Tag:regulation

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Movement in marketplace lending regulation for small business loans
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Proposed FDIC guidance on marketplace lending could have far reaching impact on industry
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Government committed to introducing mandatory data breach notification laws
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K&L Gates Adds Leading FinTech Partners
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UK Government opens consultation on draft innovation plan for financial services
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FinTechs get ready to play in the sandbox
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China’s FinTech industry growth due in part to accommodative regulations
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Australian Government gets more FinTech friendly
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The Financial Stability Board’s fintech priority for 2016
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Simpler Regulatory path for Australia’s Peer to Peer Lending Platforms?

Movement in marketplace lending regulation for small business loans

By Jim Bulling and Michelle Chasser

Marketplace lenders who cater to small businesses are about to face increased regulation in relation to the credit they provide. From 12 November 2016, some businesses will receive the same protection currently available to consumers as unfair contract terms in small business contracts will become prohibited.

Small business contracts include loans which are entered into with businesses which have fewer than 20 employees for an amount less than $300,000 or less than $1 million if the term of the loan is more than 12 months.

Under the new law, a contract term will be unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations;
  • it is not reasonably necessary to protect the interests of the party who would be advantaged by the term; and
  • it would cause detriment to a party if the term is relied on.

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Proposed FDIC guidance on marketplace lending could have far reaching impact on industry

By Sean Mahoney

Following up on its recent Supervisory Insights article on marketplace lending and Advisory on Effective Risk Management Practices for Purchased Loans and Purchased Loan Participations, the FDIC on July 31, 2016 released its proposed Examination Guidance for Third-Party Lending.  If nothing else, this series of recent developments demonstrates the FDIC’s concern with the role of banks in marketplace lending.  Unlike the prior two releases, the July proposed guidance is subject to public comment, with a comment period expiring October 27, 2016.

All three issuances share a common set of fundamental concerns.  These include concerns that (a) a bank may rely on a marketplace lending platform to an unjustified extent; (b) the marketplace lending activity may not fit within a bank’s corporate strategy; (c) that lending through a marketplace platform may not be consistent with the bank’s underwriting standards; (d) that the bank may not adequately assure that the activity is being conducted in accordance with applicable law; and (e) that the bank may not otherwise adequately manage risks inherent in the activity.  The Proposed Guidance goes a few steps further by requiring that banks that engage in marketplace lending activities have specific, detailed policies and procedures addressing a set of prescribed parameters.  Further the Proposed Guidance would mandate that contracts between a bank and marketplace lending platform provide the bank with, among other things, (i) the right to mandate that the platform adopt policies and procedures governing any activity outsourced to the platform, and (ii) rights to performance data, audits and funding information.

While the Proposed Guidance will only apply to state-chartered, FDIC-insured banks that are not members of the Federal Reserve System, it could have far-reaching effects given the increased prevalence of state-chartered banks of all types in marketplace lending.  Moreover, the Proposed Guidance may strain the tension between financial innovation and comprehensive regulatory oversight inherent in much of FinTech.

Government committed to introducing mandatory data breach notification laws

By Cameron Abbott and Rebecca Murray

After much delay, a spokesperson for Attorney-General, George Brandis has said the government is committed to introducing the Mandatory Data Breach Notification laws this year. We will be sure to look out for it during the next term of Parliament. You can find more information on the proposed scheme and its regulatory impact on the Attorney General’s Department consultation for Serious Data Breach Notification webpage.

K&L Gates Adds Leading FinTech Partners

Global law firm K&L Gates welcomes Judith Rinearson and Linda C. Odom as partners in the firm’s FinTech and Consumer Financial Services practices. Rinearson joins K&L Gates’ New York and London offices, and Odom, joins the Washington, D.C. office.  “Judie Rinearson and Linda Odom are highly respected authorities in numerous key regulatory and commercial areas within the FinTech ecosystem,” stated Robert Zinn, co-leader of K&L Gates’ global corporate and transactional practice area as well as of the firm’s market-leading global FinTech practice.

To read our full press release please click here.

UK Government opens consultation on draft innovation plan for financial services

By Jonathan Lawrence

According to the UK Treasury’s recently released draft innovation plan for financial services, the Financial Conduct Authority (“FCA”) “intends to broaden engagement with large incumbent institutions”. “To facilitate increased dialogue the FCA plans to proactively engage with large incumbents to ensure their potential for consumer-friendly innovation is not being held back by regulatory considerations,” the Treasury said. “In particular, it will seek out opportunities to pilot research on new initiatives.”  The regulator is recognising that innovation does not just happen within the start-up environment and that it is within its power to support a broader appetite among the traditional players in the market to use the latest technology to innovate, whether on their own or in collaboration with others.

In March 2016 the FCA and Australia’s Securities and Investments Commission (“ASIC”) signed a deal to make it easier for financial technology firms based in each country to win authorisations to operate in the other country. The Treasury said the FCA can help “put UK-based innovators in touch with the right regulators when they look to start doing business in other regulatory jurisdictions” and is “ready to help non-UK innovators interested in entering the UK market”. The FCA wants to put more “co-operation agreements” in place “with key regulators”, the Treasury said.

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FinTechs get ready to play in the sandbox

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.

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China’s FinTech industry growth due in part to accommodative regulations

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:

  1. high internet and mobile device penetration in the market;
  2. a large e-commerce system with companies focused on payments;
  3. relatively unsophisticated incumbent consumer banks; and
  4. accommodative regulations.

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Australian Government gets more FinTech friendly

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.

The Financial Stability Board’s fintech priority for 2016

By Jim Bulling and Michelle Chasser

The Chair of the Financial Stability Board (FSB), Mark Carney, has sent a letter to G20 finance ministers and central bank governors outlining the FSB’s priorities for 2016.

One of the five priorities is to assess the implications of fintech innovations and systemic risks that may arise from operational disruptions. The FSB is currently evaluating potential financial stability implications of fintech for the financial system as a whole. The findings of this evaluation will be discussed at the FSB’s March Plenary meeting.

The letter also acknowledged that a number of fintech innovations are now receiving close attention and that the regulatory framework must be able to manage any systemic risks without stifling innovation.

Any decisions made by the FSB following the assessment are likely to have a flow on effect to how G20 members including the US, the UK, Australia and the EU regulate the fintech sector.

The Chair’s letter can be found here.

Simpler Regulatory path for Australia’s Peer to Peer Lending Platforms?

By Jim Bulling and Daniel Knight

Like riding a bike through Sydney or getting to Melbourne airport, launching a peer to peer lending platform in Australia is possible but not as easy as it should be. The Financial System Inquiry recommended changes and the Government’s response seemed to agree, but we are yet to see what will be done to facilitate innovation in marketplace lending.

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