By Cameron Abbott and Olivia Coburn
Oracle has finally realised that it wants to hang out with the cool FinTech kids on the block, having recently announced the release of its Oracle Banking Payments application programming interface (API) service.
Oracle’s move recognises the value of offering better ways for its banking clients to collaborate with FinTechs and other third parties.
By Clifford Histed and Nicole Mueller
According to a federal criminal complaint filed last month in Philadelphia, Theodore Price admitted that he had written software capable of stealing millions of dollars in bitcoins from individual bitcoin wallets. He allegedly admitted to purchasing the software on a dark net market and recoding it to infiltrate e-mail accounts with bitcoin wallets. Price also allegedly admitted that he had a fake passport in the name of the actor Jeremy Renner, and that Price had prepared to flee the U.S. on a private jet to evade arrest. Price is now in federal custody, charged with access device fraud and identity theft.
By Yuki Sako, Peter Nelson and Elizabeth Nelli
On July 19, 2017, the US Office of the Comptroller of the Currency (OCC) Acting Comptroller Noreika stated that special-purpose national bank charter is a “good idea that deserves thorough analysis and careful consideration.” He thinks that, despite the pending lawsuits filed by state bank regulators to challenge, the OCC has the authority to grant national bank charters to fintech companies in appropriate circumstances.
By C. Todd Gibson and Evan Glover
On July 25th the United States Securities and Exchange Commission (“SEC”) released a report to put the market on notice that offers and sales of digital assets are subject to the requirements of the federal securities laws.
The report is a result of an investigation of a German created entity called The DAO (Decentralized Autonomous Organization), which is a virtual organization that exists within computer code and is executed on a blockchain or decentralized ledger. The DAO sold DAO Tokens, which had characteristics similar to stock (e.g. certain ownership and voting rights), with the intent to raise funds to finance various projects. The DAO Tokens were purchased using a digital currency and could be monetized by re-selling the token on a web-based platform that supported a secondary market. The DAO engaged in these offers and sales in the U.S. despite not registering with the SEC.
By Jeremy McLaughlin and Judith Rinearson
As of July 1, 2017, the New York Department of Financial Services (“DFS”) is using the Nationwide Multistate Licensing System and Registry (“NMLS”) to manage license applications and conduct ongoing regulation of nondepository financial institutions, including money transmitters, doing business in New York. The NMLS website is available here.
The decision by DFS should bring some additional ease to an otherwise cumbersome state-by-state money transmitter licensing regime. Applicants applying for a license in the NMLS system need only fill out a single set of applications for all states that participate (although, of course, individual state licensing requirements still differ). Money transmitters already licensed in New York will be able to transition their licenses to the NMLS system. In a June 29, 2017 press release, available here, DFS stated it had sent letters to each licensee providing detailed instructions on how to accomplish the transition.
DFS has lauded the move to NMLS as bringing efficiency to its regulatory oversight responsibilities, including enhanced consumer protection. According to a May 11, 2017 DFS press release, the move to NMLS will “allow DFS to provide better supervision of the money transmitter industry by linking with other states to protect consumers.”
By C. Todd Gibson and Evan Glover
On 21 June at the OpRisk North America 2017 conference in New York, Scott W. Bauguess, Acting Director and Acting Chief Economist of the U.S. Securities and Exchange Commission’s (“SEC”) Division of Economic and Risk Analysis (“DERA”) gave a keynote speech on the use of artificial intelligence by regulators. A transcript of the speech can be found here. Bauguess provided some interesting background on the utility and use of big data and machine learning at the SEC to identify potential misconduct by market participants and investment managers, and the emerging use of artificial intelligence.
