FinTech and Blockchain Law Watch – Page 56 – At the Crossroads of Law, Innovation and Commerce

Gamification and financial services

Jun 07 2016

How would you use gamification to enhance the mobile and online experience for banking customers? That is the question Barclays Bank is asking developers during its Launchpad Business Challenge. Challenge applicants will have access to Barclays’ sandbox banking data and APIs to pitch their ideas. The Challenge will run for 3 weeks in June with successful applicants’ products being released on Barclays’ Launchpad platform for customers to explore and test.

Gamification involves applying game design elements and principles in non-game contexts and is used to improve user engagement and learning. A simple example of gamification is using a points based quiz to improve financial literacy.

This is not the first time that Barclays has experimented with gamification. In 2010 it released an interactive virtual city game in which players’ characters experienced the consequences of good and bad money management decisions.

Gamification is also a novel way to present important information to consumers in a way that is more approachable than traditional methods. In 2015 the Australian Securities and Investments Commission (ASIC) published a relief instrument which allows regulated disclosure documents such as Product Disclosure Documents and Financial Services Guides be disclosed in innovative ways. The accompanying good practice guidance issued by ASIC in Regulatory Guide 221 stated that disclosure documents can now incorporate a range of digital features including gamification.

Regulatory Guide 221 can be found here.

Brexit: the effect on UK FinTech

Jun 07 2016

By Jonathan Lawrence

On 23 June 2016, the United Kingdom will hold a referendum about whether to remain in or leave the European Union. A British exit from the EU has been labelled a “Brexit”.

A recent Financial News poll has showed that the UK FinTech sector is substantially in favour of staying. Financial News surveyed 118 FinTech professionals to gauge their opinion.

More than two-thirds said Brexit would be detrimental to UK FinTech. However, nearly 18% believe it is still unclear what the long-term impact would be. The remaining 13% think UK FinTech would benefit from a decision to leave the European Union.

Often tech talent is sourced from countries such as Bulgaria, Estonia, Hungary, Romania and Slovenia. The ability to access talent was a major concern of some business people interviewed. The other key potential issue is regulation. There’s a circular debate over whether there would be lighter regulation after the UK left the EU, or whether it would be forced to stay in line with the rest of Europe as a price for continued market access. One theory is that the European market – already smaller than the US – would, in effect, be divided in two. US FinTech firms already have the advantage of addressing a bigger market – partitioning Europe would make this advantage greater still.

More than 84% of those who said Brexit would harm UK FinTech said it would make London less attractive for foreign FinTech companies as a location for their European HQ. However, the largest share believes London would maintain its dominance as a FinTech hub. Asked which European cities would most threaten London, 28% answered “none”, closely followed by Berlin, 25%. Frankfurt came third with 15%.

On the other hand, some 13% said the sector would be better off and 18% were undecided. Of those who believe UK FinTech would benefit, 63% thought it would free up resources that could be reinvested in innovation. Some 58% said Brexit would make it easier for FinTech companies to do business with clients in non-EU countries.

Future of Fintech Regulations in the US

May 20 2016

By Charles Carter and Anthony (Tony) Yerry (ed. Cameron Abbott and Giles Whittaker)

Investment in financial technology (fintech) companies has surpassed US$24 billion worldwide since 2010, which consequently emphasises the importance of the relationship between fintech companies and regulators as they attempt to establish a culture of compliance while not stifling innovation.

As suggested by the industry experts according to The Wall Street Journal, the Office of the Comptroller of the Currency (OCC) may be the best federal agency to regulate fintech companies in the US. On March 31 the OCC during a speech at Harvard University on the innovation of the fintech industry released a white paper which attempts to launch formal discussions between regulators and the industry.

For more information and analysis of the OCC white paper please see K&L Gates’ e-alert here.

AML review targets digital currencies

May 17 2016

By Jim Bulling and Michelle Chasser

The Australian Attorney General’s Department (AG) has released its statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML Act). Recommendations have been made to better incorporate digital wallets and digital currencies in the AML Act.

