FinTech and Blockchain Law Watch – Page 17 – At the Crossroads of Law, Innovation and Commerce

Australian Buy Now Pay Later businesses discuss the utility of Open Banking Regime

Jan 31 2019

Jim Bulling, Felix Charlesworth, Edwin Tan

On 22 January 2018, two of the largest ‘buy now, pay later’ businesses in Australia, Afterpay and Zip.co, appeared at a hearing before the Senate’s Economic References Committee.

During the Senate hearing, both Zip.co and Afterpay presented how their respective business models operate and responded to questions about how the ‘buy now, pay later’ industry should be regulated. As previously mentioned, ‘buy now, pay later’ businesses are not currently classified as ‘credit providers’ under the National Credit Code (Code) and, as such, are not subject to the responsible lending obligations under the Code.

EU supervisors call for EU-wide policy response to crypto-assets

Jan 17 2019

By Giovanni Campi and Martina Topercerova

The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published two complementary assessments of the regulatory coverage of crypto-assets under existing EU legislation and also set out their advice to the European Commission on potential policy initiatives in the future.

Empire “Blockchain” Building

Jan 17 2019

Authors: Cameron Abbott and Sara Zokaei Fard

The New York City Economic Development Corporation (NYCEDC) is looking at 2019 with fresh eyes. Although digital coin prices plummeted in 2018, some by as much as 90%, NYCEDC has announced that it will open a blockchain centre in Manhattan. The blockchain centre is being developed by NYCEDC in partnership with blockchain industry leaders Future\Perfect Ventures and the Global Blockchain Business Council.

It is reported that the blockchain centre will be a resource for industry professionals as well as those interested in learning about the technology. It will create a peer community that will provide business support, mentorship as well as public education to assist people to understand how blockchain can impact daily life. The block chain centre will also be utilised to convene bodies including from industry and government to further dialogue on a regulatory environment that supports both consumers and innovation.

Industry leaders have described it as “a nascent technology” and a “burgeoning innovation sector”. The question now becomes, should we invest in bitcoin, or the blockchain centre itself as Microsoft and IBM have done!

EU supervisors scrutinise FinTech sandboxes and innovation hubs

Jan 10 2019

By Giovanni Campi and Martina Topercerova

The European Supervisory Authorities (ESAs), including the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA), have published a report setting out a comparative analysis and best practices in the design and operation of sandboxes and innovation hubs (“innovation facilitators”) established in the European Economic Area. The report was requested by the European Commission in its FinTech Action plan, as part of its efforts to enable innovative businesses to reach EU-wide scale.

Singapore and London: FinTech Regulation Report

Jan 10 2019

By Jonathan Lawrence

A report has been published summarising the findings from research by ICAEW (The Institute of Chartered Accountants in England and Wales) and ISCA (Institute of Singapore Chartered Accountants) into FinTech in London and Singapore. The two cities show the importance of tailoring detailed measures to reflect local differences. Singapore, for example, puts stronger emphasis on collaboration between start-ups and the established sector, and acts as a gateway to new markets across Southeast Asia. By contrast, in London, there is more of a push for start-ups to disrupt the incumbents in financial services and more focus on the challenges of scaling up FinTech businesses.

Cryptoassets: Taxation of Individuals in the UK

Jan 09 2019

By Jonathan Lawrence

On 19 December 2018, the UK tax authority, HM Revenue and Customs (“HMRC”), published a policy paper on the taxation of cryptoassets. The guidance is limited to HMRC’s view in relation to individuals holding cryptoassets and does not extend to tokens or assets held by businesses. The guidance confirms that HMRC does not consider cryptoassets to be currency or money for tax purposes and separates crypto assets into three categories of “tokens”: exchange tokens, utility tokens and security tokens. The guidance focuses on the taxation of “exchange tokens,” a term encompassing assets such as Bitcoin.

