FinTech and Blockchain Law Watch – Page 33 – At the Crossroads of Law, Innovation and Commerce

The UK’s Financial Conduct Authority’s David Geale on FinTech regulation

Oct 12 2017

On 27 September 2017, Fintech Melbourne in partnership with the UK’s Department for International Trade hosted an event on FinTech regulation with the UK Financial Conduct Authority’s (FCA) Director of Policy David Geale.

Interesting points from the night included:

The FCA has been, and continues to be, actively involved in engaging in dialogue with industry participants, both large firms and smaller start-ups.
As with other global regulators, the FCA is currently focused on blockchain, its potential effect on the market and the FCA’s role. The FCA released a discussion paper on distributed ledger technology earlier this year
The FCA recently issued an initial coin offering consumer alert.
The number of firms applying for the FCA’s regulatory sandbox exceeded initial expectations.
Some of the more interesting concepts that David has seen come through the sandbox put existing technology to a different use such as alternative credit scoring methods (eg using social media) and connected insurance (eg using fitbit data to determine insurance premiums).
Some UK firms have been experimenting with using videos to convey regulatory disclosures.
Digital identity and open banking are areas of interest going forward.

ICOs in Switzerland

Oct 12 2017

By Jonathan Lawrence

The Swiss Financial Market Supervisory Authority (FINMA) issued guidance on initial coin offerings (ICOs) on 29 September. FINMA has observed a marked increase in ICOs conducted in Switzerland. It has therefore published FINMA Guidance 04/2017 on this topic. FINMA has also indicated that it is investigating a number of ICO cases to determine whether Swiss regulatory provisions have been breached.

FINMA observes that the structuring of ICOs from technical, functional and business standpoints varies markedly from offering to offering. ICOs are currently not governed by specific regulations, either globally or in Switzerland. Swiss legislation on financial markets is principle-based; one such principle is technology neutrality. Collecting funds for one’s own account without a platform or issuing house is unregulated from a supervisory perspective in cases where repayment is not obliged, payment instruments have not been issued and no secondary market exists.

Federal Reserve Board outlines next steps for faster payments

Oct 11 2017

By Eric A. Love

The Federal Reserve Board (FRB) has released a paper entitled “Strategies for Improving the U.S. Payment System: Next Steps in the Payments Improvement Journey” (the Strategies Paper). The Strategies Paper builds upon the FRB’s “first steps” for enhancing the U.S. payment system (which were described in a 2015 FRB paper) and details the next phase of this work. It includes an assessment of ambitious proposals made by the Faster Payments Task Force and the Secure Payments Task Force.

Hong Kong launches regulatory sandbox

Oct 11 2017

By Jonathan Lawrence

The Hong Kong Securities and Futures Commission (SFC) launched a regulatory sandbox on 29 September. The sandbox provides a confined regulatory environment for qualified firms to operate regulated activities under the Hong Kong Securities and Futures Ordinance (SFO) before FinTech is used on a fuller scale to the wider public. The SFC emphasises the importance of the integrity of the market and investors’ interests, and says it will not compromise regulatory requirements which are key to investor protection. For example, a qualified firm operating in the sandbox must be fit and proper and must comply with the applicable financial resources requirements.

France moves forward with Blockchain for certain securities exchanges

Oct 09 2017

By Claude-Étienne Armingaud and Emilie Oberlis

Following the adoption of Act no.2016-1691, dated 9 December 2016, on Transparency, Anti-Corruption, and Modernization of Economic Life (“Sapin II” – see our compliance coverage here) and the publication of its responses to a public consultation request on 30 August 2017 (see our coverage here), the French Ministry of Finance published a draft document aimed at adapting the French legal framework to the use of blockchain technology.

The draft (which may be accessed in French here) addresses the possibility for companies, to register the following instruments with a “shared electronic registry”:

Negotiable debt securities;
Units or shares of undertakings for collective investment;
Capital securities issued by corporations and debt securities other than negotiable debt securities, provided that they are not traded on a trading platform.

