FinTech and Blockchain Law Watch – Page 60 – At the Crossroads of Law, Innovation and Commerce

Don’t Look a Gift Card in the Mouth: Beware of Liability Under the Electronic Fund Transfers Act

Apr 08 2016

By Robert W. Sparkes, III, Brian M. Forbes, Soyong Cho

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.

U.S. Regulatory Scrutiny of Robo-Advisers and Other Providers of Digital Investment Advice

Apr 07 2016

By C. Todd Gibson

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.

What’s next in UK FinTech?

Apr 01 2016

By Aritha Wickramasinghe

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.

Australian and UK financial regulators sign co-operation agreement

Mar 31 2016

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.

Providing digital advice to retail clients

Mar 30 2016

By Jim Bulling and Michelle Chasser

The Australian Securities and Investments Commission (ASIC) has released a draft guide on digital financial product advice for consultation. The draft guide does not introduce new regulatory concepts but clarifies some of the uncertainties that have arisen about how existing obligations will apply to robo-advisers.

Generally, robo-advice is provided using algorithms and without the involvement of a natural person. To ensure that consumers are provided with competent advice ASIC is proposing that at least one manager who is used to demonstrate the organisational competence of the licensee (Responsible Manager) must meet the training and competence standards applicable to natural persons who provide advice to retail clients.

Marketplace lending how-to from the Australian regulator

Mar 30 2016

By Daniel Knight

The Australian Securities and Investments Commission (ASIC) has released guidance for marketplace lenders navigating Australia’s existing dual licensing regimes for credit and financial products. While the guidance is helpful, it does not overcome the need for marketplace lenders, like other fintech innovators, to contort themselves into existing regulatory boxes.

ASIC’s Information Sheet 213 focuses on establishing a marketplace lending platform using Australia’s managed investment scheme regime, by far the most popular Australian structure where a trust is interposed between borrowers and lenders. This regime was designed for pooled collective investment vehicles, such as traditional managed funds, and is not well adapted to pure peer-to-peer lending. Individual regulatory relief is often needed to overcome these challenges – for example, to facilitate investor withdrawals – and the Information Sheet helpfully outlines the relief ASIC has previously given to industry players.

The Federal Reserve Takes Steps Towards Developing Faster Payments and Settlement

Mar 30 2016

By Sean Mahoney

The Federal Reserve announced that it engaged McKinsey & Company to help evaluate faster payments solution proposals being solicited by the Federal Reserve from members of its Faster Payments Task Force. The Task Force consists of representatives of participants in the financial services system, including banks and technology firms. This step can be viewed as part of a process of making improvements to the US payments system. It is worth monitoring as any such improvements will likely lead to commercial opportunities.

See the press release here.

The French take on the blockchain

Mar 30 2016

By Claude-Etienne Armingaud

On March 24, the French National Assembly hosted a day-long conference on “Blockchain: Disruption and Opportunities.”

This event aimed at raising awareness of the French elected representatives and corporate executives on blockchain issues and potential uses for the digital transformation of society as a whole.

The closing statement provided by Emmanuel Macron, the French Minister of Economy, Industry and Digital Economy, was subsequently echoed by his announcement on March 29 of the upcoming adaptation of the French finance regulatory framework in order to progressively allow the introduction of the technology.

PREPAID ACCESS GARNERS REGULATORY ATTENTION

Mar 25 2016

By Sean Mahoney

Bank regulators are paying more attention to the role of banks in the prepaid card industry as evidenced by their new guidance on the applicability of know your customer requirements and proposed regulations on record-keeping with respect to master deposit accounts for prepaid cards and other products utilizing “pass-through” deposit insurance.

To learn more about the Interagency Guidance to Issuing Banks on Applying Customer Identification Program Requirements to Holders of Prepaid Cards, which provides a framework to determine whether or not a bank must apply its customer information program to holders of prepaid products for which the bank is the issuer, please visit our Consumer Financial Services Watch Blog at Prepaid Access Garners Regulatory Attention.

Australian Government gets more FinTech friendly

Mar 23 2016

By Jim Bulling and Michelle Chasser

The Australian Government has released its responses to the industry’s priorities for fintech development which it has called “Backing Australian FinTech”. As well as affirming existing commitments, such as introducing a crowd sourced equity funding (CSEF) framework and an incubator support programme, the paper includes a number of initiatives that the Government proposes to undertake. New developments include:

introduction of an entrepreneur visa in November 2016 for foreign entrepreneurs with innovative ideas and financial backing from a third party;
possibly increasing the asset and turnover eligibility threshold for CSEF to A$25 million and reducing cooling off periods for investors to 48 hours;
consultation on a potential framework for crowd sourced debt funding;
increasing the maximum fund size of Early Stage Venture Capital Limited Partnerships (ESVCLPs) to A$200 million and providing a 10% tax offset on capital invested;
introduction of a mechanism to allow Innovation Australia to issue binding advice in relation to the definition of ineligible activities for ESVCLPs;
Productivity Commission inquiry into options for improving access to comprehensive credit reporting (CCR) data;
a regulatory guide for robo-advice providers;
possibly allowing licensed insurance brokers to sell insurance policies from unauthorised foreign insurers where they offer consumers a better price and appropriate consumer protection;
possibly applying anti-money laundering laws to digital currencies;
a commitment to address the ‘double taxation’ of using digital currency to purchase goods already subject to the Goods and Services Tax (GST);
establishment of a new Cyber Security Growth Centre; and
a ‘regulatory sandbox’ in Australia to allow FinTech start-ups to test their products and business models.

Backing Australian FinTech indicates that 2016 will be a busy year for fintech regulation in Australia.

Read Backing Australian FinTech here.