FinTech Industry & Regulation – Page 23 – FinTech and Blockchain Law Watch

Silk Road website founder loses appeal of conviction and life sentence

Jun 05 2017

By Nicole C. Mueller and Clifford C. Histed

On May 31, 2017 the United States Court of Appeals for the Second Circuit unanimously affirmed the conviction and life imprisonment of Ross Ulbricht for drug trafficking and crimes associated with his creation and operation of the online marketplace known as Silk Road. Among others challenges, Ulbricht argued on appeal that he should have been allowed to introduce evidence regarding former government agents who pled guilty to stealing Bitcoins as they investigated Silk Road and Ulbricht. The Second Circuit disagreed, finding that while “the shocking personal corruption of these two government agents disgraced the agencies for which they worked,” it had nothing to do with whether Ulbricht operated Silk Road. The Second Circuit similarly found Ulbricht’s other arguments unavailing, namely that (1) the government’s violated his Fourth Amendment rights through the use of pen registers and trap and trace devices to monitor IP addresses associated with internet traffic to and from Ulbricht’s wireless home router, and the search and seizure of his laptop and Facebook, Google accounts; (2) he was denied a fair trial due to the preclusion of certain testimony and evidence; and (3) it was improper for the court to consider six drug-related deaths relevant to his sentencing.

ASIC proposes next steps on RegTech

Jun 05 2017

By Jim Bulling and Michelle Chasser

ASIC is ramping up its focus on regulatory technology (RegTech).

On Friday 26 May 2017, ASIC released its Report 523 titled “ASIC’s Innovation Hub and our approach to regulatory technology”. This report gives an update on the work of ASIC’s Innovation Hub and outlines ASIC’s current and proposed future approach to RegTech.

The report defines RegTech as the use of new technologies to solve regulatory and compliance requirements more effectively and efficiently. These technologies could include use of artificial intelligence, natural language processing, data reporting, regulatory codification and big data analysis technologies.

Financial Action Task Force FinTech and RegTech Forum

Jun 05 2017

By Jonathan Lawrence

The Financial Action Task Force (FATF) has published a summary of its FinTech and RegTech Forum, which was held on 25 and 26 May 2017 in San Jose, California. The FATF is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering. At the forum over 150 representatives discussed significant trends and developments in FinTech and RegTech and shared their experiences in adapting their practices to continue to identify and mitigate the different money laundering (ML) / terrorism financing (TF) risks brought about by these developments.

European Securities and Markets Authority identifies RegTech risks

May 30 2017

By Jonathan Lawrence

A senior official at the European Securities and Markets Authority (ESMA) has given a speech on “The Adoption of RegTech within the Financial Services”. Patrick Armstrong is the Senior Risk Analysis Officer, Innovation and Products Team at ESMA and gave the speech on 16 May at a RegTech conference in London.

Mr Armstrong identified three risks of RegTech:

Disintermediation – when collaborating with RegTech firms, financial institutions cannot delegate responsibility for their compliance and risk management activities. Instead, the ultimate responsibility remains with the regulated financial institution. While greater specialisation brings efficiency gains, it means there is a risk that full oversight does extend all the way down the value chain. Additionally, while established financial firms have experienced compliance staff, this may not be true of all new entrants in the sector, who may be unaware of exactly how far their responsibility extends.
Digital Security – a major concern across sectors, and of course security needs are especially acute in the financial sector. One can argue that the migration to a digital centralized data infrastructure increases a firm’s vulnerability to attack, theft and fraud. We must develop mind sets in which client data is viewed with the same level of security as that given to money placed in secure vaults. To achieve this, we may need to promote increased real-time collaboration between financial sector institutions on cyber security matters.
Migration Risk – the differential adoption of new technology. Failure on the part of market participants to adapt to the newer digitalized infrastructure presents business risk that may separate winners from losers in the coming years. As well, failure to adapt to a more automated regulatory compliance process may leave participants with platforms ill-suited for the current regulatory framework. For their part, regulators must migrate to a digital based supervisory process, only then can they cope with the volume of data they will soon receive.

Just as FinTech is introducing changes to the way in which market participants offer their services, so too Mr Armstrong saw that RegTech may alter the way in which financial institutions and regulators comply and supervise. Implemented correctly and monitored effectively, Mr Armstrong recognised that RegTech has the potential to improve a financial institution’s ability to meet regulatory demands in a cost efficient manner. Similarly, as a regulator, ESMA is constantly looking for tools to improve the way in which it can better supervise market behaviour. Provided both parties manage this process of change suitably, he thought they can work towards putting in place an effective, fair and transparent financial services sector that stimulates growth and benefits society as a whole.

Regulators in the UK and Hong Kong sign co-operation agreement

May 30 2017

By Jonathan Lawrence

On 12 May the UK Financial Conduct Authority (FCA) entered into a co-operation agreement with the Securities and Futures Commission (SFC) in Hong Kong to foster collaboration in support of FinTech innovation. Under the agreement, the FCA and SFC will co-operate on information sharing and referrals of innovative firms seeking to enter one another’s markets.

