FinTech and Blockchain Law Watch – Page 47 – At the Crossroads of Law, Innovation and Commerce

Electronic money: the French Government strengthens financial intermediaries’ obligations

Nov 16 2016

On November 10, 2016, the French Government issued a decree against the financing of terrorism which contains various measures addressing anonymous electronic money [source in French]. This new regulatory measure applies to electronic money issuers as well as their distributors, credit institutions, finance companies, consumers, and to any person who physically transfers money from a certain amount.

In addition to reinforcing the powers of the Ministry of Economic and Financial Affairs agency against money-laundering (TRACFIN) -which will now have access to the wanted person files for the needs of criminal investigations-, the decree removed the duty of care of the financial intermediaries in the absence of any particular suspicion of money laundering and under strict conditions pertaining to electronic money:

Money must only be issued for the acquisition of goods and services.
The maximum monetary value stored must not exceed EUR 250.
These funds must only be used for payments on the national territory.
The electronic money device may neither be reloaded through cash nor through electronic money when the initial owner of such money cannot be identified.

Australian and Kenyan financial regulators sign co-operation agreement

Nov 16 2016

By Jim Bulling and Michelle Chasser

The Australian Securities and Investments Commission (ASIC) and the Capital Markets Authority of Kenya (CMA) have signed a co-operation agreement to share information about innovation in their markets including:

emerging market trends and developments; and
regulatory issues relating to innovation in financial services.

Kenya was an early adopter of FinTech with the launch of mobile phone based payments system M-Pesa back in 2007. It has since become one of the leading FinTech countries in Africa particularly in payments and credit innovations.

FinTech in Canada – Towards Leading the Global Financial Technology Transition

Nov 15 2016

By Robert Zinn and Jim Bulling

The Digital Finance Institute is a prestigious Canadian-based think tank for FinTech established in 2013 with a mandate to address the balance of innovation and regulation; support initiatives for financial inclusion; and advocate for diversity in FinTech. The Digital Finance Institute also promotes FinTech in Canada through conferences and international alliances; the creation of Canada’s national FinTech Awards; the FinTech Cup, the new university FinTech startup challenge and by preparing research papers on FinTech.

Robert Zinn and Jim Bulling contributed insight and content to the U.S. and Australian FinTech ecyosystems.

To read this publication, click here.

FinTech ecosystem in Singapore

Nov 15 2016

By Nicholas Hanna

The FinTech eco-system is rapidly growing in Singapore with the support of recent initiatives by the MAS (Monetary Authority of Singapore) and the Deputy Prime Minister’s announcement to review the regulatory process for Venture Capital managers. MAS recently announced its cooperation agreement with Government of Andhra Pradesh (GoAP) to explore joint innovation projects on technologies including digital payments and blockchain and collaborate on the development of education programmes/curricula on FinTech. Singapore houses over 300 FinTech start-ups already and is known for being a hub to commerce operating in South East Asia. The government and regulatory authorities have indicated to review and introduce further incentives for FinTech companies in 2017.

Fraud-Prevention Resources for Online Lenders

Nov 14 2016

By Joseph A. Valenti

Several resources exist—and are receiving renewed attention—to help companies combat fraud committed during the online-lending process. With cybercrime on the rise, the non-profit Pittsburgh-headquartered National Cyber-Forensics & Training Alliance (“NCFTA”) announced earlier this year that it was opening offices in financial centers New York and Los Angeles. The NCFTA conducts real-time information sharing and analysis with experts in the public, private, and academic sectors, with its Cyber Financial Program specifically dedicated to identifying and neutralizing cyber threats to the financial-services industry from malware, phishing, social engineering, and other computer-aided or fraudulent methods. In October 2016, TransUnion launched the Fraud Prevention Exchange, an industry collaborative where reports of prior fraud and ongoing high-velocity applications are shared to help show what identities and devices may be compromised and—knowingly or unknowingly—participating in fraud. Several other industry players got involved in the Online Lending Network later that month to share data on loan applications and funded loans to assist in combatting loan stacking and excessive credit risk.

The Financial Crimes Enforcement Network (“FinCEN”) works under the parameters of Section 314(b) of the USA PATRIOT Act to assist financial institutions in sharing information with one another to identify and report activities that may involve money laundering or terrorist activity. FinCEN has “strongly encouraged” voluntary information sharing under 314(b)’s safe harbor to boost customer-due-diligence programs, bring more transparency to convoluted financial trails, and alert financial institutions to known bad actors they may not have encountered yet.

These same reasons support increased and real-time sharing of fraud-prevention data between financial institutions, particularly in the online-lending industry that is growing and speedy. As the industry matures, it seems destined for collaboration on fraud-prevention issues.

Comprehensive Analysis of the CFPB’s Final Prepaid Account Rule

Nov 10 2016

By Eric A. Love, Linda C. Odom and Judie Rinearson

As noted in our previous blog post, the Consumer Financial Protection Bureau (“CFPB”) finalized on October 5 its long-awaited Final Rule for prepaid accounts under the implementing regulations for the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z). Effective October 1, 2017, the Final Rule clocks in at nearly 1,700 pages and represents the most significant change to the legal and regulatory landscape of the prepaid account industry since the Financial Crimes Enforcement Network’s issuance in 2011 of a final rule regarding prepaid access. Although the CFPB’s Final Rule retains many key aspects of the agency’s Notice of Proposed Rulemaking (“NPRM”) on prepaid accounts, the Final Rule differs from the NPRM in a number of important respects and will create a new set of compliance hurdles for the prepaid account industry.

In our alert entitled “CFPB Finalizes Expansive Prepaid Account Rule Creating New Compliance Hurdles,” we provide a comprehensive analysis of the Final Rule and highlight several notable differences between the Final Rule and the NPRM. You can read the full alert here.

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

Nov 09 2016

By Jacob Ghanty

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.