Archive: December 2016

1
SEC FinTech Forum Part 2: Don’t Call Me a Robo Adviser
2
ASIC provides update on the Innovation Hub
3
UK and Hong Kong sign cooperation agreement
4
Will there be an Asia Pacific ‘FinTech Passport’ in the future?
5
Regulating digital advice in Australia
6
OCC Explores Special Purpose National Bank Charter for FinTech Companies
7
UK Department for International Trade announces FinTech mission to Australia
8
The post-election fintech world: are happy days (for bankers) here again?
9
UK Supreme Court to stream live today on future of Brexit
10
Securitization developments for Alternative Finance

SEC FinTech Forum Part 2: Don’t Call Me a Robo Adviser

By Brian Vargo and Tyler Kirk

As we reported in Part 1 of this series of posts, the U.S. Securities and Exchange Commission held its first forum exclusively focused on the impact of the FinTech movement on November 14, 2016. The first panel of the forum addressed recent innovations in investment advisory services. The panel was comprised of Ben Alden, General Counsel of Betterment, Bo Lu, Co-Founder and CEO of Future Advisor at Blackrock, Mark Goines, Vice Chairman of Personal Capital, and Jim Allen, Head of Capital Markets Policy Group, CFA Institute. While several of the panelists lamented the use of the title “Robo Adviser,” the panel’s discussion was vibrant and delved deeply into the role robo advisers (advisers which rely to varying degrees on computer-based technology, primarily algorithms, to deliver investment advice) are and should be playing in the United States.

First, the panel discussed the growth in automated advice, attributing the growth to the ability of lower net worth investors, especially those comfortable with technology, to obtain affordable and sophisticated investment advice. Given the savings shortfall in the United States, this growth was viewed to be a positive trend. Further, the panel also noted that the DOL Fiduciary Rule  is also driving growth. Ultimately, the panelists thought that the industry would consolidate as assets under management grew.

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ASIC provides update on the Innovation Hub

By Jim Bulling and Michelle Chasser

In a recent speech, Australian Securities and Investments Commission Chairman Greg Medcraft released information on FinTech businesses which have taken advantage of the Innovation Hub established by ASIC in April earlier this year. Robo-advisers and marketplace lenders were the most prevalent types of businesses to approach the Innovation Hub. The 109 different businesses that the Innovation Hub engaged with this year included:

  • 25 robo-advisers
  • 22 marketplace lenders
  • 17 payments businesses
  • 11 credit providers
  • 9 crowdsourced equity providers

ASIC has also noted that those who received assistance from the Innovation Hub before applying for an Australian financial services licence were approved on average 95 days or 45% faster than those who hadn’t.

UK and Hong Kong sign cooperation agreement

By Jonathan Lawrence

FinTech companies and other innovative financial businesses will be given help to establish overseas operations in the UK and Hong Kong by regulators in those countries under a new cooperation agreement signed in London on 9 December 2016. Under the agreement, the UK’s Financial Conduct Authority (FCA) and the Hong Kong Monetary Authority (HKMA) will “refer to each other innovator businesses that would like to operate in the other authority’s jurisdiction”.

Upon a referral being received, the FCA or HKMA both intend to “assist the innovator businesses in understanding the regulatory regime” that they oversee and explain “how such regimes may be relevant” to those companies. The agreement also confirms that the FCA and HKMA intend to “share information about innovations in financial services in their respective markets”, such as on emerging trends and regulatory issues pertaining to innovation. The FCA and HKMA may also pursue “joint innovation projects on the application of novel financial technologies”, share expertise and knowledge, and facilitate staff secondments to one another, under the new cooperation agreement.

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Will there be an Asia Pacific ‘FinTech Passport’ in the future?

By Jim Bulling and Michelle Chasser

Australian Securities and Investments Commission (ASIC) Chairman, Greg Medcraft, has discussed cooperation between FinTech regulators at the recent International Institute of Finance Chief Risk Officer Forum in Singapore.

The Chairman noted “because the internet knows no boundaries” cooperation and collaboration between regulators is critical and developing responses to FinTech should not be done in isolation. The Chairman then highlighted the following steps required for cooperation.

1. Sharing information

Regulators in Australia, UK, Singapore, Canada, Kenya, South Korea, Switzerland and India have entered into various cooperation agreements with other regulators to share information about FinTech developments and emerging trends in their markets. Many of the cooperation agreements also allow FinTech businesses to access Innovation Hubs in other jurisdictions. The Chairman noted that ASIC was also informally in regular contact with regulators in the US and Europe.

2. Harmonisation

While ideally regulators would work towards harmonising their regulatory responses and approaches, it was acknowledged that this will be a challenge due to competition between countries to attract FinTech businesses. The Chairman raised the possibility of introducing a “fintech passport” which could ease entry into other jurisdictions for businesses. Another possible solution raised was to develop “equivalence processes” around regulation.

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Regulating digital advice in Australia

By Jim Bulling and Meera Sivanathan

Recently, the Australian Securities and Investments Commission (ASIC) presented its views on regulating digital advice at a Financial Services Council event. The discussion provided an overview of the regulator’s priorities in this space. Below are a few key takeaways relevant to those currently providing or seeking to provide digital advice:

  1. Clear disclosure: ASIC would like to see clear disclosure in relation to the services and advice a consumer may expect to receive and express statements regarding advice that the consumer will not receive. Consumers need to be able to easily identify what advice will and will not be provided to them.
  2. Testing consumer knowledge: ASIC suggests ‘testing’ potential consumers in the following ways:
  • With respect to consumer protection – implementing methods to test consumer understanding of the scope of advice provided – that is, what advice will and will not be provided. Such protocols may alleviate any risk that a potential consumer is unaware of the scope of advice to be provided.
  • With respect to better understanding your client, implementing ‘quizzes’ to gauge the consumer’s level of knowledge regarding different products, which may be offered. This could give the digital advice provider an idea of the level of knowledge and understanding that the consumer may possess in relation to complex products.
  1. Record keeping: Companies providing digital advice should have appropriate and robust algorithm record keeping systems. Ideally, the systems in place should control, monitor, review and effectively record any changes made to the algorithms. Digital advice providers should be able to substantiate the reasons for updating the algorithm, which underpins the advice given. Some examples of possible record keeping measures relating to algorithms include automated reports which can be downloaded and provided to ASIC if requested or snap shots in time.

