US – Page 13 – FinTech and Blockchain Law Watch

Treasury releases white paper on marketplace lending

May 12 2016

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.

SEC provides U.S. crowdfunding guidance to investors

May 03 2016

By C. Todd Gibson, Michael McGrath, Ken Juster

The SEC recently issued guidance to potential investors in crowdfunding offerings in the form of a Q&A posted on the SEC website, which can be found here. This guidance, which is intended to educate investors regarding the rules governing crowdfunding in the U.S., was issued in anticipation of the pending effectiveness of new Regulation Crowdfunding on May 16, 2016. K&L Gates has prepared a detailed summary of Regulation Crowdfunding and the exemption from broker-dealer registration available to intermediaries known as “funding portals,” which can be found here.

Intermediaries were first able to submit forms to register as a funding portal with the SEC and FINRA beginning on January 29, 2016. A list of approved funding portals is expected to be available on FINRA’s public website in the near future.

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.

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.

K&L Gates London Office to Host Breakfast Roundtable Forum on US Marketplace Loan Investments, March 10, 2016

Feb 24 2016

By Tony Nolan

On March 10, 2016 at 8:30am the London office of K&L Gates will host a Breakfast Roundtable on the US Regulatory Landscape for Marketplace Lending. The Roundtable will cover a range of topics that are relevant to entering into the US market, focusing particularly on ways to facilitate a broad distribution of investments.

New York partner Anthony Nolan and London partner Jacob Ghanty will lead a discussion of how US regulatory and compliance issues may affect UK lenders and investors that are considering entering the US online / P2P / marketplace lending market.

Financial Innovation Now

Jan 31 2016

By Jim Bulling and Michelle Chasser

Rival technology powerhouses Apple, Google, Amazon, Intuit and PayPal have joined forces to form an advocacy group known as Financial Innovation Now, focused on enabling technological change within the finance industry. The group will work with policy-makers and key stakeholders to promote policies and regulations that encourage greater innovation in the financial services sector as well as ensuring that policy-makers understand the advantages that technology can bring to the industry.

Social media platforms launch “buy now” buttons for US consumers

Jan 28 2016

By Jim Bulling and Michelle Chasser

Twitter is changing the future of e-commerce by introducing a “buy now” button to users in the United States, making online shopping even more accessible to consumers. Twitter has joined forces with major e-commerce platforms Stripe, Shopify, Bigcommerce and Demandware to allow retailers to sell physical and digital goods and services directly through a simple 140-character tweet.

Robo Advice Regulation Movement in Three Jurisdictions

Dec 15 2015

by Jim Bulling and Michelle Chasser

After increasing concerns that robo-advisers may not fit neatly into existing regulations, Australian, United States and United Kingdom regulators have all indicated in the last few months that they will be looking at the appropriateness of current regulations for the increasingly fast growing industry of automated financial advice.

U.S. and Australian Rules on Crowdfunding

Dec 14 2015

By Jim Bulling and Michelle Chasser

The past few months have seen considerable movement on the regulation of crowd-sourced equity funding on both sides of the Pacific. In the U.S., the SEC has adopted rules which allow companies to crowdfund through a registered portal while in Australia, the Australian Government has introduced a bill into Parliament which significantly enhances the viability and attractiveness of crowdfunding.

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