FinTech Law Watch

At the Crossroads of Law, Innovation and Commerce

 

1
Financial Stability Board’s View on Crypto-Assets
2
ASIC enters into bilateral cross border cooperation agreement with US regulator
3
ASIC Continues to Monitor “Unfair Contract Terms”
4
Offshore entities – ACCC Guidance on Open Banking Accreditation
5
Australian Council of Financial Regulators consults on changes to Stored-Value Facilities Regulation
6
Regulating the UK “Wild West” of Crypto-Assets
7
The SEC Expands its Enforcement Throughout the Digital Industry
8
NYAG Report on Virtual Markets
9
Worldwide Cryptocurrency AML Standards
10
ASIC acts on Initial Coin Offerings and crypto-asset funds

Financial Stability Board’s View on Crypto-Assets

By Jim Bulling and Edwin Tan

On 10 October 2018, the Financial Stability Board (FSB) released a report assessing the risks and implications of crypto-assets on financial stability.  The FSB considered that the growth of crypto-asset trading platforms, the introduction of new financial products (crypto-asset funds and exchange-traded products) and growing interest by retail investors together could lead to implications on global financial stability.

In its report, the FSB assessed the primary risks in crypto-asset markets which could expose and undermine confidence in the financial system and in financial regulators.

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ASIC enters into bilateral cross border cooperation agreement with US regulator

By Jim Bulling, Felix Charlesworth and Edwin Tan

On 4 October 2018, the Australian Securities and Investments Commission (ASIC) entered into the ‘Cooperation Arrangement on Financial Technology Innovation’ bilateral agreement (Agreement) with the US Commodity Futures Trading Commission (CFTC) to cooperate and exchange information in the fintech and regtech industries in each jurisdiction. Broadly, the Agreement seeks to enhance mutual understanding, identify market developments and trends, facilitate fintech innovation and foster the use of more efficient and effective regtech.

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ASIC Continues to Monitor “Unfair Contract Terms”

By Jim Bulling and Elise Hamblin

Fintech lenders must continue to take into consideration the unfair contract terms laws that have applied since 12 November 2016.  As set out in a recent ASIC Report 565 “Unfair Contract Terms and Small Business Loans”, unfair contract terms are currently areas of concern for ASIC.  To date, ASIC has found that eight lenders have failed to take sufficient steps to comply with their obligations under the unfair contract terms laws.

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Offshore entities – ACCC Guidance on Open Banking Accreditation

By Jim Bulling and Felix Charlesworth

As part of its release of the ‘Consumer Data Right Rules Framework’ (Framework), the Australian Competition and Consumer Commission (ACCC) has outlined its accreditation process for entities seeking to become accredited data recipients under the Open Banking Regime.

While Authorised Deposit-taking Institutions (ADIs) will have access to a streamlined accreditation process, all other applicants will need to meet criteria such as:

  • whether they satisfy a ‘fit and proper’ person test;
  • the appropriateness and proportionality of the applicant’s systems, resources and procedures;
  • the adequacy of the applicant’s internal and external dispute resolution processes; and
  • whether the applicant holds appropriate insurance.

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Australian Council of Financial Regulators consults on changes to Stored-Value Facilities Regulation

By Jim Bulling, Felix Charlesworth and Edwin Tan

The Australian Council of Financial Regulators (CFR) today published an Issues Paper reviewing the regulatory regime of stored-value facilities including purchased payment facilities (PPFs).  The CFR comprises regulators such as APRA, ASIC and the RBA.

PPFs enable funds to be stored for the purpose of making future payments and include mobile wallet services and prepaid cards.  PPF providers must be licensed and supervised by APRA or otherwise rely on an exemption from complying with the legislative requirements.  The RBA has declared several class exemptions for PPFs, including the “limited-value facilities” exemption for PPFs with payment obligations of $10 million or under.

To date, PayPal is the only entity licensed and supervised by APRA as a PPF provider and only one entity has obtained individual exemption from the RBA.  These results support arguments that the current framework is too complicated, deters potential new entrants and imposes significant compliance costs.

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Regulating the UK “Wild West” of Crypto-Assets

By Jonathan Lawrence

On 19 September, the UK House of Commons Treasury Committee published a highly critical report of the state of UK crypto-asset regulation. Crypto-assets themselves (i.e. those designed primarily as a means of payment / exchange) are not within the scope of UK Financial Conduct Authority (FCA) regulation. This is because crypto-assets generally will not meet the criteria to be considered a specified investment under the Regulated Activities Order (RAO), nor would they typically qualify as ‘funds’ or ‘e-money’ in the Payments Services Directive and the E-Money Regulation 2009.

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The SEC Expands its Enforcement Throughout the Digital Industry

By Dan S. Cohen

The Securities and Exchange Commission (“SEC” or “Commission”) is ramping up its enforcement efforts in the digital asset industry, expanding its focus to include digital asset brokers and investment companies. On September 11, the Commission issued an order against a digital asset hedge fund and announced a settlement with a self-described “ICO superstore” for violating federal securities laws. The Commission fined Crypto Asset Management LP and its principal for failing to register as an investment company, among other things. According to the SEC, Crypto Asset Management, which trades digital assets exclusively, is an investment company pursuant to the Investment Company Act because it “invest[s], reinvest[s], own[s], hold[s] or trad[es] in securities.

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NYAG Report on Virtual Markets

By Robert M. Crea

On September 18, 2018, the NY Attorney General’s office (“OAG”) published its Virtual Markets Integrity Initiative report (the “Report”) (found here).  The Report includes findings from the OAG’s April 2018 fact-finding inquiry (the “Initiative”) into the policies and practices of various virtual asset trading platforms.  The Report is anything but positive.

The Report expresses a number of concerns with the following key findings:

  • many exchanges conduct business lines and operational roles creating potential conflicts of interest;
  • trading platforms have yet to implement serious efforts to impede abusive trading activity; and
  • protections for customer funds are often limited or illusory.

The Report identifies by name certain platforms that declined to participate in the April 2018 survey on the claim that they do not allow trading from New York.  The Report acknowledges that the OAG has referred three of these platforms (Binance, Gate.io and Kraken) to the Department of Financial Services for potential violation of NY’s virtual currency regulations.

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Worldwide Cryptocurrency AML Standards

By Jonathan Lawrence

On 19 September, the president of the Financial Action Task Force (FATF), Marshall Billingslea, said he is optimistic that at its plenary, due in October 2018, the FATF will agree a series of updated standards. He said: “It is essential that we establish a global set of standards that are applied in a uniform manner”. He said that the task force has accelerated its work and made significant progress on reaching a “consensus across nations” after the G20 requested the organisation tackle the issue as a matter of urgency.

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ASIC acts on Initial Coin Offerings and crypto-asset funds

By Jim Bulling, Edwin Tan and Felix Charlesworth

In a statement issued today, the Australian Securities and Investments Commission (ASIC) revealed that it has prevented five Initial Coin Offerings (ICOs) from raising capital and will be taking further action in respect of one completed ICO.  The ICOs have been put on hold and some will be restructured to comply with relevant laws and regulations.  ASIC has also issued a final stop order in respect of a Product Disclosure Statement (PDS) issued by Investors Exchange Limited for units in the New Dawn Fund, which proposed to invest in a range of cryptocurrency assets.

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