FinTech Industry & Regulation – Page 28 – FinTech and Blockchain Law Watch

FCA identifies that many consumers cannot access the financial services they need

Nov 09 2016

On 1 November 2016, the FCA published an “Occasional Paper” concerning access to financial services in the UK. In it the FCA highlights that potentially millions of UK consumers cannot use the services that would help them meet their financial needs and get involved more widely in financial markets and the economy. The FCA argues that access problems do not affect just the vulnerable (as has been identified in the past)- it also affects consumers across the spectrum. Examples of access issues include: inconsistent information and long delays in setting up bank accounts; inability to find travel insurance for people with identified health issues; and being declined for a mortgage because of difficulty proving the source of an inheritance.

The FCA highlighted numerous possible causes of problems with access, including financial institutions having inflexible process requirements for customers who have slightly unusual needs, use of jargon creating a barrier to consumer engagement with products or services and issues for consumers with poor digital literacy or limited internet access having increasingly limited choice. Rather than providing solutions, the FCA aims to begin a new conversation about financial services access issues. The FCA does not put a precise figure on the number of people affected in the UK by access issues, but given the broad range and type of issues identified, the number of individuals potentially affected by access issues may run to many millions. The issues laid out by the FCA serve as a useful basis for some firms to identify where access issues may exist in their own businesses and could be useful starting point towards addressing those issues

Rometty Touts Transparent Governance for Blockchain

Nov 08 2016

By Susan P. Altman

Ginni Rometty, CEO of IBM, calls for a system of transparent governance for blockchain in a recent Wall Street Journal Commentary. Rometty predicts that blockchain, once widely adopted, will transform the world. She notes what readers of this blog already know, that financial institutions have become the early adopters of distributed ledger technologies. However, blockchain’s potential is much, much greater than in fintech alone. For example, IBM has estimated that applying blockchain to global supply chains could result in more than $100 billion in annual efficiencies. She describes projects in which blockchain is used in car leasing and ride-sharing in order to speed up the transactions and cut out newly-redundant intermediaries like Uber and Lyft.

In order for us to achieve all of the vast potential of blockchain, Rometty argues that the new technology needs a system of transparent governance developed by not-for-profit groups similar to the way the internet was developed in the 1990s. She notes that IBM and more than 600 firms have joined or applied to join the Linux Foundation’s Hyperledger, an open source collaborative effort created to advance cross-industry blockchain technologies. Hyperledger is attempting to create communities of software developers building blockchain frameworks and platforms to ensure the transparency, longevity, interoperability and support needed to bring blockchain into mainstream commercial adoption. Rometty believes this effort will give businesses the confidence to widely adopt blockchain.

Rometty’s final challenge to readers is to ask themselves, are they going to be the disrupter or the disrupted when it comes to blockchain.

Possible AML implications for FinTechs

Nov 07 2016

By Jim Bulling and Michelle Chasser

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is encouraging FinTech businesses to make contact about Australia’s anti-money laundering and counter-terrorism financing regime (AML/CTF regime) and how it may affect their business. A dedicated online contact form has been established which allows enquiries to be made directly to the Policy and Guidance team.

Businesses which provide a ‘designated service’ are reporting entities which have obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. There are a number of designated services that a FinTech business may provide including making loans, issuing a stored value card, giving effect to remittance arrangements, issuing interests in a managed investment scheme and (in the capacity of an Australian financial services licensee) arranging for a person to receive a designated service.

Currently activities relating to digital currencies such as BitCoin are not designated services. However, in October 2016 the Attorney General’s Department released its draft project plan for the implementation of the recommendations from the statutory review of the AML/CTF regime. Under the project plan, legislative proposals to regulate digital currencies under the AML/CTF regime will be developed by the first half of 2017.

Regulators in Australia and Ontario sign co-operation agreement

Nov 07 2016

By Jim Bulling and Michelle Chasser

The Australian Securities and Investments Commission (ASIC) and the Ontario Securities Commission (OSC) have signed a co-operation agreement to promote FinTech innovation. The agreement will make expansion into the Australian and Ontarian markets easier for growing FinTech businesses.

A referral mechanism has been created under the new agreement which allows ASIC to refer Australian FinTech businesses wanting to enter the Ontarian market to OSC and vice versa. Referred businesses will receive support to understand the market’s regulatory framework and how it applies to them from dedicated staff at the relevant regulator. To qualify for support FinTech businesses will need to meet the eligibility criteria of their home regulator including being a new or early stage FinTech business which has an innovation or product which will likely provide benefits to investors and consumers.

Both ASIC and OSC have established internal teams to assist FinTech businesses with their regulatory obligations and encourage development of the FinTech industry. ASIC’s Innovation Hub was established in April 2015 and OSC recently established LaunchPad in October 2016.

ASIC and OCS have also committed to share information about emerging market trends and potential impacts on regulation.

ASIC has entered into similar co-operation agreements with the UK Financial Conduct Authority and the Monetary Authority of Singapore amongst others this year.

The U.S. Wants a Sandbox Too

Nov 03 2016

By C. Todd Gibson and Tyler Kirk

On September 22, 2016, Republican Congressman Patrick McHenry from North Carolina announced the introduction of H.R. 6118, the Financial Services Innovation Act of 2016 (the “Bill”). McHenry is the chief deputy whip and vice chairman of the House Financial Services Committee. According to the press release, the bill was introduced as part of the “Innovation Initiative” that McHenry co-launched earlier this year with House Majority Leader Kevin McCarthy, a fellow Republican from California. On October 19, 2016, the Bill was referred to the Subcommittee on Commodity Exchanges, Energy, and Credit. Before the Bill becomes law in the United States, it must be past by both chambers of Congress and signed by the President. With this Bill, America joins, among others, the United Kingdom, Hong Kong, and Malaysia in establishing FinTech regulatory sandboxes.

