At the Crossroads of Law, Innovation and Commerce
By Jacob Ghanty
The second EU Payment Services Directive is set to change the banking landscape in Europe. In the linked article, Jacob Ghanty describes some of the changes that PSD2 will bring about. This article was first published in inCOMPLIANCE, member publication of the International Compliance Association www.int-comp.org.
By Jacob Ghanty
The UK’s Financial Conduct Authority published its final report on the Financial Advice Market Review on 14 March, which stated that there is a “clear need for intervention by the regulator and the government” to aid the provision of new and more cost-effective ways of delivering financial advice and guidance. The FAMR sets out recommendations to address concerns relating to the affordability and accessibility of financial advice, which includes recommendations to help firms develop automated “robo-advice” models. In the linked article, first published in E-Finance & Payments Law & Policy, Jacob Ghanty expresses his views on robo-advice developments.
By Michelle Chasser and Daniel Knight
In a recent speech at the Innovate Finance Global Summit, Christopher Woolard of the UK Financial Conduct Agency (FCA) provided details about the UK regulatory sandbox due to launch 9 May 2016. The sandbox will allow two FinTech cohorts a year to test their ideas without incurring the significant regulatory set up costs usually associated with going to market.
Participants in the sandbox will be given restricted authorisations to provide financial services to allow them to market test their ideas. The FCA will also develop a streamlined application process. Full authorisation will need to be sought to operate outside the sandbox.
By Jim Bulling and Michelle Chasser
The Australian Securities and Investments Commission (ASIC) and the Monetary Authority of Singapore (MAS) are in discussions to enter into a cooperation agreement to ensure Australian and Singaporean FinTech businesses will not be hindered by regulation when trying to enter the other country’s market.
The agreement is expected to be similar to that entered into between ASIC and the UK Financial Conduct Authority (FCA) in March. Under the ASIC-FCA agreement the two regulators will share information and implement a referral process for FinTech businesses interested in entering the UK or Australian market.
These agreements reflect the increasingly collaborative approach to FinTech regulation internationally.
Further information about the ASIC-FCA agreement can be found in our earlier post here.
Will English courts recognise cryptocurrency in tort and restitution claims? An article by Peter Susman QC in the March 2016 issue of the Butterworths Journal of International Banking and Financial Law considers that English common law is robust enough to facilitate the development of legal remedies for lost cryptocurrency (“Virtual money in the virtual bank: legal remedies for loss” (2016) 3 JIBFL 152).
A more complex issue is whether English law is ready to provide effective remedies in tort or restitution for misappropriated cryptocurrency. English courts have previously had difficulty applying criminal law to intangible assets. The Fraud Act 2006 helped remove any confusion by focusing on what has been done, rather than the type of property which has been affected.
So it should not be difficult to argue that the law of contract developed under English common law will apply on the same basis to cryptocurrencies. Principles developed under contract law may be used to answer questions about whether contractual obligations have been incurred, on what terms and what remedies may be available in relation to cryptocurrency.
In any event, many transactional and litigation lawyers tend to think of money less as personal property, and more as obligations owed by and to persons in respect of that money. The focus of courts should be then on remedies rather than proprietary rights.
By Jim Bulling and Michelle Chasser
China’s biggest FinTech companies now have a similar number of clients as the country’s top banks, according to a report on digital disruption by Citi. China’s fintech industry has been growing rapidly over the past decade and is dominated by the largest payments and peer 2 peer lending markets in the world. According to Citi, 4 elements have led to the industry’s growth:
By
Many of us have had a similar experience. We receive a gift card, put it in a “safe” place with other gift cards, and forget it exists. Inevitably, we uncover the gift card and find ourselves asking questions such as: Does this card still have any value? Has it expired? Can it expire? Will I be charged a fee for use (or non-use)? Should I call the 800 number? The experience invariably ends by putting the card aside and promising to deal with it later. But, what really does happen to the value of those cards?
To read more, click here.
Recently, regulators in the US have issued guidance with respect to providers of automated investment advice, including robo-advisers. On April 1, the Massachusetts Securities Division (“MSD”) issued guidance questioning whether a Massachusetts state-registered robo-adviser could fulfil its fiduciary obligations without some element of human-provided services (including initial and ongoing due diligence), stating that the registration of such advisers would be reviewed on a case-by-case basis. Of particular concern to the MSD were “fully-automated” robo-advisers, characterized as those that: 1) do not meet with or conduct significant (or any) due diligence on a client, 2) provide investment advice that is minimally personalized, 3) may fail to meet the high standard of care that is imposed on the appropriateness of investment advisers’ investment decision-making, and 4) specifically decline the obligation to act in a client’s best interests.
FINRA, the US self-regulatory organization for broker-dealers, also recently published a report after having discussions with member firms and others with respect to the use of “digital investment advice.” Although the report did not purport to create any new legal requirements or change any existing regulatory obligations for brokers, FINRA identified certain practices they believe brokers should consider when using digital tools. The report focused on digital tools (including robo-advice) used by firms to perform client services.
US investment advisers, through application of the anti-fraud provisions of the Investment Advisers Act of 1940 and interpretations of US courts and regulators, owe a general fiduciary duty to their clients. With the recent proliferation and growth of complex, automated investment advice, regulators are becoming more focused on the use of such tools in the context of existing regulatory and fiduciary obligations.
The MSD policy statement can be found here and the FINRA report can be found here.
The emergence of blockchain technology and the size of the FinTech industry were the major points of discussion at a recently concluded CBI Insights and KPMG webinar on the future of FinTech.
Blockchain is a data structure that creates a digital ledger of transactions. Using cryptography, blockchain allows participants to securely manipulate the ledger without any central authority. Once the information is entered, it is almost impossible to erase – creating an accurate record of the transaction’s history.
The technology is still in its infancy and currently undergoing significant experimentation. For established financial institutions such as banks, blockchain is seen as a possible solution to the problem of an increasingly complex regulatory landscape. The technology is also seen as an effective tool in combatting money laundering as it tracks a transaction’s entire digital history.
Venture capital investment in blockchain, which had seen a rapid rise over the last several years, is showing signs of plateauing as the technology matures. However, the boom in FinTech investment is expected to continue unabated as companies emerge from their infancy and the adoption of their technology becomes more widespread. In 2015, investments into FinTech were US$14 billion, with major banks such as J.P. Morgan and Goldman Sachs as primary investors. In the UK, Funding Circle, Atom Bank and World Remit each received in excess of US$100 million in funding in 2015. There are now 19 FinTech companies with a market capitalisation in excess of US$1 billion.
By Jim Bulling and Michelle Chasser
The Australian Securities and Investments Commission (ASIC) and the UK Financial Conduct Authority (FCA) have signed a co-operation agreement to promote fintech innovation. The agreement will make expansion into Australian and UK markets easier for growing fintech businesses.
Both ASIC and FCA have already established innovation hubs to assist fintech businesses with their regulatory obligations and encourage development of the industry. A referral mechanism has been created under the new agreement which allows ASIC to refer Australian fintech businesses wanting to enter the UK market to FCA and vice versa. Referred businesses will then receive the same support from the other country’s innovation hub as local businesses.
ASIC and FCA also undertake to share information about emerging market trends and developments, regulatory issues pertaining to innovation in financial services and referred businesses. Shared information will be valuable for developing fintech regulations.
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