FinTech and Blockchain Law Watch – Page 45 – At the Crossroads of Law, Innovation and Commerce

IOSCO releases report on FinTech

Feb 15 2017

The International Organisation of Securities Commissions (IOSCO) has released a new report that says that changes resulting from FinTech are testing the boundaries of full disintermediation through the use of technology. IOSCO is the international body that brings together the world’s securities regulators and is a global standard setter for the securities sector. IOSCO develops, implements and promotes adherence to internationally recognised standards for securities regulation. It works with the G20 and the Financial Stability Board on the global regulatory reform agenda.

Singapore fast-tracks the FinTech space

Feb 14 2017

By Nicholas Hanna and Samantha See

Increasingly, early stage start-ups and FinTech businesses are seeing incentives in Singapore as an attractive location to set up shop. Innovative policies to kick start businesses and commerce in Singapore have been developing for the last two years. The increase in FinTech investment coupled with the ramifications of Brexit has now seen a trend of British businesses migrating to Singapore. For example, Aviva, the British insurer, created its second “digital garage” in Singapore. The Chairman of Aviva’s Asian business and head of its digital business has named both London and Singapore FinTech Hubs. He also noted that Singapore is fast-tracking the FinTech sector with innovations such as allowing financial institutions to use cloud infrastructure, helping start-ups to compete with incumbents and giving permission for all insurance products to be sold online.

Found out that you can’t play in the sandbox?

Feb 09 2017

By Jim Bulling and Michelle Chasser

The Australian Securities and Investment Commission’s (ASIC) regulatory sandbox is up and running exempting qualifying businesses from holding an Australian financial services licence or Australian credit licence. There are a number of reasons why a business may not be eligible including:

the business will issue the financial products;
it is likely that there will be more than 100 retail clients
it is likely that the value of the financial products will be more than $5 million;
12 months testing will not be sufficient; or
the financial products the business deals with fall outside the eligible products for the sandbox which are:
- simple managed investment schemes;
- non-cash payment systems issued by a bank;
- listed securities;
- government bonds; and
- unsecured loans.

So what are your options if you don’t meet all the eligibility criteria but don’t want to obtain your own licence?

Switzerland proposes to reduce barriers to market entry for FinTechs

Feb 09 2017

By Jonathan Lawrence

During its meeting on 1 February 2017, the Swiss Federal Council initiated a consultation on amendments to the Banking Act and Banking Ordinance in the FinTech area. The aim is to ensure that barriers to market entry for FinTech firms in Switzerland are reduced and that the competitiveness of the Switzerland as a financial centre is enhanced. The consultation will last until 8 May 2017.

Australian marketplace lending update

Feb 09 2017

By Jim Bulling and Michelle Chasser

In a recent report on licensing applications the Australian Securities and Investment Commission (ASIC) revealed that it has granted 7 Australian financial services licences (AFSL) and 3 Australian credit licences to marketplace lenders between January and June 2016. A further 3 AFSL applications are currently being considered. Previously, 6 licenses were granted between 1 July 2015 and 31 December 2015. This indicates that the number of entrants to the Australian market continues to grow.

Unlike other jurisdictions such as New Zealand, Australia does not have specific marketplace lending legislation. Marketplace lenders have had to adapt to fit within the existing financial services framework. There are a number of business models that can be used to facilitate marketplace lending.

The Future of Active Funds Part 3: How to Get Started with Blockchain

Feb 06 2017

By Tyler Kirk

In this installment of “The Future of Active Funds,” we explore how an active fund can get started with using blockchain technology. As we predicted in Part 2 of this series, 2017 is shaping up as the year blockchain applications will be brought to market, revolutionizing the way securities transactions are executed. As an initial matter, blockchain will reduce the time and cost of settling transactions. Given the cost advantages of passive funds and ETFs over active funds, there is less of an incentive for passives and ETFs to become early adopters of blockchain. However, blockchain is a solution for at least one major problem faced by active fund managers, the inability to compete on a cost basis.

So, what is an easy way for an active fund to get started with blockchain? According to a recent HBR article, a “single-use” implementation is best. Active funds can begin simply by accepting investments in bitcoin and redeeming investors in bitcoin. This will allow the fund’s adviser, board, and service providers to become comfortable with the technology. Further, as we previously posted, experimentation is easy thanks to blockchain cloud services offered by Microsoft, Amazon, and IBM. However, there are legal issues such as appropriate disclosures regarding transacting in bitcoin and custody under § 17(f) of the 1940 Act. For a good primer on the technology, read our article, Blockchain 101 for Asset Managers. Bottom-line, active managers need to have a blockchain strategy or risk being left behind.

