FinTech Law Watch

At the Crossroads of Law, Innovation and Commerce

 

1
Further developments on Britcoin
2
Australia’s first listed FinTech investment company
3
To support payments innovation, avoid unnecessary regulation
4
Regtech Earns a Name
5
Movement in marketplace lending regulation for small business loans
6
HKMA’s support to fintech development in Hong Kong
7
Goldman Accelerates FinTech Disintermediation
8
Who bears the risk? Federal Court holds that a purchaser of unsecured consumer loans is the “true lender”
9
U.S. Banking regulators issue a “Joint Fact Sheet on Foreign Correspondent Banking”: Is this a response to global fears of US “DeRisking”? And if so, does it go far enough?
10
Roboadvisers are Go: ASIC guidance for digital advice

Further developments on Britcoin

By Jonathan Lawrence

Victoria Cleland, Director for Banknotes and Chief Cashier of the Bank of England, gave a speech on FinTech issues on 8 September (see the speech here).

Of particular interest were Ms Cleland’s remarks on the Bank’s long-term research on the wide range of questions posed by the potential of a central bank-issued digital currency (CBDC), including whether a CBDC would be feasible and whether it would benefit the economy and the financial sector, over the medium term. To support its research, the Bank has invited contributions to a set of research questions on the opportunities and challenges that could arise from the introduction of CBDC (see the questions here).

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Australia’s first listed FinTech investment company

By Russell Lyons, David Bath and Marie Zuo

On or around 19 October 2016, H2Ocean is proposing to list on the Australian Securities Exchange as a listed investment company (LIC). Following a successful initial public offering (IPO), H2 Ocean will become Australia’s first LIC focused on investing in early and growth stage FinTech companies. H2Ocean proposes to invest in between 15 and 50 FinTech startups which will have typically graduated from an incubator or accelator program or will be backed by a reputable venture capital firm. These startups will be based in both Australia and overseas.

The H2Ocean IPO will allow potential investors to be exposed to FinTech investments and venture capital as an alternative asset class, which might not otherwise be directly accessible to the public. This unique offering in the Australian market comes at a time where global FinTech financing is trending towards venture capital backed FinTech companies and is expected to reach a record high in 2016.

So far, H2Ocean has gained support from Mike Cannon-Brookes, Atlassian co-founder, who will be subscribing for shares in the IPO. Mike Cannon-Brookes backed Australian payments company Tyro in its $100 million capital raising at the end of 2015.

Treasurer Scott Morrison also attended the H2Ocean launch last week. With high profile supporters and as Australia’s first listed FinTech investment company, H2Ocean is another encouraging sign for Australia’s FinTech future.

To support payments innovation, avoid unnecessary regulation

By John R. Gardner

The rapid growth of new payment system innovation in recent years in many ways mirrors similar growth in the credit card industry in the 1950s and 1960s.  A review of the development of the credit card industry leading up to the significant amendments to the Truth in Lending Act in 1970, and the ultimate effect of the legislation when viewed against the concerns voiced by Congress, arguably demonstrate that the legislation was unnecessary, inefficient and anticompetitive. Accordingly, legislatures and regulators should take a cautious approach to enacting restrictions proposed in the name of consumer protection.  To avoid the mistakes of the past, legislatures and regulators should carefully consider how such measures might limit competition and innovation, whether such measures would truly result in a benefit to consumers, and whether there are any less restrictive measures that would result in equivalent consumer protection.

You can read my full article here.

Regtech Earns a Name

By Susan Altman

Technology solutions for bank regulatory requirements have been around for decades, but their soaring popularity has led to them earning their own nickname within the fintech world: they’re now “regtech” solutions, according to a new report issued by Bain & Co. in the American Banker.  Regtech products are designed to benefit banks’ efforts to comply with growing regulatory burdens and improve internal governance controls.  Bain estimates that governance, risk and compliance costs account for 15% to 20% of the total “run the bank” cost base of most major banks.  It’s no small wonder that banks are struggling to devise a robust and efficient approach to compliance and are outsourcing the implementation and hosting of advanced compliance tools with nimble regtech-focused outside vendors.  Bain has identified more than 80 emerging regtechs that extract and structure data, integrate data from banks’ proprietary systems, third-party data providers and public sources, and crunch the data in automated, scalable ways.  Artificial intelligence, or machine learning, continuously improves the quality, precision and reliability of the insights that emerge.

Bain predicts that banks’ relationships with regtechs will be significantly shaped by regulators, in the form of governance, risk and compliance standards and approval of proposed solutions. As new requirements go into effect, banks will need to continuously assess the level of functionality, complexity and efficiency of current technology, systems and data.  And did we mention, this all has to be done in a very secure environment?