Bauguess’ speech discussed the SEC’s use of AI in its regulatory framework, initially discussing machine learning. The SEC currently applies topic modeling methods, such as Latent Dilchlet Allocation (“LDA”). LDA reviews text-based documents (e.g., registration disclosures) and reports on where, and to what extent, particular words appear in each document. This occurs either by: analyzing the probability of words across documents, and within documents, to define the topics they represent (“unsupervised learning”); or incorporating human judgement and direction into the programming of the machine’s algorithms (“supervised learning”).
By John ReVeal
More than three years after proposing amendments to the Regulation CC to add new indemnities for remotely deposited checks (cheques), new warranties for electronic checks and electronic returned checks and new indemnities for electronically-created items, the U.S. Federal Reserve has at last issued final rules. These new rules also modify the expeditious return rules, including by making electronic returned checks subject to those requirements. The final rules were issued on May 31, 2017, and will take effect on July 1, 2018.
Perhaps the rules of most importance to the banking and emerging payments industries are those providing for indemnities for remotely deposited checks. An inherent problem with remote deposits is that the person depositing the check retains the original paper check and can negligently or intentionally deposit or cash it again. The bank on which the check is drawn will usually refuse to pay it twice, as it should. This leaves the writer of the check, the bank that accepted the remote deposit, and the bank or check cashing store that accepted the original paper check arguing over who should take the loss. Under current rules, unless the parties have entered into side agreements to allocate losses, the bank or check store paying the original check can normally bring a Uniform Commercial Code (UCC) holder-in-due-course claim against the check writer and that person has no remedy unless recovery is possible from the negligent or crooked payee that cashed the item twice.
To read the full alert, click here.
Like an iceberg, the majority of the internet is concealed from plain sight. The “Dark Web,” or websites and content that use anonymizing networks to provide untraceable access to unindexed sections of the web, comprises a segment of what lies beneath that which is visible through a Google search. Cliff Histed and Nicole Mueller contributed an article to American Lawyer on this topic. The article contains insight into the concerns shared by former FBI Director, James Comey, as well as European law enforcement authorities.
To read the article, click here.
Banks are actively responding to consumer demand for convenient, high quality banking services by making it more appealing for consumers to share their personal information. A recent article in American Banker discusses announcements by Spanish banking group BBVA and Bank of America of new efforts to provide rich supplies of customer data to third party developers and others.
BBVA announced the launch of its open banking program to make eight of its application programming interfaces (APIs) available to developers, who would in turn create new value added services. The new services are expected to provide enhanced customer experiences by improving conversion, onboarding processes, payment management, identity verification, and consumer analytics, among other things. The new applications based on these APIs are only granted access to personal consumer information if the customer expressly accepts the service’s activation, thereby letting the consumer control with whom they want to share their data. The open APIs strategy is a key element of BBVA’s efforts to become an innovation engine for other companies to develop uses which never would have occurred to the bank acting alone. The program is currently available in Spain, with rollout in the U.S. coming later this year, followed by additional country rollouts.
By Nicole C. Mueller and Clifford C. Histed
On May 31, 2017 the United States Court of Appeals for the Second Circuit unanimously affirmed the conviction and life imprisonment of Ross Ulbricht for drug trafficking and crimes associated with his creation and operation of the online marketplace known as Silk Road. Among others challenges, Ulbricht argued on appeal that he should have been allowed to introduce evidence regarding former government agents who pled guilty to stealing Bitcoins as they investigated Silk Road and Ulbricht. The Second Circuit disagreed, finding that while “the shocking personal corruption of these two government agents disgraced the agencies for which they worked,” it had nothing to do with whether Ulbricht operated Silk Road. The Second Circuit similarly found Ulbricht’s other arguments unavailing, namely that (1) the government’s violated his Fourth Amendment rights through the use of pen registers and trap and trace devices to monitor IP addresses associated with internet traffic to and from Ulbricht’s wireless home router, and the search and seizure of his laptop and Facebook, Google accounts; (2) he was denied a fair trial due to the preclusion of certain testimony and evidence; and (3) it was improper for the court to consider six drug-related deaths relevant to his sentencing.
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