FinTech and Blockchain Law Watch – Page 22 – At the Crossroads of Law, Innovation and Commerce

UK FCA – Fourth Sandbox Cohort Announced

Jul 11 2018

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

Artificial Intelligence in Wealth Management

Jul 10 2018

By Jim Bulling and Tiarna Meka

A recent report by Forbes Insights and Temenos suggests that wealth managers must embrace the development in Artificial Intelligence (AI) technology in order to sustain a long-term future. The use of AI technology allows financial advisors to provide high quality, customised client advice.

There has been a significant rise in the attitudes of wealth managers towards AI since 2016 with global statistics showing that 52% of wealth managers now view AI as essential in their business operations. In Asia-Pacific, this statistic is substantially higher with 70% of wealth managers viewing AI as essential and 80% deploying or testing AI.

Vermont Signals Broad Interpretation of Money Transmitter Law

Jun 28 2018

By Jennifer Crowder and Jeremy McLaughlin

Recently, largely due to emerging payment systems and new ways of conducting business online, there has been a trend developing among states that certain activity does not require money transmitter licensing. For example, several states have amended their statutes or issued regulatory guidance to indicate that a license is not needed if an entity is acting as an “agent of the payee” or as a “payment processor,” so long as certain conditions are met. In general, an agent of the payee is an entity that has a contractual relationship with the merchant or other ultimate payee such that payment to that entity constitutes, in effect, final payment. New York, for example, describes it as “any person authorized by a payee to receive funds on behalf of the payee and to deliver such funds received from the payor to the payee.” N.Y. Comp. Codes R. & Regs. tit. 3, § 406.2(l).

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.

Are Digital Asset Transactions Always Securities Offerings?

Jun 22 2018

By Andrew Massey and Evan Glover

On June 14, 2018, William Hinman, Director of the Division of Corporation Finance at the United States Securities and Exchange Commission, shared his views on whether digital assets (such as tokens or coins) that were originally offered in a securities offering can be subsequently sold in a manner that does not constitute a securities offering. CLICK HERE for the full remarks.

In some cases where a central enterprise is no longer being invested in, or where the digital asset is used for consumption (to purchase a good or service available through the network it was created), Hinman believes such an asset would not be considered a security. However, labeling a digital asset a “utility token” does not automatically cause the digital asset to become something that is not a security. Although the Supreme Court has stated that if someone is purchasing something for consumption, it is not a security, Hinman emphasized the Supreme Court’s stance that economic substance, not labels, of the transaction guides the legal analysis.

Conference Report – Blockchain and the Law: Towards a Responsible Blockchain Sector

Jun 22 2018

By Anthony R. G. Nolan and Julien E. F. Barbey

On June 14, Cardozo Law School in New York City held a conference entitled “Blockchain and the Law: Towards a Responsible Blockchain Sector.” The conference was led by a panel consisting of current and former commissioners and staff members of the SEC and the CFTC including Rob Cohen, director of the SEC’s enforcement division.

Among topics discussed was SEC Director William Hinman’s recent speech in which he stated that Ethereum is not a security. Panelists suggested this may indicate that the SEC would regard a token as being able to change its character over time, such that a token that was once a security can morph into one that is not a security. This would have important implications for market practices, potentially including the utility of SAFTs.

Amazon Unveils Plans to Provide Blockchain-as-a-Service

Jun 21 2018

By Warwick Andersen, Rob Pulham and Georgia Mills

Amazon Web Services (AWS) plans to be one of a handful of tech companies providing blockchain-as-a-service (BaaS) for customers wanting to test the new technology without the costs or risks of developing it in house. Other providers of BaaS include Microsoft, IBM, HP, Oracle and SAP.

AWS has partnered with Kaleido, a new blockchain business cloud service for enterprises. Kaleido will offer its cloud services to host an Enterprise Ethereum-based, open-source blockchain platform, making Kaleido the first managed blockchain SaaS available on AWS. The platform has been designed to be easy to use, as the uncertainty surrounding the new technology has prevented its widespread adoption.

New FCA “Dear ICO” Letter warns of financial crime associated with cryptocurrencies

Jun 14 2018

By Judith E. Rinearson and Rizwan Qayyum

On June 11 2018, the Financial Conduct Authority (the “FCA”) issued a “Dear CEO” letter, which provided guidance for banks on how to handle the growing risks associated with “cryptoassets”.

The FCA defines “cryptoassets,” using Bitcoin and Ether as an example, as “any publicly available electronic medium of exchange that features a distributed ledger and a decentralised system for exchanging value.” While acknowledging that there are “many non-criminal motives” for using cryptoassets, the letter asserts that these products can be abused because they offer “potential anonymity and the ability to move money between countries.”

An old-fashioned bank heist – in cyberspace

Jun 13 2018

By Cameron Abbott and Sarah Goegan

In the old days the bank robbers would rob the local town and ride off into the sunset. The new version is a little less easy to see. Coinrail, a South Korean cryptocurrency exchange, has announced that it was hacked on 10 June. That’s a polite phrase for “our customers lost a lot of coins”.

The cyberattack resulted in more than $40 million USD worth of altcoins (coins that aren’t bitcoin or Ethereum) being stolen. This represented around 30% of coins traded on the exchange. Quite a substantial amount, considering Coinrail is a smaller cryptocurrency exchange!

UK Cryptoassets Taskforce meets for first time

Jun 12 2018

By Jonathan Lawrence

The first meeting of the UK’s new Cryptoassets Taskforce took place on 21 May 2018. First announced in April 2018 by the Chancellor of the Exchequer as part of the UK government’s Fintech Sector Strategy, the Taskforce is a central part of the government and financial regulators’ efforts to understand and engage with the implications of new technologies in financial services. At the first meeting, the Taskforce agreed its objectives, which include:

exploring the impact of cryptoassets;
the potential benefits and challenges of the application of distributed ledger technology in financial services; and
assessing what, if any, regulation is required in response.