Regulating Stablecoins: Certain Stablecoins are Now Subject to the Texas Money Services Act

Jan 08 2019

By Daniel S. Cohen

On January 2, the Texas Department of Banking (“DoB”) updated Supervisory Memorandum – 1037 (“Guidance”) which provides guidance regarding the application of the Texas Money Services Act (the “Act”) to virtual currencies. First issued on April 3, 2014, the Guidance divides virtual currency into two categories: centralized and decentralized.

Centralized virtual currencies are virtual currencies “created and issued by a specified source” that “rely on an entity with some form of authority or control over the currency”. Decentralized virtual currencies, on the other hand, are virtual currencies that do not have an administrator or a central repository.

Stablecoins are considered decentralized virtual currencies, provided they do not have an administrator or central repository. According to the Guidance, whether the Act applies to centralized virtual currencies requires a case-by-case determination. As for decentralized virtual currencies, the Guidance states that the Act only applies when sovereign currency is involved, and only in certain cases, because decentralized virtual currencies do not constitute money or monetary value.

UK FCA Probes Crypto Businesses

Jan 07 2019

By Jonathan Lawrence

The Financial Conduct Authority (FCA), the UK financial regulator, confirmed to the Financial Times on 30 December 2018 that it was investigating 18 businesses involved in the sale of cryptocurrencies. The regulator has also issued alerts and warnings about dozens of companies suspected of cryptocurrency investment fraud. Currently, the transfer, purchase and sale of cryptocurrencies are not regulated in the UK. However, companies that sell regulated investments with an underlying cryptocurrency element may need FCA authorisation to do so depending on their activities.

ASIC publishes report on its review of the ‘buy now, pay later’ industry

Nov 30 2018

By Jim Bulling, Felix Charlesworth and Edwin Tan

On 28 November 2018, ASIC published Report 600: Review of buy now pay later arrangements (Report). The Report is the product of ASIC’s 10 month investigation into the industry. It examines the conduct, structure and arrangements of 6 buy now pay later providers including Afterpay and zipPay (Providers). The Report also notes that the responsible lending obligations of the National Consumer Credit Protection Act which require credit providers to, among other things, assess a consumer’s financial position, do not apply to buy now pay later arrangements.

The Report looks at the exponential growth of the industry from over 50,000 transactions in April 2016 to 1.9 million transactions in June 2018. While the average value of transactions under these arrangements has decreased, the outstanding debt in this time has roughly doubled to over $903 million.

FCA Fighting Cryptoasset Risks

Nov 20 2018

By Jonathan Lawrence

The UK Financial Conduct Authority (FCA) Executive Director of Strategy and Competition recently delivered a speech at The Regulation of Cryptocurrencies event in London. In his remarks, Chris Woolard outlined several steps the FCA is planning to take to combat risks in the cryptoasset market:

to help firms better understand the boundaries of current regulation in relation to cryptoassets, the FCA will consult on perimeter guidance by the end of 2018, helping to clarify which cryptoassets fall within the FCA’s existing regulatory perimeter, and those that fall outside;
HM Treasury (HMT) is to then consult on whether the regulatory perimeter requires an extension to capture cryptoassets that have comparable features to specified investments, but currently fall outside the perimeter;
the FCA will also consult on a prohibition of the sale to retail consumers of derivatives referencing certain types of cryptoassets (for example, exchange tokens), including contracts-for-difference, options, futures and transferable securities;
to combat financial crime risks, HMT will undertake one of the most comprehensive responses globally to the use of cryptoassets for illicit activities by applying and going further than the existing directive, the fifth EU Anti-Money Laundering Directive (5AMLD);
HMT will first consult and then legislate on how to transpose 5AMLD and broaden the scope of anti-money laundering and counter-terrorism financing regulation; and
HMT plans to complete further analysis on whether regulation could meaningfully and effectively address the risks posed by exchange tokens and what, if any, regulatory tools would be most appropriate and then consult in early 2019 on whether and how exchange tokens, as well as related actors such as exchanges and wallet providers, could be regulated effectively.