In its current form, the Bill takes a two-prong approach to constructing a regulatory sandbox. First, it creates a government-wide FinTech oversight regime, and second, it codifies an exclusive no-action relief mechanism for financial innovators. Under the first prong, the Bill requires federal regulators to adopt a mandate to encourage innovation in the financial industry through the creation of Financial Services Innovation Offices (“FSIOs”). Further, the Bill provides for the establishment of the FSIO Liaison Committee (“Committee”) comprised of the directors of each agency’s FSIO. The purpose of the Committee is to coordinate the regulation of companies seeking to bring new and innovative financial technologies to market (“Covered Persons”). Under the second prong, Covered Persons may petition regulators for an alternative compliance plan under an “enforceable compliance agreement,” that will provide the conditions under which the Covered Person may implement their financial innovation (including any regulatory waivers).

What happens when electronic signatures are affixed without authority?

Nov 03 2016

By Jim Bulling and Julia Baldi

A recent NSW Supreme Court decision, Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265, found that a personal guarantee was not enforceable against an individual where the electronic signature had been affixed without the knowledge or authority of the individual.

This finding applied notwithstanding that the electronic signature was a ‘genuine’ signature uploaded to the relevant execution system “HelloFax”, and that Williams Group Australia Pty, who sought to rely on the signature, had no knowledge of any impropriety with respect to the affixation of the signature.

The Court appeared to approve existing authority which provided the placement of a ‘genuine’ electronic signature on a document without any authority would likely amount to forgery at common law. Such a forgery could not be ratified, and would render the contract void.

The case is a reminder for any person seeking to rely on electronically signed documents to have in place adequate steps and protections to ensure all electronic signatures have been affixed with proper authority. Even a ‘genuine’ electronic signature may be unenforceable against an individual if it is affixed without proper authority.

Blockchain Fuels Crypto Valley Zug

Nov 02 2016

By Susan P. Altman

Blockchain startups are fueling growth of innovative companies in the small canton of Zug, Switzerland, dubbed the “Crypto Valley” (and yes, it’s written as “CryptoValley” in German, and not translated into “CryptoTal”). This approximately 20-mile valley between Zurich and Zug is home to the Ethereum Foundation and more than a dozen other blockchain technology companies. Crypto Valley has a long way to go before it catches up to blockchain investment levels seen in Silicon Valley or the other top investment countries of UK, Israel, Sweden, Germany and Argentina. What is driving Crypto Valley’s growth?

CoinDesk reports that the laissez-faire philosophy that makes Swiss banks so valuable is the same philosophy driving the development of Crypto Valley. Switzerland, with its deeply decentralized government, appears to be a fertile environment in which innovation can flourish. For instance, Zug’s local government is experimenting with permitting citizens to pay for government services up to 200 Swiss francs (just over USD 200) with bitcoin. Switzerland has a host of other advantages for blockchain innovation: a stable, neutral political system, low taxes (especially in Zug), a renowned culture of financial privacy, and an available talent pool. It will be interesting to watch whether and how the decentralized political and economic environment of Switzerland accelerates the decentralized promise of blockchain technology.

The future of Fintech event, San Francisco, 1 November

Oct 28 2016

K&L Gates will be co-hosting an event with the Silicon Vikings in San Francisco on Tuesday November 1st. This will be a panel session with presenting companies including: Checkbook, bitwage, StratiFi and Qwil. An event not to be missed.

The panel will include:

Sanjiv Das, Professor of Finance, Santa Clara University
Jacob Sisk, VP Payments & Data Science, CapitalOne
Tyler He, Business Development, Tencent
Moderator & Event Chair: Shikhar Das, Assistera

Details of the event:

Date/time: Tuesday, November 1st, 6.00 pm – 8.30 pm
Location: K&L Gates, 4 Embarcadero Center, Suite 1200, San Francisco, CA 94103 (google maps)
Register: Click here for more details or to register to attend

For any queries, please contact K&L Gates partner, Lars Johansson.

A guide to doing FinTech business in the U.S. and Germany

Oct 28 2016

“Getting the Deal Through” is a publication that provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers.

The inaugural edition of Fintech serves as a resource to help fintech entrepreneurs and their advisers and investors around the world navigate the often complex key legal and regulatory issues on which we are most often asked to advise. Two of the chapters were authored by K&L Gates lawyers.

The Germany chapter is authored by Dr. Hilger von Livonius, Dr. Friederike Gräfin von Brühl and Dr. Thomas Nietsch.

The United States chapter is authored by Judith Rinearson, Robert Zinn, Anthony Nolan, C. Todd Gibson and Andrew Reibman.

To read this publication, click here.

More regulatory sandboxes

Oct 26 2016

By Jim Bulling and Michelle Chasser

Bank Negara Malaysia (BNM) has released details of the framework for Malaysia’s regulatory sandbox. The finalisation of the framework follows a consultation which began in July.

Under the sandbox framework BNM may consider granting regulatory exemptions to applicants for the purpose of testing an innovative product, service or solution for a period of up to 12 months.

Applicants wishing to apply for the sandbox should have innovations which are ready for testing and have the potential to:

improve the accessibility, efficiency, security and quality of financial services;
enhance the efficiency and effectiveness of Malaysian financial institutions’ management of risks; or
address gaps in or open up new opportunities for financing or investments in the Malaysian economy.

Category:FinTech Industry & Regulation