US – Page 5 – FinTech and Blockchain Law Watch

US Court signals that proving data breach class actions will be difficult

May 10 2018

By Andrew C. Glass, David D. Christensen, Cameron Abbott and Matthew N. Lowe

In the US, several attempts at class actions for those affected by a data breach have failed challenges in early procedural stages. In Dieffenbach v. Barnes & Noble, Inc., 887 F.3d 826 (7th Cir. Apr. 11, 2018), the Seventh Circuit allowed a data breach class action to survive the pleadings stage. At the same time, the Court indicated that the plaintiffs may have a tough time proving their claims on the merits or establishing that class certification is warranted. At the end of the day, the Dieffenbach decision may prove to be less of a boon and more of a bust for plaintiffs in data breach class actions. Although it may provide a means to get into court, the decision makes clear that obtaining a favorable outcome may be a “difficult task.” For a full summary of the Dieffenbach decision please see our client alert here.

Beneficial Owner New Account Rules: What FinTech AML Program Managers and Their Financial Institutions Need to Know

Apr 17 2018

By Dan Cohen and John ReVeal

FinCEN’s new beneficial owner rules take effect May 11, impacting banks and the program managers and similar companies that help banks comply with the Bank Secrecy Act, including FinTech companies that provide AML on-boarding and monitoring services. Under the new rules, banks and other covered financial institutions will be required to identify and verify the identity of the beneficial owners of their legal entity customers. These rules will add to your regulatory burdens, particularly over the next several weeks.

IOT Group to set up blockchain centre in the Australian energy sphere

Apr 12 2018

By Cameron Abbott and Sarah Goegan

Technology company IOT Group announced this week that it has signed an Australian first energy and blockchain deal. In the agreement with Hunter Energy, IOT Blockchain will build a blockchain centre at the Redbank coal-fired power station in the Hunter Valley, two hours north of Sydney.

Hope for Regulatory Relief on the Horizon? State Regulators to Standardize Licensing Process for Money Transmitters

Mar 27 2018

By Eric A. Love and Judith Rinearson

The Conference of State Bank Supervisors (CSBS) recently announced that seven states, Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington, have agreed to a multi-state compact (the Compact) that will standardize certain aspects of the licensing process for money services businesses (MSBs).

Federal Court to decide whether tokens issued through an ICO are securities

Mar 07 2018

By Clifford Histed

In a criminal case in Brooklyn, New York, a federal court has been asked to decide for the first time whether tokens or coins issued through an initial coin offering constitute “securities” under U.S. securities laws.

On September 29, 2017 the SEC filed a civil complaint against Maksim Zaslavskiy, alleging that he had committed securities fraud and sold “illegal unregistered securities.” The instruments at issue were tokens that Zaslavskiy allegedly sold to the public through initial coin offerings of his companies RECoin Group Foundation LLC and DRC World, Inc. The lawsuit followed an investigation that apparently took less than 90 days to conduct, and that involved reviewing social media and online postings. The investigation appears to have been conducted parallel with a criminal investigation by the FBI, and a criminal complaint was filed 28 days after the SEC complaint. The SEC case was stayed pending resolution of the criminal case.

Wyoming Moving to Exempt Virtual Currency from its Money Transmitter Law

Feb 23 2018

By Dan S Cohen

With unanimous support, the Wyoming House of Representatives passed House Bill 19, which exempts virtual currencies from the state’s money transmission law. HB 19 defines virtual currency as a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and is not recognized by the federal government as legal tender. If enacted, the Wyoming Money Transmitter Act would no longer apply to the buying, selling, issuing, or taking custody of virtual currency, or receiving virtual currency for the purpose of transmitting that currency within or outside of the United States.

The proposed change comes almost two years after Coinbase announced its indefinite suspension of business in the state due to its belief that the Wyoming Division of Banking interpreted the Wyoming Money Transmitter Act to apply to entities offering hosted wallet services. Wyoming would become the first state to completely exempt virtual currency from its money transmitter law if the bill is adopted. To date, Illinois, Kansas, Tennessee, and Texas have issued guidance excluding some but not all virtual currency activities from their respective money transmitter laws.

HB 19 is one of several virtual currency and blockchain-related bills the Wyoming legislature is considering. Bills to exempt “utility tokens” from securities regulation, and to allow companies to store records and accept shareholder votes through blockchain technology are also under consideration. Wyoming political leaders are clearly moving quickly to adapt to the rise of virtual currency and blockchain technology.

A Small, But Promising, Step Towards State Money Transmitter Licensing Harmonization

Feb 20 2018

By Jeremy M McLaughlin

The time and expense of applying for state money transmitter licenses can be an incredibly steep barrier to entry for many fintech and cryptocurrency businesses. Seven states—Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas, and Washington (collectively, “Signatory States”)—have taken an initial step to lower that barrier. They have signed an agreement (“Protocol”) aimed at expediting and simplifying the application process for money services businesses. The Conference of State Bank Supervisors (“CSBS”) announced the agreement and indicated other states are expected to join.

The Shoe Finally Drops: CFPB Makes Final Changes to the Prepaid Account Rule and Delays the Effective Date until 2019

Feb 01 2018

By Eric A. Love and Judith Rinearson

On January 25, 2018, the U.S. CFPB announced that it has finalized changes to its sweeping Final Rule governing most general use prepaid accounts, digital wallets and P2P payment programs. These changes have been long anticipated, and include a delay of the Final Rule’s effective date (until April 1, 2019), as well as the following notable features:

Error Resolution and Limited Liability

A major bone of contention for the industry was the fact that provisional re-crediting of claims of unauthorized transactions would be required even if the cardholder had not registered or been verified. Such a requirement would certainly have increased fraud. Under the new amendments, Regulation E’s error resolution and limited liability requirements will not apply until after the consumer identification and verification process has been completed. This new limitation does not apply to payroll cards and government benefit accounts, since these cardholders are usually already known to the issuers.

Starbucks – a trust legitimiser for blockchain?

Feb 01 2018

By Cameron Abbott and Samantha Tyrrell

In a recent quarterly investor call, Starbucks’ Chairman Howard Schultz discussed the possibility of incorporating blockchain technology into Starbucks’ impressive digital repertoire.

Starbucks’ commitment to being a first mover when it comes to disruptive technology has already resulted in the hugely successful implementation of its mobile payment app, launched in 2015. The app allows users to order, pay and accrue rewards remotely and now accounts for nearly one third of Starbucks’ US transactions. According to Schultz, these figures may warrant a move towards integrating some entirely cashless stores throughout the US.

CFPB Expects to Further Delay Prepaid Account Rule’s Effective Date

Jan 23 2018

By Eric A. Love

On December 21, 2017, the Consumer Financial Protection Bureau (CFPB) issued a statement providing a status update about its comprehensive final rule amending the implementing regulations for the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z) as applied to prepaid accounts (Final Rule).

The Final Rule extends Regulation E protections to prepaid accounts, thus requiring financial institutions to give consumers easy access to account information, investigate and resolve erroneous charges, and limit consumer liability for unauthorized charges in certain circumstances. In addition, the Final Rule applies Regulation Z protections to prepaid accounts that are linked to credit products. The Final Rule also sets forth certain requirements concerning disclosures and account terms posting and submission.

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