Future of FinTech conference London

Oct 06 2017

By Jonathan Lawrence

At the Telegraph Future of FinTech conference in London on 28 September several regulatory-related themes emerged:

There will soon be more money outside the regulated environment rather than inside, the tipping point is approaching
Currencies are no longer the sole domain of sovereign countries and regulated central banks
Some regulators are competing to attract the industry to their jurisdiction and are generally agnostic about the technology used to deliver the financial service
Open Banking in the UK from 13 January 2018 will usher in a new era of transparency across a UK customer’s whole financial life
Brexit is not a major focus for the UK FinTech industry or its regulators, the biggest challenge is acquiring talent
Using vehicles such as IOSCO to promote regulator cooperation and cross-border regulation for FinTech; genuine common standards are a goal
Financial regulators in many countries are struggling to keep up with the industry due to high workload on other issues and limited resources
Talent is flowing between the industry and regulators
Artificial intelligence, blockchain, PropTech and ICOs were identified as the “hot” areas

Abu Dhabi Islamic Bank and Abu Dhabi Global Market announce Memorandum of Understanding

Oct 06 2017

By Jonathan Lawrence

On 25 September, Abu Dhabi Global Market (ADGM), the international financial centre (IFC) in Abu Dhabi, via its Financial Services Regulatory Authority (FSRA), announced a Memorandum of Understanding (MoU) with Abu Dhabi Islamic Bank (ADIB). The aim of the MoU is to seek opportunities to collaborate and consult on initiatives to promote the growth and development of the FinTech ecosystem in Abu Dhabi and the United Arab Emirates (UAE). Under its terms, ADIB will partner with the FSRA across a range of Islamic-compliant FinTech-related initiatives. This partnership adds to ADGM’s FinTech commitment through the Abu Dhabi Regulatory Laboratory (RegLab) — a regulatory framework that offers a controlled environment for FinTech innovators to develop and test their products and services with the regulator.

FinTech in Taiwan: Regulatory Efforts and the Need for Speed

Oct 03 2017

By Joseph P.Y. Tseng

To encourage financial services industry and the related industry to apply innovative technology for enhancing financial accessibility, practicability, and quality, on May 4, 2017, Taiwan’s Executive Yuan proposed the bill called “Financial Technology Innovation Experimentation Act” (the “Bill”) to create its version of “regulatory sandbox.” It would enable experimenting innovative financial technology within a well-defined space and duration under relaxed legal requirements.

To read our full alert, click here.

Gibraltar issues statement on initial coin offerings

Oct 03 2017

By Jonathan Lawrence

The Gibraltar Financial Services Commission (GFSC) issued a statement on initial coin offerings on 22 September. The GFSC has noticed the increasing use of tokens or coins based on Distributed Ledger Technology (DLT) as a means of raising finance, especially by early-stage start-ups. The sale of such tokens is often conducted using terms such as initial coin offering (ICO), token sale, initial token offering and the like.

A new regulatory framework for DLT will become operational in Gibraltar as from January 2018 and will regulate the activities of firms, operating in or from Gibraltar, that use DLT to store or transmit value belonging to others, such as virtual currency exchanges. Gibraltar is considering a complementary regulatory framework covering the promotion and sale of tokens, aligned with the DLT framework. In common with regulators around the world, the GFSC says that is continuing to monitor the use of unregulated tokens as a means of raising finance.

Marketplace lender seeking fair lending guidance receives CFPB’s first no-action letter

Sep 28 2017

By David D. Christensen, Jennifer Janeira Nagle and Brandon R. Dillman

The U.S. Consumer Financial Protection Bureau (CFPB) recently issued its first no-action letter, pursuant to a policy designed to encourage innovation in the fintech marketplace by creating a testing ground for new technologies. If received, a no-action letter simply indicates that the CFPB “has no present intention to recommend initiation of an enforcement or supervisory action” against the applicant with respect to the specific product and regulatory concerns at issue.