FinTech and Blockchain Law Watch – Page 58 – At the Crossroads of Law, Innovation and Commerce

Lost cryptocurrency – Can you get your “money” back?

Apr 14 2016

Will English courts recognise cryptocurrency in tort and restitution claims? An article by Peter Susman QC in the March 2016 issue of the Butterworths Journal of International Banking and Financial Law considers that English common law is robust enough to facilitate the development of legal remedies for lost cryptocurrency (“Virtual money in the virtual bank: legal remedies for loss” (2016) 3 JIBFL 152).

A more complex issue is whether English law is ready to provide effective remedies in tort or restitution for misappropriated cryptocurrency. English courts have previously had difficulty applying criminal law to intangible assets. The Fraud Act 2006 helped remove any confusion by focusing on what has been done, rather than the type of property which has been affected.

So it should not be difficult to argue that the law of contract developed under English common law will apply on the same basis to cryptocurrencies. Principles developed under contract law may be used to answer questions about whether contractual obligations have been incurred, on what terms and what remedies may be available in relation to cryptocurrency.

In any event, many transactional and litigation lawyers tend to think of money less as personal property, and more as obligations owed by and to persons in respect of that money. The focus of courts should be then on remedies rather than proprietary rights.

China’s FinTech industry growth due in part to accommodative regulations

Apr 14 2016

By Jim Bulling and Michelle Chasser

China’s biggest FinTech companies now have a similar number of clients as the country’s top banks, according to a report on digital disruption by Citi. China’s fintech industry has been growing rapidly over the past decade and is dominated by the largest payments and peer 2 peer lending markets in the world. According to Citi, 4 elements have led to the industry’s growth:

high internet and mobile device penetration in the market;
a large e-commerce system with companies focused on payments;
relatively unsophisticated incumbent consumer banks; and
accommodative regulations.

Don’t Look a Gift Card in the Mouth: Beware of Liability Under the Electronic Fund Transfers Act

Apr 08 2016

By Robert W. Sparkes, III, Brian M. Forbes, Soyong Cho

Many of us have had a similar experience. We receive a gift card, put it in a “safe” place with other gift cards, and forget it exists. Inevitably, we uncover the gift card and find ourselves asking questions such as: Does this card still have any value? Has it expired? Can it expire? Will I be charged a fee for use (or non-use)? Should I call the 800 number? The experience invariably ends by putting the card aside and promising to deal with it later. But, what really does happen to the value of those cards?

To read more, click here.

U.S. Regulatory Scrutiny of Robo-Advisers and Other Providers of Digital Investment Advice

Apr 07 2016

By C. Todd Gibson

Recently, regulators in the US have issued guidance with respect to providers of automated investment advice, including robo-advisers. On April 1, the Massachusetts Securities Division (“MSD”) issued guidance questioning whether a Massachusetts state-registered robo-adviser could fulfil its fiduciary obligations without some element of human-provided services (including initial and ongoing due diligence), stating that the registration of such advisers would be reviewed on a case-by-case basis. Of particular concern to the MSD were “fully-automated” robo-advisers, characterized as those that: 1) do not meet with or conduct significant (or any) due diligence on a client, 2) provide investment advice that is minimally personalized, 3) may fail to meet the high standard of care that is imposed on the appropriateness of investment advisers’ investment decision-making, and 4) specifically decline the obligation to act in a client’s best interests.

FINRA, the US self-regulatory organization for broker-dealers, also recently published a report after having discussions with member firms and others with respect to the use of “digital investment advice.” Although the report did not purport to create any new legal requirements or change any existing regulatory obligations for brokers, FINRA identified certain practices they believe brokers should consider when using digital tools. The report focused on digital tools (including robo-advice) used by firms to perform client services.

US investment advisers, through application of the anti-fraud provisions of the Investment Advisers Act of 1940 and interpretations of US courts and regulators, owe a general fiduciary duty to their clients. With the recent proliferation and growth of complex, automated investment advice, regulators are becoming more focused on the use of such tools in the context of existing regulatory and fiduciary obligations.

The MSD policy statement can be found here and the FINRA report can be found here.

What’s next in UK FinTech?

Apr 01 2016

By Aritha Wickramasinghe

The emergence of blockchain technology and the size of the FinTech industry were the major points of discussion at a recently concluded CBI Insights and KPMG webinar on the future of FinTech.

