FinTech Industry & Regulation – Page 24 – FinTech and Blockchain Law Watch

OCC Releases Draft Licensing Manual for Evaluating Fintech Bank Charter Applications

Mar 20 2017

The Office of the Comptroller of the Currency today issued its draft licensing manual in furtherance of its proposal to grant national bank license to fintech companies. This provides additional detail on evaluating charter applications from fintech companies that engage in the business of banking. This is an interesting riposte to the Republican letter asking the OCC to delay the fintech charter process. A link to the OCC’s press release appears here.

Regulators in the UK and Japan enter into Co-operation Framework

Mar 20 2017

By Jonathan Lawrence

The Financial Services Agency of Japan (JFSA) and the UK’s Financial Conduct Authority (FCA) have entered into a Co-operation Framework to support innovative FinTech companies in their respective markets. For the full text of the agreement by way of an exchange of letters, see Letter from the JFSA to the FCA and Letter from the FCA to the JFSA.

This Co-operation Framework will provide a regulatory referral system for innovative financial businesses that have been offered support by the JFSA or the FCA through their respective FinTech innovation functions, or would qualify for such support (an Innovator Business). The FCA launched Project Innovate in October 2014 which is led by the FCA’s Innovation Hub. The JFSA established its FinTech Support Desk in December 2015 as a one-stop contact point for FinTech businesses.

Some Limits on Smart Contracts

Mar 16 2017

By Susan P. Altman

Amid the excitement about the promise of smart contracts comes a wet towel over their use. Milos Dunjic argues that the Capabilities of Smart Contracts are Overblown because most people misunderstand the fundamental properties of smart contracts and propose ideas that are not implementable on a practical level. Dunjic addresses the scalability and privacy issues presented by smart contracts.

As for scalability, smart contract code must produce the identical outcome in every node that executes it. Dunjic questions whether a large number of distributed nodes all hitting a “funds transfer” API at the same time might look like a self-inflicted DDOS attack on the API. Would each call to the API receive exactly the same response from the API? Reliability must be absolute in a smart contract.

As for privacy, replicating and storing data on each blockchain participant’s computer does not look like the best way to prevent data breaches. The reality of decentralized networks is that they expand the opportunities for breach. Not surprising, Dunjic’s conclusion is that smart contracts should be used mainly for management of transactions with one database and that interaction with external environments and services should be avoided. For another viewpoint on the privacy problem with suggestions for partial solutions, see Privacy on Blockchain. We’ll watch how the smart programmers address these issues.

CFPB Delays Prepaid Account Rule Effective Date

Mar 13 2017

By Eric A. Love and John ReVeal

On March 9th, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule to delay for six months the October 1, 2017 effective date of its sweeping Final Rule amending Regulation E and Regulation Z as applied to prepaid accounts. Under the proposed rule, the Final Rule would become effective on April 1, 2018.

The proposed rule would not revise any other aspect of the Final Rule, and comes as numerous prepaid account industry participants have expressed concerns about its scope and their ability to comply with key provisions by the current October 1 effective date. Additionally, the proposed delay follows the recent introduction of legislation in Congress that would use the Congressional Review Act to repeal the Final Rule. According to the CFPB, the proposed delay would “be sufficient for industry participants to ensure they can comply” with the Final Rule and would provide the CFPB the opportunity to receive public comments about any implementation challenges that might impact consumers, the prepaid account industry and other stakeholders.

After publication in the Federal Register, the public will have 21 days to comment on the proposed rule.

Dubai Innovation Testing Licence

Mar 09 2017

By Jonathan Lawrence

The Dubai Financial Services Authority (DFSA) published a new FinTech consultation paper on 6 March 2017 entitled “Testing FinTech Innovations in the Dubai International Financial Centre (DIFC)”. The paper is the third in a series, setting out the DFSA’s approach to FinTech regulation.

The DFSA had previously determined that the current regime for regulating firms in the DIFC was flexible enough to accommodate many aspects of FinTech without introducing new rules. The latest consultation sets out the DFSA’s approach to FinTech firms that want to test innovative products and services in the DIFC. Firms meeting the qualifying criteria will receive a Financial Services Licence, referred to as an Innovation Testing Licence, which reflects the nature of the activities to be conducted during the testing phase. The DFSA will put in place limits on the FinTech testing activities to ensure appropriate controls for the safety of any customers involved. Given the limits on activities permitted during testing, FinTech firms will not have to comply with DFSA Rules where they are inappropriate at a testing stage. The testing phase is a step towards the FinTech firm obtaining a full Financial Services Licence.

