FinTech and Blockchain Law Watch – Page 54 – At the Crossroads of Law, Innovation and Commerce

Strong response to ASIC sandbox proposal

Aug 12 2016

ASIC’s regulatory sandbox consultation has drawn a mixed response from around 30 businesses, industry and consumer groups which have made submissions. To refresh your memory about ASIC’s proposals check out our previous blog.

Tyro Payments was very supportive of the concept of a sandbox but had a few concerns about the proposed structure. Tyro’s main concern was the role of sponsors controlling start-ups’ access to the sandbox. It noted that Australia’s associations, hubs and accelerators were dependent on funding from industry incumbents and that exposing the sandbox to their influence is like “putting the fox in charge of the hen house”. Tyro was in favour of a UK style sandbox where applicants’ transitions into licensing are considered on a case by case basis by the regulator.

Marketplace lending technology patents held invalid

Aug 09 2016

By Joseph Valenti, Samuel Reger and Chris Bell

On July 25, 2016, three appellate judges in the United States held that a popular online marketplace lender’s patents were invalid because they merely reflected an “abstract idea” that is not entitled to be patented or otherwise eligible for exclusive protection under American intellectual-property laws. The practical effect of this decision is that the lender could not sue its competitors for patent infringement where those competitors allegedly used the same techniques to match borrowers with lenders on their own marketplace lending platforms.

The judges from the Federal Circuit Court of Appeals likened the claimed inventions to a “fundamental economic concept” (i.e., an abstract idea) that served as the basis for the consumer-loan industry. They ruled that simply implementing this concept with “generic technology” to automate the process does not then make it patentable.

Bitcoin heist – alleged $72M stolen from Bitfinex

Aug 05 2016

By Cameron Abbott and Simon Ly

Hong Kong-based bitcoin exchange Bitfinex has suspended trading after discovering an alleged security breach to the tune of $72M! It has been reported that this is the third largest bitcoin breach in history, with the largest being the infamous MtGox breach in early 2014.

Trading has halted on Bitfinex as the company investigates the security breach and cooperates with law enforcement. Although this may come as only a small consolation to many, in its initial response Bitfinex said that the breach was quarantined to “bitcoin wallets; the other digital tokens traded on Bitfinex are unaffected”.

As of today, Bitfinex is still in the process of figuring out what happened, but disputes the total cost of the heist, stating that the “numbers being quoted are erroneous as nothing has been decided as of yet and [Bitfinex] is still in the process of settling positions and balances”.

Are we all more comforted by the fact that they don’t know?

To keep up to date, you can see Bitfinex’s blog updates here.

BritCoin vs BitCoin: Central banks stepping into the digital currency arena

Jul 29 2016

By Jim Bulling and Michelle Chasser

Certain governments around the world are exploring the possibility of central bank issued digital currencies using distributed ledger technology (DLT) which could compete with private digital currency systems such as BitCoin.

Following the release of the Bank of England’s (BofE) paper on central bank issued digital currencies, the Deputy governor of monetary policy appeared before the House of Lords’ Economic Affairs Committee to discuss the effect ‘BritCoin’ would have on the economy. The BofE has previously raised the possibilities of using BritCoin for retail transfers and issuing interest bearing accounts or ‘wallets’ to hold BritCoins.

K&L Gates Adds Leading FinTech Partners

Jul 28 2016

Global law firm K&L Gates welcomes Judith Rinearson and Linda C. Odom as partners in the firm’s FinTech and Consumer Financial Services practices. Rinearson joins K&L Gates’ New York and London offices, and Odom, joins the Washington, D.C. office. “Judie Rinearson and Linda Odom are highly respected authorities in numerous key regulatory and commercial areas within the FinTech ecosystem,” stated Robert Zinn, co-leader of K&L Gates’ global corporate and transactional practice area as well as of the firm’s market-leading global FinTech practice.

To read our full press release please click here.

FCA Feedback Statement on RegTech

Jul 25 2016

By Jonathan Lawrence

The UK Financial Conduct Authority defines RegTech as “a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities”. In November 2015, the FCA asked for views on how it should progress and prioritise its RegTech work. It received more than 350 responses from established financial services firms, technology suppliers and FinTech start-ups and the FCA also convened roundtable meetings. The feedback statement was released on 20 July.

The main themes that emerged concerned technology that:

allows more efficient methods of sharing information
drives efficiencies by closing the gap between intention and interpretation
simplifies data, allows better decision making and the creation of adaptive automation
allows regulation and compliance processes to be looked at differently

Massachusetts issues guidelines for using third-party robo-advisers

Jul 21 2016

By Susan P. Altman and C. Todd Gibson

In April 2016, the Massachusetts Securities Division issued a policy statement with respect to the fiduciary obligations of state-registered advisers providing robo-advice. The MSD has now issued further regulatory guidance in a new Policy Statement with respect to the use of third-party robo-advisers by state-registered investment advisers. The MSD noted the significant growth in popularity of third-party robo-advisers and the increasing number of state-registered investment advisers working with third-party robo-advisers.