The AG has recommended that:

the AML Act be amended to ensure that digital wallets are comprehensively captured. Some digital wallets are already caught by the AML Act where they are considered to be ‘accounts’ provided by traditional financial product providers such as banks and credit unions. However, a potential regulatory gap was identified for new types of digital wallets inspired by technological advances. For example, digital wallets which store digital currency are not regulated under the AML Act;

New “FinTech Bridge” between UK and Singaporean FinTech companies and investors

May 17 2016

By Jonathan Lawrence

The UK Government has announced a new “FinTech Bridge” to help UK FinTech firms and investors access the Asian market and expand to Singapore, as well as attracting Singaporean FinTech companies and investors to the UK.

The launch on 11 May 2016 included the signing of a regulatory cooperation agreement between the Financial Conduct Authority (“FCA”) and the Monetary Authority of Singapore (“MAS”). The agreement will enable the regulators to refer FinTech firms to their counterparts across the globe. It also sets out how the regulators plan to share and use information on financial services innovation in their respective markets.

CFPB Takes Aim at Marketplace Lenders

May 16 2016

By David Christensen

Last Fall, in its 2015 Rulemaking Agenda, the Consumer Financial Protection Bureau (“CFPB”) signaled its intent to “to develop rules to define larger participants in markets for consumer installment loans.”[1] Under the Dodd-Frank Act, the CFPB is authorized to issue “larger participant” rules to define entities in a particular market for consumer financial products or services. The issuance of such rules opens the door for supervisory and examination authority over such entities. Fast forward to Spring 2016, when the CFPB announced that it is accepting complaints from consumers regarding alleged problems with online marketplace loans, and it appears that the CFPB has marketplace lenders squarely in its sights.[2]

K&L Gates at Shoptalk, The tech event for nextgen commerce

May 13 2016

By Bob Zinn and Megan Wotherspoon

K&L Gates is attending Shoptalk from May 15-18. More than 3,000 people will be gathering in Las Vegas for the leading tech event for nextgen commerce with 325 confirmed guest speakers. We look forward to hearing how individuals and companies are reshaping how the consumer shops and buys products, services, and experiences.

Let’s meet up and share information at the conference! Contact Bob Zinn or Megan Wotherspoon.

Look for our follow up blog post with a recap of the conference.

Treasury releases white paper on marketplace lending

May 12 2016

By Sean P. Mahoney

On May 10, 2016, the US Treasury issued its much anticipated white paper on marketplace lending. The whitepaper follows Treasury’s July 2015 request for information. The white paper highlighted some keys risks and made six concrete recommendations for future action.

More specifically, the white paper noted that the use of sophisticated data-driven algorithms may result in unexpected correlations that could result in disparate impacts and give rise to fair lending violations. The use of data outside of regulated credit reports also creates the risk that borrowers may have no redress if information used as a basis for an underwriting decision proves inaccurate. Treasury made it a point to note, however, that marketplace lenders that partner with banks may be subject to regulation and examination by prudential bank regulators under the US Bank Service Company Act.

FinCEN proposal to impose AML obligations on U.S. Funding Portals

May 09 2016

By C. Todd Gibson, Michael McGrath and Ken Juster

On April 4, 2016, the U.S. Financial Crimes Enforcement Network (a bureau of the U.S. Treasury Department) (“FinCEN”) proposed rules that would require “funding portals” established under new Regulation Crowdfunding to implement policies and procedures designed to prevent money laundering, terrorist financing, and other financial crimes.

Current regulations under the Bank Secrecy Act (“BSA”) define a “Broker or Dealer in Securities” as an entity registered, or required to be registered as a broker or dealer under the Securities Exchange Act of 1934. Certain funding portals that operate in compliance with Regulation Crowdfunding are exempt from such registration, and therefore fall outside of the BSA definition. FinCEN is proposing to amend the defintion of a “Broker or Dealer in Securities” to specifically include funding portals, which will have the effect of imposing the same BSA obligations on funding portals as are currently imposed on fully-registered broker-dealers, such as filing suspicious activity reports.

A copy of the proposed amendment can be found here.

ASIC update on fintech regulatory sandbox proposal

May 09 2016

By Jim Bulling and Jack Fraser

ASIC has put out a media release on the proposed regulatory sandbox licensing exemption and will release a public consultation paper on the proposal in June of this year. The purpose of the sandbox is to foster innovation in the FinTech industry by allowing eligible businesses to test their products in the market without initially being subject to the usual regulatory mechanisms and requirements.

ASIC Commissioner John Price said that this “consultation paper will seek feedback on additional steps that ASIC may take to facilitate fintech innovation while maintaining protections to ensure investor and consumer trust and confidence”.