Paris stepping into London’s FinTech shoes?

Feb 27 2017

By Claude-Etienne Armingaud

Despite the lack of announcement by UK Government to give notification to the EU under Article 50 of the Lisbon Treaty of its decision to withdraw from the Union, France is already making its move to move into the steps of the former Fintech capital of Europe. On January 25-26, 2017, more than 1,500 people attended the second edition of the Paris FinTech Forum, encompassing more than 28 countries and 130 companies, from global players to startups.

The irony of the event location, set in the historical venue of the former Paris Stock Exchange building, was not lost to the Bank of France Governor Francois Villeroy de Galhau who wondered “Who would have imagined just a few years ago that a central banker would be speaking at a forum on innovation?” before recognizing that “For banks and insurers, the digital revolution is upsetting the traditional model for client relations” and “there are difficult choices ahead.”

Regulators in the UK and Ontario sign co-operation agreement

Feb 27 2017

By Jonathan Lawrence

Under a new Co-operation Agreement, FinTech businesses in Ontario and the United Kingdom will be able to seek support from their financial regulators as they aim to operate in the other’s market. Signed on 22 February 2017, the agreement allows the Financial Conduct Authority (FCA) and the Ontario Securities Commission (OSC) to refer to one another innovative businesses seeking to enter the other’s market. The regulators may provide support to innovative businesses to help reduce regulatory uncertainty and time to market.

The Agreement follows the creation of the FCA’s Innovation Hub in 2014 and the OSC’s OSC LaunchPad in October 2016. These initiatives are designed to help businesses with innovative ideas navigate the regulatory framework, support them through authorisation and facilitate their engagement with their respective regulator. The FCA and OSC have also committed to share information on emerging trends and regulatory issues pertaining to innovation in financial services.

The impact of Brexit on FinTech

Feb 23 2017

Jacob Ghanty contributed an article to AmericanLawyer.com on the impact of Brexit on FinTech. The article discusses the impact the Brexit referendum is having on FinTech in the UK, including the unresolved issues if financial services businesses lose the ability to “passport” across the EU in light of the vote.

To read the article, click here

UK Government to host International FinTech Conference

Feb 20 2017

By Jonathan Lawrence

The UK Government will host an international FinTech conference in London on 12 April 2017 to attract more investment into the FinTech sector. The International FinTech Conference aims to bring together domestic and international investors and UK FinTech firms. The Conference will feature speeches by senior Government ministers and figures from FinTech, Venture Capital and Financial Services organisations. The conference will include fireside chats, panels and workshops for investors hosted by the UK Government, the Financial Conduct Authority and the British Business Bank. UK FinTech firms will have an opportunity to showcase themselves in an exhibition space and during a pitch session. Firms and potential investors, including Sovereign Wealth funds, family offices and high net-worth individuals should register their interest in attending the conference. It is expected to become an annual event.

The Economic Secretary to the Treasury, Simon Kirby, said: “Backing Britain’s world leading financial services industry is a key part of our plan to ensure the UK remains a great place to do business. The government is determined that London stays at the cutting edge of financial innovation and that’s why we will host a new, annual FinTech conference to boost capital investment in one of our fastest growing sectors. This will bring together hundreds of British FinTech firms and investors from around the world and cement our position as the global FinTech capital.”.

UK conduct rules in the FinTech era

Feb 15 2017

By Jonathan Lawrence

The Chairman of the UK Financial Conduct Authority (FCA), John Griffiths-Jones, has delivered a speech in which he talked about conduct rules in the FinTech era. At the Cambridge Judge Business School on 13 February 2017, he talked about current regulatory models being too detailed to keep pace with the emergence of new financial technologies, leaving regulators struggling to cope with the way financial services are delivered.

He said “Rules that were designed for the paperwork era do not work necessarily for the online one. The distinction between advice and guidance, once reasonably clear, has become much greyer with the advent of platforms and the potential of robo-advice. High frequency trading is a million miles from open outcry trading on an exchange. Artificial Intelligence puts the pooling of risk via insurance under pressure as individual odds become increasingly forecastable. An additional challenge comes from the differential pace of take up of new ways of doing things by the general public…”.

Category:FinTech Industry & Regulation