US – Page 8 – FinTech and Blockchain Law Watch

U.S. Regulation CC amendments reallocate risks for remote deposit check payments

Jun 19 2017

More than three years after proposing amendments to the Regulation CC to add new indemnities for remotely deposited checks (cheques), new warranties for electronic checks and electronic returned checks and new indemnities for electronically-created items, the U.S. Federal Reserve has at last issued final rules. These new rules also modify the expeditious return rules, including by making electronic returned checks subject to those requirements. The final rules were issued on May 31, 2017, and will take effect on July 1, 2018.

Perhaps the rules of most importance to the banking and emerging payments industries are those providing for indemnities for remotely deposited checks. An inherent problem with remote deposits is that the person depositing the check retains the original paper check and can negligently or intentionally deposit or cash it again. The bank on which the check is drawn will usually refuse to pay it twice, as it should. This leaves the writer of the check, the bank that accepted the remote deposit, and the bank or check cashing store that accepted the original paper check arguing over who should take the loss. Under current rules, unless the parties have entered into side agreements to allocate losses, the bank or check store paying the original check can normally bring a Uniform Commercial Code (UCC) holder-in-due-course claim against the check writer and that person has no remedy unless recovery is possible from the negligent or crooked payee that cashed the item twice.

To read the full alert, click here.

Going Dark: The use of anonymizing technologies in Dark Web crimes

Jun 18 2017

Like an iceberg, the majority of the internet is concealed from plain sight. The “Dark Web,” or websites and content that use anonymizing networks to provide untraceable access to unindexed sections of the web, comprises a segment of what lies beneath that which is visible through a Google search. Cliff Histed and Nicole Mueller contributed an article to American Lawyer on this topic. The article contains insight into the concerns shared by former FBI Director, James Comey, as well as European law enforcement authorities.

To read the article, click here.

Banks moving to improve consumer data sharing

Jun 13 2017

By Susan P. Altman

Banks are actively responding to consumer demand for convenient, high quality banking services by making it more appealing for consumers to share their personal information. A recent article in American Banker discusses announcements by Spanish banking group BBVA and Bank of America of new efforts to provide rich supplies of customer data to third party developers and others.

BBVA announced the launch of its open banking program to make eight of its application programming interfaces (APIs) available to developers, who would in turn create new value added services. The new services are expected to provide enhanced customer experiences by improving conversion, onboarding processes, payment management, identity verification, and consumer analytics, among other things. The new applications based on these APIs are only granted access to personal consumer information if the customer expressly accepts the service’s activation, thereby letting the consumer control with whom they want to share their data. The open APIs strategy is a key element of BBVA’s efforts to become an innovation engine for other companies to develop uses which never would have occurred to the bank acting alone. The program is currently available in Spain, with rollout in the U.S. coming later this year, followed by additional country rollouts.

Silk Road website founder loses appeal of conviction and life sentence

Jun 05 2017

By Nicole C. Mueller and Clifford C. Histed

On May 31, 2017 the United States Court of Appeals for the Second Circuit unanimously affirmed the conviction and life imprisonment of Ross Ulbricht for drug trafficking and crimes associated with his creation and operation of the online marketplace known as Silk Road. Among others challenges, Ulbricht argued on appeal that he should have been allowed to introduce evidence regarding former government agents who pled guilty to stealing Bitcoins as they investigated Silk Road and Ulbricht. The Second Circuit disagreed, finding that while “the shocking personal corruption of these two government agents disgraced the agencies for which they worked,” it had nothing to do with whether Ulbricht operated Silk Road. The Second Circuit similarly found Ulbricht’s other arguments unavailing, namely that (1) the government’s violated his Fourth Amendment rights through the use of pen registers and trap and trace devices to monitor IP addresses associated with internet traffic to and from Ulbricht’s wireless home router, and the search and seizure of his laptop and Facebook, Google accounts; (2) he was denied a fair trial due to the preclusion of certain testimony and evidence; and (3) it was improper for the court to consider six drug-related deaths relevant to his sentencing.

The changing nature of payments in the US and UK

May 11 2017

By Judith Rinearson

Rarely does a FinTech lawyer have the opportunity to experience payments regulations in two very different locations. US K&L Gates Partner, Judith Rinearson, had the opportunity to do just that when she spent 20 months in London working as a payments regulatory lawyer. Her insightful commentary on the two different approaches to payments regulations was recently published in the UK’s Law 360.

To read the article, click here.