The new guidance describes minimum disclosure that state-registered investment advisers using third-party robo-advisers must provide to investors in order to meet Massachusetts regulatory requirements, including:

Clearly identifying the robo-advisers and explaining their services;
Notifying investors that, when applicable, they could get the services directly from the robo-adviser without paying additional fees to the state-registered investment adviser;
Describing the value provided to the investor by the state-registered investment adviser;
Specifically identifying the services the state-registered adviser cannot perform, such as having no ability to access, select, change or customize the portfolio structure or investment products at the robo-adviser;
Identifying limitations of available investment products offered to the client through the robo-adviser; and
Using customized, easy-to-understand disclosure language.

Most importantly perhaps, the investment advisers must charge an advisory fee that is reasonable in light of fees charged by others providing essentially the same services. An investor is usually charged a fee by both the investment adviser and the robo-adviser based on a percentage of the investor’s assets under management. Massachusetts state-regulated advisers will have to demonstrate the value behind the fees they charge on top of the robo-adviser’s fees, such as specialized knowledge of the products or the investor’s personal circumstances.

The Policy Statement can be found here.

Bank of England Launches FinTech Accelerator

Jul 21 2016

By Jonathan Lawrence

On 17 June 2016 the Governor of the Bank of England announced that the Bank is launching a FinTech Accelerator to work in partnership with FinTech firms to harness innovations for its own requirements as a central bank. In return, it will offer firms the chance to demonstrate their solutions for issues facing policymakers. The Accelerator will deploy innovative technologies on issues that matter to the Bank’s mission and operations. The Accelerator will appoint FinTech firms to run short Proof of Concept (POC) projects in a number of priority areas.

Some examples of current projects:

BitSight: Uses publicly available bulk data to assess firms’ cyber resilience, including looking for evidence of malware on a firm’s systems, signs of known software vulnerabilities, or weak encryption, which can be used to form a view on the information security of a firm over time. For the POC, the Bank’s own resilience will be evaluated.
Privitar: Provides tools to anonymise and desensitise data. The Bank will first test this software on a manufactured dataset to examine the analytical value of the desensitised data. It will then look to assess the capability of the tool on data held internally to establish if this will allow the Bank to provide wider access to data for researchers within the Bank.
PwC: Understanding the technology of blockchain and distributed ledger, working with PwC. The team built a multi-node scalable distributed ledger environment, which contained several smart contracts to illustrate the applications of the technology. This has enabled the Bank to better understand the resiliency benefits and practical limitations of the technology.

The Bank is interested in new ways of structuring and analysing large data sets and data gained in regulatory reporting. Other areas of interest are around machine learning, particularly in relation to anomaly detection and pattern recognition. The Bank would welcome expressions of interest or proposals for the Bank to participate in, or act as a silent observer or partner with an existing pilot distributed ledger network. Pilots should test how the technology functions in ‘real world’ scenarios.

Impact of Brexit and UK FinTech

Jul 21 2016

by Jonathan Lawrence, Stephen Moller, Jacob Ghanty and Tom Wallace

A month has passed since the UK referendum vote to leave the European Union. Now that the initial dust is starting to settle, we have set out to examine various potential impacts on the UK FinTech sector. We consider areas including:

regulation and passporting
data protection and data sharing
anti-money laundering and know your customer
human capital
the role of banks
London as a global FinTech centre
venture capital

For our long form insight piece, please click here.

Global equity crowdfunding developments

Jul 19 2016

By Jim Bulling and Michelle Chasser

Australia’s equity crowdfunding reforms have been delayed due to the Australian federal election. After passing the House of Representatives back in February the Corporations Amendment (Crowd-sourced Funding) Bill 2015 lapsed in May when Parliament was dissolved. As the Turnbull Government was returned to power at the election it is likely the Bill will be reintroduced shortly. While crowdfunding changes have stalled in Australia developments have been continuing in the rest of the world .

Easier crowdfunding for FinTech start-ups in the USA has moved a step closer. The Fix Crowdfunding Act and the Supporting America’s Investors Act easily passed through the US House of Representatives on 6 July 2016 with bipartisan support and will now be introduced in the Senate. The Fix Crowdfunding Act will increase the maximum amount of money that a start-up can raise through crowdfunding from US$1 million to US$5 million. The Supporting America’s Investors Act increases the number of people allowed to invest in a qualifying venture capital fund from 100 up to 500. Read More