Movement in marketplace lending regulation for small business loans

By Jim Bulling and Michelle Chasser

Marketplace lenders who cater to small businesses are about to face increased regulation in relation to the credit they provide. From 12 November 2016, some businesses will receive the same protection currently available to consumers as unfair contract terms in small business contracts will become prohibited.

Small business contracts include loans which are entered into with businesses which have fewer than 20 employees for an amount less than $300,000 or less than $1 million if the term of the loan is more than 12 months.

Under the new law, a contract term will be unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations;
  • it is not reasonably necessary to protect the interests of the party who would be advantaged by the term; and
  • it would cause detriment to a party if the term is relied on.

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HKMA’s support to fintech development in Hong Kong

By  Michael P. W. Wong

The Hong Kong Monetary Authority (HKMA), announced on 6 September 2016, the launch of Fintech Innovation Hub (FIH) and the Fintech Supervisory Sandbox (FSS).

The FIH will be jointly established by the HKMA and the Hong Kong Applied Science and Technology Research Institute for the purposes of supporting and promoting the research and development of fintech by the local financial services industry.  The FIH will be equipped with all the requisite IT systems and supported by technical teams, enabling industry players to pioneer or build upon new fintech solutions, such as enhanced biometric authentication and integrated mobile payment services.  In addition, operation of the FIH is expected to facilitate dialogue between the HKMA and the relevant industry players on emerging technologies by serving as a common training venue.  For instance, the HKMA may wish to explore “regtech” solutions to improve its regulatory efficiency in the FIH.

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Goldman Accelerates FinTech Disintermediation

By Susan Altman

Goldman Sachs, in a dramatic sign of the times, has recently started giving its clients for free the very software tools that made Goldman a global trading powerhouse, per the Wall Street Journal.  A decade ago, Goldman considered licensing the software to rival Deutsche Bank and threw around licensing values in the billions of dollars.  Now it’s free, at least for customers.  The software, known as Securities DataBase, or SecDB, remains Goldman’s prime tool for measuring securities risk and analyzing their prices and is used to analyze potential trades.  Why the change?  Some experts point the finger at new regulations limiting the banks’ trading risks and making it costly to hold large inventories of stocks and bonds on their books.  In addition, electronic trading and research has squeezed margins across the financial industry.  In an effort to build its customer base, Goldman plans to make the web-based application available to customers who can then customize and operate the tools on their own.  Goldman joins many others in offering its own risk-management system to customers, including startups and big players like BlackRock.  It seems like every Fin is now a Tech as well.

Who bears the risk? Federal Court holds that a purchaser of unsecured consumer loans is the “true lender”

By Irene C. Freidel and David D. Christensen

A California federal court has held that the purchaser of consumer loans is the “true lender” and thus subject to state usury laws, even though a separate entity funded and closed the loans in its own name. The recent decision, however, is another reminder that US state and federal regulators, as well as plaintiffs’ attorneys, may be able to pierce these partnerships where the financial institution funding and closing the loan does not bear substantial risk on those loans.

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U.S. Banking regulators issue a “Joint Fact Sheet on Foreign Correspondent Banking”: Is this a response to global fears of US “DeRisking”? And if so, does it go far enough?

By Judith Rinearson

This summer, “de-risking” has become a hot topic.  De-risking is the term used to describe the process many banks have taken to cancel bank accounts and correspondent banking relationships with customers whom they deem to be too risky, or not worth the cost of ensuring compliance. Losing a bank account relationship can be devastating for small businesses and many emerging payments companies have found it increasingly difficult to obtain banking service due to perceptions that providing banking services for “fintechs,” blockchain companies and other innovative payments companies would be “high risk”.

The concerns about derisking are not limited to its impact on small businesses; it has also impacted on small countries.  IMF President Christine LaGarde noted in July 2016 that “regulators in key financial centers need to clarify regulatory expectations …and global banks need to avoid knee-jerk reactions and find sensible ways to reduce their costs.”

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Roboadvisers are Go: ASIC guidance for digital advice

By Daniel Knight and Claire De Koeyer

The Australian Securities and Investments Commission (ASIC) this week released Regulatory Guide 255: Providing digital financial product advice to retail clients (RG). The RG clarifies how financial product advice obligations apply to providers of digital advice.

ASIC supports the development of a healthy and robust ‘digital advice’ or ‘robo-advice’ market in Australia, while recognising the need to protect consumers.

As with other advice providers, robo-advisers will need to hold an Australian Financial Services Licence (AFSL) or be authorised by an AFSL holder and will be subject to a range of duties, including the duty to act in the best interests of their clients.

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