Jonathan Lawrence

The Financial Stability Board (FSB) has published a report to the G20 on the crypto-assets work of the FSB, Committee on Payments and Market Infrastructures (CPMI), International Organisation of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS).

IOSCO confirms its belief that crypto-assets and platforms do not a pose global financial stability risk, nonetheless they raise other significant concerns (potentially needing further regulation) regarding investor protection, market integrity and money laundering. IOSCO suggests that it could work more closely with BCBS and CPMI for payment coin exchanges, which could be viewed more as spot market exchanges/payment infrastructures.

One Year after the “DAO Report” Three U.S. Courts Begin to Provide Crypto-Clarity

Jul 24 2018

By Clifford C. Histed and Nicole C. Mueller

One year ago today, the U.S. Securities and Exchange Commission (“SEC”) published the “DAO Report” which concluded that certain tokens issued in an initial coin offering (“ICO”) were securities under the Supreme Court decision SEC v. W.J. Howey Co. The Report stated that whether an ICO is a security offering will depend on the facts and circumstances, including the economic realities of the transaction. Confusion, private lawsuits, SEC enforcement actions, and even criminal prosecutions ensued, but three courts are about to provide clarity.

Hong Kong SFC: E-Signature Verification Proposal to Boost Online Investing

Jul 24 2018

By Jim Bulling and Edwin Tan

On 12 July 2018, the Hong Kong Securities and Futures Commission (SFC) distributed a circular providing guidance to Hong Kong intermediaries which intend to onboard and verify individual clients digitally. This guidance was drafted in response to the increasingly common occurrence of electronic transactions where a more efficient onboarding process is necessary.

Intermediaries are required to take all reasonable steps to establish the identity of their clients, including adopting a satisfactory account opening approach for their clients. If clients are not physically present for identification purposes, there will be a higher chance of risks eventuating including impersonation.

RBA: accessibility, security and resilience are key to the future of retail payment systems in Australia

Jul 11 2018

By Jim Bulling and Felix Charlesworth

The Assistant Governor of the Reserve Bank of Australia (RBA), Michele Bullock, delivered a speech at the Bund Fintech Summit in Shanghai on the developments in the retail payments industry and the potential implications these pose for regulators.

UK FCA – Fourth Sandbox Cohort Announced

Jul 11 2018

By Jonathan Lawrence

29 businesses have been accepted into cohort four of the UK Financial Conduct Authority (FCA) regulatory sandbox to test innovative FinTech products, services, business models and delivery mechanisms. The FCA received 69 applications for cohort four. Applications came from a diverse range of firms operating across the financial services sector including in areas such as consumer credit, automated advice and insurance. 29 firms have been accepted to develop towards testing, including three firms that were accepted as part of previous cohorts but did not proceed to test. Firms that have been accepted to develop towards testing are listed here, except for one firm that has asked not to be named at this point in time. Read More

Metamorphosis: Digital Assets and the U.S. Securities Laws

Jun 28 2018

By Robert M. Crea, Anthony R.G. Nolan and Eden L. Rohrer

In the past year, the U.S Securities Exchange Commission (“SEC”) and Chairman Jay Clayton have repeatedly cautioned the cryptocurrency and initial coin offering (“ICO”) industries about the securities law implications for digital assets. On February 6, 2018, in testimony before the Senate Banking Committee, Chairman Clayton notably asserted that “[e]very ICO I’ve seen is a security.”

However, on June 14, 2018, William Hinman, the SEC’s Director of the Division of Corporation Finance, stated that, putting aside the fundraising that accompanied the creation of Ether, “current offers and sales of Ether are not securities transactions.” This statement was based on a novel theory of evolving decentralization that may very well have significant ramifications for cryptocurrency and ICO markets.

Please see our latest K&L Gates HUB article for a discussion about the context and implications for Director Hinman’s conclusions surrounding Ether. It also analyses the specific factors he suggests weighing in determining whether a given digital asset is a security.

Category:FinTech Industry & Regulation