Banks Help Blockchain Move from Bitcoin to IoT

Feb 02 2017

By Susan P. Altman

As companies continue to look for practical uses for blockchain’s distributed ledger technology, we’re seeing interesting collaborations between major banks, global technology players, and nimble startup fintech companies. To be sure, banks are still focused on blockchain as it applies to financial services. BNY Mellon recently hosted a blockchain event at which presenters discussed whether blockchain should be viewed by banks as a disrupter or an opportunity. (Naturally the bank is looking for opportunity.) Of particular interest to the lawyers is the discussion of legal risks raised by blockchain, which include problems already in existence, such as data privacy concerns across geographic jurisdictions, and new problems created by blockchain, such as identifying where an asset is when no one bank or entity is the custodian of the record.

But the banks aren’t only experimenting with, dare we say, traditional financial uses for blockchain; they’re right in the mix trying to figure out how to exploit blockchain in industries far beyond the bitcoin world. BNY Mellon has also, for example, joined Cisco, Foxconn, security company Gemalto and several blockchain startups in a collaboration to develop a shared blockchain protocol for the Internet of Things. Blockchain could potentially improve security of IoT applications and create a tamperproof manufacturing, maintenance and supply chain history, areas not typically viewed as concerns of large financial institutions. Banks are experimenting with supply chain technology. Now that’s looking for opportunity in the world of disruption.

Dubai issues loan-based crowdfunding consultation paper

Feb 02 2017

By Jonathan Lawrence

The Dubai Financial Services Authority (DFSA) issued a consultation paper “Crowdfunding: SME Financing Though Lending” on 31 January 2017. The paper proposes a regulatory framework for anyone looking to operate a loan-based crowdfunding platform in the Dubai International Financial Centre (DIFC). It is the first in a series of papers which will set out the DFSA’s approach to the regulation of FinTech more generally.

The key proposals include:

A tailored regime of rules specifically designed for loan-based crowdfunding platform operators.
Minimum standards for systems and controls.
Operational transparency and adequate disclosure to all participants – borrowers and lenders – on the platform.
Suitable checks on platform participants.
Appropriate safeguarding and segregation of client money.
The development of business cessation plans.
Enabling the transfer of rights or obligations between lenders.

The rules are benchmarked against the regimes in the United Kingdom, New Zealand, France, Netherlands and Spain, being those jurisdictions that create an individual regime for these types of platforms.

The DFSA is seeking comments from anyone who is interested in operating, investing in, or providing services to crowdfunding platforms in the DIFC. This can be done via email consultation@dfsa.ae with “CP109″ in the subject line. Comments should be submitted by 2 March 2017.

New Special Purpose National Bank Charter for FinTech Companies

Jan 31 2017

New York partners Anthony Nolan and Judith Rinearson will be speaking in a Strafford live webinar on “New Special Purpose National Bank Charter for FinTech Companies: Evaluating the Benefits and Regulatory Pitfalls on Thursday, March 16 2017 at 1:00pm-2:30pm EDT. This will focus on a recent proposal by the United States Office of the Comptroller of the Currency (OCC) to consider granting special purpose national bank charters to FinTech companies that are engaged in fiduciary activities or in activities that include receiving deposits, paying checks, or lending money. The special purpose charter offers the benefits of federal preemption and some state licensing requirements. However, there are regulatory and supervisory burdens that must be carefully considered such as activity limitations, BSA/AML requirements and minimum capital and liquidity requirements.

Bank of England Governor delivers wide-ranging FinTech speech

Jan 26 2017

By Jonathan Lawrence

Mark Carney, the Governor of the Bank of England, has given a wide-ranging speech on FinTech which he delivered at the Deutsche Bundesbank G20 conference on 25 January 2017. It was entitled “The Promise of FinTech – Something New Under the Sun?”. Whilst recognising that FinTech’s true promise springs from its potential to unbundle banking into its core function, systemic risks will evolve. The challenge for policymakers is to ensure that FinTech develops in a way that maximises the opportunities and minimises the risks for society. Read More