OCC Explores Special Purpose National Bank Charter for FinTech Companies

By Judith E. Rinearson, Anthony R.G. Nolan, Rebecca Laird, and Jeremy M. McLaughlin

On December 2, 2016, the Office of the Comptroller of the Currency (“OCC”) announced its plans to move forward with a proposal to consider applications from financial technology (“FinTech”) companies to receive charters as special purpose national banks. The OCC simultaneously released a white paper detailing the program. The OCC is seeking comments on its proposal, including responses to 13 specific questions listed in the paper. The announcement is potentially significant for the FinTech sector, but questions remain as to whether a special bank charter would represent a fundamental change or merely an incremental enhancement. The comment period ends on January 15, 2017. See our Legal Insight on the proposal here.

UK Department for International Trade announces FinTech mission to Australia

By Jonathan Lawrence

The UK’s Department for International Trade (DIT) has announced its first FinTech mission to Australia taking place in Sydney and Melbourne from 20-23 March 2017.

DIT will select 8-12 UK FinTech companies to participate in the mission to Australia where they will participate in a programme of events and activities. Delegates will spend two days in Sydney, two days in Melbourne and an optional fifth day in Australia or New Zealand. The delegates will meet with and pitch to Australian financial institutions and venture capital firms, visit FinTech hubs, meet the regulator and government ministers, network with the Australian FinTech community, hear from UK FinTech companies that have found success in Australia and schedule meetings with potential customers and partners.

British Consul General in Sydney and Director-General UK Trade & Investment for Australia and New Zealand, Nick McInnes said: “We are very pleased to have the opportunity to bring a group of UK FinTech companies to Australia for the first time and introduce them to the local market. While FinTech in Australia is still in relatively early stages, the industry is growing rapidly and there are many opportunities for UK companies to set up, collaborate and succeed. The FinTech market in Australia is forecast to grow to over AU $4 billion by 2020, of which AU $1 billion will be completely new added value to the Australian economy, so now is an ideal time for UK companies to enter the market”.

For more details, please click here.

The post-election fintech world: are happy days (for bankers) here again?

By Judith Rinearson and Eric Love

In the days following the U.S. federal elections that resulted in the election of Donald Trump as President and Republican control of the 115th Congress, FinTech companies, banks, and other financial institutions are increasingly asking whether they still need to worry about compliance with the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), Consumer Financial Protection Bureau (“CFPB”) regulatory actions, and other financial services regulations.

It is true that there will likely be some significant regulatory changes, but it is a little too early for industry participants to pop the champagne corks.

To see are our thoughts about some of the top issues impacting FinTech companies, banks and other financial institutions, click here.

UK Supreme Court to stream live today on future of Brexit

By Judith Rinearson

The Fintech world is strongly impacted by Brexit, with the ability to access financial markets easily an important factor for disruptors. No doubt they, like many of us, have a keen eye on the speed in which Brexit can occur.

On 3 November 2016, the High Court in the UK ruled that the Prime Minister cannot trigger Article 50 (the notification that triggers the process of the UK leaving the EU) without the leave of Parliament. The decision was appealed, and the Supreme Court (the highest appellate court in the UK) will hear the matter starting today, 5 December. The four days of hearings will be streamed live from the Supreme Court’s website (click here).

There will be eleven justices hearing the matter, which (according to the UK’s non-profit Full Fact organization) will be the largest panel of judges to have heard a single appeal—since the Supreme Court’s predecessor was established in 1876. There are some interesting potential outcomes of this process, including the possibility that the matter will need to be referred to the Court of Justice of the European Union to interpret Article 50.

Please note that even if the Supreme Court sides with the High Court, and decides that the Article 50 notification requires an Act of Parliament, it will still be for Parliament to decide whether or not they want to confirm and continue with the referendum’s Brexit result, or attempt to impose terms on the triggering of Article 50 (which some say is not possible), or reject it altogether. These are interesting times in the UK. We will be watching these developments closely.

 

Securitization developments for Alternative Finance

K&L Gates partner Anthony Nolan will be speaking on “Securitization in Alternative Lending” at the Marketplace Lending & Alternative Financing Summit 2016 in Dana Point, California, on December 5th.  This session will bring together participants with various perspectives, including investment bankers, platform representatives and service providers, in addition to Nolan’s viewpoint as a U.S. securitization and fintech lawyer. They will address recent commercial and regulatory developments that may affect the securitization of online and marketplace loans which include the impact of risk retention, which becomes effective on December 24, the implications of rating agency reform, emerging standards for asset-level representations and warranties, and the prospects for reform or rollback of Dodd-Frank consumer financial services regulation following President Trump’s inauguration in January.

The Marketplace Lending & Alternative Financing Summit is an educational forum for financial services professionals to delve into industry topics and trends to maximize returns and reduce risk in the growing field of marketplace lending. It brings together some of the thought leaders and market movers within the marketplace lending & alternative financing industry.  Topics will include legal, tax and structural considerations, rating agency methodology, and information and tools for attendees to keep up with this dynamic industry.  To see the agenda for the conference, please click here.

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