Blockchain is a data structure that creates a digital ledger of transactions. Using cryptography, blockchain allows participants to securely manipulate the ledger without any central authority. Once the information is entered, it is almost impossible to erase – creating an accurate record of the transaction’s history.

The technology is still in its infancy and currently undergoing significant experimentation. For established financial institutions such as banks, blockchain is seen as a possible solution to the problem of an increasingly complex regulatory landscape. The technology is also seen as an effective tool in combatting money laundering as it tracks a transaction’s entire digital history.

Venture capital investment in blockchain, which had seen a rapid rise over the last several years, is showing signs of plateauing as the technology matures. However, the boom in FinTech investment is expected to continue unabated as companies emerge from their infancy and the adoption of their technology becomes more widespread. In 2015, investments into FinTech were US$14 billion, with major banks such as J.P. Morgan and Goldman Sachs as primary investors. In the UK, Funding Circle, Atom Bank and World Remit each received in excess of US$100 million in funding in 2015. There are now 19 FinTech companies with a market capitalisation in excess of US$1 billion.

Australian and UK financial regulators sign co-operation agreement

Mar 31 2016

By Jim Bulling and Michelle Chasser

The Australian Securities and Investments Commission (ASIC) and the UK Financial Conduct Authority (FCA) have signed a co-operation agreement to promote fintech innovation. The agreement will make expansion into Australian and UK markets easier for growing fintech businesses.

Both ASIC and FCA have already established innovation hubs to assist fintech businesses with their regulatory obligations and encourage development of the industry. A referral mechanism has been created under the new agreement which allows ASIC to refer Australian fintech businesses wanting to enter the UK market to FCA and vice versa. Referred businesses will then receive the same support from the other country’s innovation hub as local businesses.

ASIC and FCA also undertake to share information about emerging market trends and developments, regulatory issues pertaining to innovation in financial services and referred businesses. Shared information will be valuable for developing fintech regulations.

Providing digital advice to retail clients

Mar 30 2016

By Jim Bulling and Michelle Chasser

The Australian Securities and Investments Commission (ASIC) has released a draft guide on digital financial product advice for consultation. The draft guide does not introduce new regulatory concepts but clarifies some of the uncertainties that have arisen about how existing obligations will apply to robo-advisers.

Generally, robo-advice is provided using algorithms and without the involvement of a natural person. To ensure that consumers are provided with competent advice ASIC is proposing that at least one manager who is used to demonstrate the organisational competence of the licensee (Responsible Manager) must meet the training and competence standards applicable to natural persons who provide advice to retail clients.

Marketplace lending how-to from the Australian regulator

Mar 30 2016

By Daniel Knight

The Australian Securities and Investments Commission (ASIC) has released guidance for marketplace lenders navigating Australia’s existing dual licensing regimes for credit and financial products. While the guidance is helpful, it does not overcome the need for marketplace lenders, like other fintech innovators, to contort themselves into existing regulatory boxes.

ASIC’s Information Sheet 213 focuses on establishing a marketplace lending platform using Australia’s managed investment scheme regime, by far the most popular Australian structure where a trust is interposed between borrowers and lenders. This regime was designed for pooled collective investment vehicles, such as traditional managed funds, and is not well adapted to pure peer-to-peer lending. Individual regulatory relief is often needed to overcome these challenges – for example, to facilitate investor withdrawals – and the Information Sheet helpfully outlines the relief ASIC has previously given to industry players.

The Federal Reserve Takes Steps Towards Developing Faster Payments and Settlement

Mar 30 2016

By Sean Mahoney

The Federal Reserve announced that it engaged McKinsey & Company to help evaluate faster payments solution proposals being solicited by the Federal Reserve from members of its Faster Payments Task Force. The Task Force consists of representatives of participants in the financial services system, including banks and technology firms. This step can be viewed as part of a process of making improvements to the US payments system. It is worth monitoring as any such improvements will likely lead to commercial opportunities.

See the press release here.

The French take on the blockchain

Mar 30 2016

By Claude-Etienne Armingaud

On March 24, the French National Assembly hosted a day-long conference on “Blockchain: Disruption and Opportunities.”

This event aimed at raising awareness of the French elected representatives and corporate executives on blockchain issues and potential uses for the digital transformation of society as a whole.

The closing statement provided by Emmanuel Macron, the French Minister of Economy, Industry and Digital Economy, was subsequently echoed by his announcement on March 29 of the upcoming adaptation of the French finance regulatory framework in order to progressively allow the introduction of the technology.