The FCA signed a similar agreement with the Hong Kong Monetary Authority in December 2016 (see previous post). This new announcement means that the FCA now has agreements with a number of key regulators in Hong Kong. The agreement follows the creation of the FCA’s Innovation Hub in 2014 and the SFC’s FinTech Contact Point in 2016.

Australia to get a bigger sandbox

May 26 2017

By Michelle Chasser and Daniel Knight

As part of the Federal Budget 2017-18 released on May 9 the Australian Government announced plans to enhance the regulatory sandbox established by the Australian Securities and Investment Commission (ASIC) last year.

The proposal includes expanding the types of products and services that will be eligible to be tested and extending the testing timeframe from 12 months to 24 months.

Currently sandbox participants can provide financial product advice about, and assist clients to trade in, lower risk financial products such as listed Australian securities, simple managed funds and deposit products. Accordingly, participation in the sandbox is typically limited to intermediary type businesses (eg robo-advisers). ASIC specifically excluded issuing financial products and lending from the sandbox to ensure that consumers received all the usual protections from the issuers. However, the Government proposes to expand the types of financial services and products that are allowed to be tested. Under the proposal, businesses will be able to:

provide “holistic” financial product advice (presumably on a wider range of financial products);
lend to consumers; and
issue short term deposit or payments products (it is unclear what is meant by short term deposit products and how this will interact with the Australian Prudential Regulation Authority oversight usually required for some products of this kind).

U.S. CFTC launches LabCFTC to promote FinTech innovation

May 21 2017

By Anthony Nolan and Eric A. Love

On May 17, the U.S. Commodity Futures Trading Commission (CFTC) announced that it voted to unanimously to approve the creation of LabCFTC, a New York-based initiative that is designed to try to encourage innovation in the Fintech industry and enhance the “quality, resiliency, and competiveness” of the commodity futures and swaps markets. LabCFTC will also seek to identify and use FinTech and RegTech solutions that can position the CFTC to more effectively and efficiently fulfill its regulatory responsibilities in increasingly digital financial markets.

LabCFTC consists of GuidePoint, a point of contact at the CFTC for FinTech industry participants that will facilitate greater engagement on the agency’s regulatory regime, as well as on new technologies in the marketplace. GuidePoint will also allow FinTech innovators to obtain guidance about the applicability of CFTC regulations to proposed industry innovations. In addition, LabCFTC consists of CFTC 2.0, an initiative that will focus on utilizing new technologies to improve the CFTC’s operations.

Asia-Pacific regulatory trends

May 19 2017

By Jim Bulling

Jim Bulling contributed an article to American Lawyer on regulatory trends in the Asia-Pacific region. The article contains a high level review of some of the policies and regulatory settings that countries in the region have adopted in response to the development of the FinTech industry. In particular the article looks at some of the regulatory settings which Governments have put in place to encourage a local FinTech industry and to protect consumers and the local financial system.

To read the article, click here.

Dubai International Financial Centre’s FinTech Hive accelerator opens

May 18 2017

By Jonathan Lawrence

The Dubai International Financial Centre (DIFC) has formally opened its call for applicants to its ‘FinTech Hive at DIFC’ accelerator programme, following registered interest from over 200 companies since its launch in January 2017. The 12-week programme is aiming to help early and growth-stage FinTech companies accelerate product and business development by gaining exposure to help from financial institution executives. Successful applicants will be offered the opportunity to develop, test and modify their innovations in collaboration with senior representatives from DIFC Authority, Accenture, and financial institutions such as Citi, HSBC, Standard Chartered, Visa, Emirates NBD, and Mashreq.

The programme also aims to provide access to mentorship from technology partners such as Facebook and Envestnet | Yodlee. Facebook will run an independent mentorship workshop for startups, providing advice on monetisation, growth and engagement, development and marketing tools, and analytics. Envestnet | Yodlee will provide developers with access to Application Program Interfaces (APIs) to build innovative financial applications and services.

Surge in fintech patent applications

May 05 2017

By Alistair Mann and Steven Wulff

Several business publications have recently reported a dramatic increase in the number of patent applications filed globally for fintech-related inventions. According to one widely-reported analysis, 9,545 applications were filed in 2016 which is 500 more than in 2015 and over 49% more than in 2011. The United States is reportedly leading the charge with 4,523 patent filings in 2016 and China, in a somewhat distant second place, filed about half that number in the same year.

A patent gives an inventor exclusive rights to exploit their invention commercially for a limited term (usually 20 years) in return for public disclosure of the invention. The monopoly conferred serves to incentivize innovation and encourages public disclosure of innovations for the advancement of technology and the common good. The recent surge in patent applications clearly reflects a significant uptick in research and development efforts in fintech and shows that innovators in this space are serious about protecting and commercialising the fruits of their labour.

The types of fintech-related inventions seeking to be patented are diverse and include systems for managing bitcoin and blockchain-based currency reserves. Other examples include credit risk assessment tools and artificial intelligence agents for identifying and analysing fraud and irregular trading activities.

K&L Gates has significant experience filing fintech-related patents including for SMEs and large entities in Australia and the United States. Innovators should consider patenting their new fintech technologies to help protect their competitive advantage and reward their R&D efforts.

Category:FinTech Industry & Regulation