Blockchain Has a Perception Problem

Apr 20 2017

By Tyler Kirk

The International Monetary Fund (“IMF”) just wrapped up a panel on “FinTech and the Transformation of Financial Services” here in Washington, DC. Presenting 4 propositions, the IMF invited the panelists and the audience to vote on whether they agreed or disagreed with each. Following the panel’s discussion on each proposition, the votes were compared. To the exclusion of all other Fintech topics, there was an almost singular focus on blockchain in each panelist’s response to the propositions. This focus by itself is illuminating, however the audience and the panel diverged dramatically on one proposition, whether FinTech will help rather than hinder regulation of AML and combatting the financing of terrorism (“CFT”). The panel agreed, 92% to 8%, that FinTech would assist with AML and CFT efforts. The audience was essentially split, agreeing 57% to 43%. Similarly, 40% of the audience believed FinTech posed a threat to financial stability while only 17% of the experts shared that view. The takeaway here is that, while those of us who are intimately familiar with this technology clearly understand its benefits, the general electorate does not. So, does Congress? Financial regulators? Now is the time to engage counsel and shape public policy.

NetSpend Settles FTC Claim Regarding Prepaid Debit Cards

Apr 20 2017

By Julia B. Jacobson and Eric A. Love

NetSpend Corporation has reached a settlement with the U.S. FTC about the FTC’s claims that NetSpend’s advertisements deceived consumers about the availability of funds deposited on general purpose reloadable prepaid cards (GPR Cards).

On its website, NetSpend indicates that its target customers are those without a traditional bank account or who “rely on alternative financial services.” According to the FTC’s November 2016 complaint, NetSpend’s advertising promises “guaranteed approval” and “immediate access” to funds that are “always available.” Instead, the complaint alleges, cardholders experienced delayed or denied access to funds on their GPR Cards and NetSpend depleted account balances by charging inactivity fees and often delayed resolving and providing provisional credit for account errors. The FTC also noted in its complaint that thousands of customers “complained about NetSpend’s practices to government authorities, Better Business Bureau and NetSpend itself.”

The Future is Arriving Quickly: Global Asset Manager Migrating to Computer-Based Management

Apr 02 2017

By C. Todd Gibson

On 29 March, a large asset manager announced a strategic overhaul of portions of its active equity management approach, focusing on the use of quantitative modeling over “traditional” human active management. Click here for a copy of the press release.

Just a couple of weeks ago, our Pittsburgh office hosted its inaugural artificial intelligence program, The Artificial Intelligence Gateway For the Investment and Business Community that featured keynote speakers and panel discussions regarding the increasing awareness of artificial intelligence (AI) across all industries and the impact this new form of technology will have on business. It was fascinating to hear from our keynote speakers about how AI actually works, how AI is used in self-driving cars, and future use of AI in various industries, from manufacturing to financial services. In addition, one of the panels, focused on robo-advice and AI, where we discussed technological growth and how AI might be used in the investment management industry and some of the related regulatory and fiduciary issues.

Jury Finds Two Guilty in Bitcoin Exchange Bribery Scheme; Related Criminal Prosecutions Looming

Mar 23 2017

By Nicole C. Mueller and Clifford C. Histed

On March 17, 2017, a Manhattan federal jury convicted Trevon Gross, a pastor, and Yuri Lebedev, a software engineer, of bribery and of conspiring to operate bitcoin exchange Coin.mx as an unlawful money transmitting business. The jury also convicted Lebedev of fraud. Sentencing is scheduled for July 2017.

Lebedev and Coin.mx operator Anthony Murgio were charged in 2015. Coin.mx allegedly operated as a conduit for cybercrime-related funds, and in violation of state and federal money transmitting laws. Prosecutors argued to the jury that Murgio and Lebedev sought to trick the financial institutions through which Coin.mx processed transactions into believing its unlawful bitcoin exchange business was simply a members-only “collectibles club.” Part of the Coin.mx scheme included processing and profiting from bitcoin transactions conducted on behalf of victims of ransomware attacks by allowing the victims to buy bitcoins to pay ransom payments while generating revenue for Coin.mx. Murgio pleaded guilty before trial.

CFTC FinTech Initiative

Mar 21 2017

By Anthony Nolan

On Wednesday Commissioner (and Chairman-designate) Giancarlo of the US Commodity Futures Trading Commission (CFTC) gave a speech to the Futures Industry Association in which he identified the embrace of technological change as a key factor in economic growth. In that speech he announced that the CFTC has been conducting a review of FinTech innovation issues including those arising from a range of new digital technologies. The review is focused on three issues:

How the CFTC should leverage FinTech innovation to make it a more effective regulator;
How CFTC rules and regulations need to be updated to account for FinTech in order for the Commission to be relevant in 21st Century digital markets; and
The proper role of the CFTC in promoting US FinTech innovation in CFTC regulated markets.

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