BATS BZX Exchange’s Proposal Disapproved by the SEC

On March 10, 2017, the U.S. Securities Exchange Commission (“SEC“) issued an order disapproving BATS BZX Exchange’s proposal to list and trade shares of the Winklevoss Bitcoin Trust. The proposal, if granted, would have established a bitcoin exchange-traded fund (“ETF“) that market participants could invest in through the BATS BZX Exchange platform.

Read our full report at our sister site, the Financial Regulatory Report.

The SEC order is available here.

Proposed 2017-2018 New York Budget Covers Current Exempt FinTech Companies

Lender license requirements recently included in the New York governor’s proposed 2017-2018 budget would expand the jurisdiction of the New York State Department of Financial Services (NYDFS) to cover many financial technology (FinTech) credit-lending companies that are currently exempt from license requirements.  The proposed budget would prohibit businesses that are not registered as licensed lenders from making personal loans with a principal of $25,000 or less, and commercial loans of $50,000 or less, regardless of interest rate.  Current New York state banking law only requires a license if the charged interest rate is above 16 percent.  The budget would additionally apply the licensing requirement not only to any company that solicits and “makes, purchases or acquires” loans for New York residents, but also to any that “arranges or facilitates” the origination of such loans.

Read our full report on our sister site, the Financial Regulatory Report.

Blockchain Technology Report Released by ESMA

On February 7, 2017, the European Securities and Markets Authority (“ESMA”) released a Report on Distributed Ledger Technology (“DLT”) (also known as “blockchain” technology) Applied to Securities Markets (the “Report”) that considers DLT’s effect on securities markets and fit to existing regulatory infrastructure.  The Report ultimately concludes that while many of the laws and regulations currently in place can be applied to DLT, “international regulatory engagement and cooperation are paramount . . . to ensure both that the DLT does not create unintended risks and that its benefits are not hindered by undue obstacles.”  Additionally, in an appendix to the Report, ESMA summarizes the comments of market participants to its June 2016 Discussion Paper.  Last month, the U.S. Financial Industry Regulatory Authority (“FINRA”) similarly acknowledged the need for international coordination in its own Report on DLT (see Reed Smith’s summary here).

 

To read a complete analysis of the report, please visit our sister site, the Financial Regulatory Report.

Blockchain Technology Report Issued by FINRA

The Financial Industry Regulatory Authority (“FINRA”) published a report on January 18, 2017, regarding Distributed Ledger Technology (“DLT”) (also known as blockchain technology) that provides an overview of different DLT use cases and related regulatory considerations for market participants (the “Report”).  The Report provides valuable guidance to both the financial services industry and the broader technology sector as U.S. lawmakers and regulators begin to focus their attention on the development of these swiftly evolving technologies.   FINRA requests public comment on its conclusions, highlighted in this article, by March 31, 2017.

To read a complete analysis of this report, please visit our sister site, the Financial Regulatory Report.

Illinois Releases Proposed Guidance on Application of State Money Transmission Law to Digital Currency Activities

On November 30, 2016, the Illinois Department of Financial and Professional Regulation (IDFPR) issued a proposed “Digital Currency Regulatory Guidance” (the Guidance) regarding the application of the Illinois Transmitters of Money Act (TOMA) to various digital currency activities. The Guidance applies only to “decentralized digital currencies,” which are not issued by a particular person or entity, do not have a central administrator, and do not have a central repository.  Therefore, the Guidance would apply to activities involving Bitcoin and most other cryptocurrencies.  The IDFPR is accepting comments on the Guidance until January 18, 2017. To read more, click here.

OCC Announces Special Purpose Charters for Fintech Firms

On Friday December 2nd, the Officer of the Comptroller of the Currency (OCC) announced that it would consider granting financial technology (fintech) firms special purpose national bank charters.  The OCC’s proposal constitutes a major development for fintech companies and the financial services industry more generally.  This move builds on recent actions taken by the OCC in an attempt to promote financial innovation, including releasing a white paper regarding responsible innovation in the financial industry in March, and announcing the creation of an Office of Innovation in October.

Under the OCC’s proposed framework, fintech companies may apply for a special purpose national bank charter—the same type of charter that the OCC has granted primarily to trust banks and credit card banks. In a release summarizing the proposal, the OCC claims that the proposed system will improve safety and soundness of fintech institutions, promote consistency in the application of laws and regulations, ensure fair treatment of customers, and strengthen the federal banking system.  Comptroller of the Currency Thomas J. Curry also explained that the banking system will be healthier if fintech companies “enter the system through a clearly marked front gate, rather than through some back door.”

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SEC Forum on FinTech Innovation Discusses Leveraging the Blockchain to Enhance Transparency, Verifiability and Governance in Corporate Processes

In a panel at the Securities and Exchange Commission’s recent forum on Innovation in FinTech, experts discussed blockchain’s potential role in corporate processes such as by providing an unalterable history of transactions, by tracking products and documents throughout their lifecycles, and by dividing the risks and costs of maintaining an authoritative system of record among multiple parties. While the blockchain presents some implementation challenges and technical limitations, it provides opportunities for cost-savings and efficiencies for industries ranging from financial markets, insurance and mortgages to music and art. To read more, click here.

Swiss Government establishing “crypto-bank” as new category of Financial Institution and creating new FinTech company license

On, November 2, 2016, during its weekly meeting, the Swiss Federal Council (the Council), the executive council which serves as the collective executive head of the government of Switzerland, requested an easing of the Swiss regulatory framework for providers of innovative financial technologies (FinTech).  The Council stated that it desires forward thinking comprehensive solutions for the emerging FinTech industry and is thus recommending an approach with three elements: (1) provisions regarding holding money in settlement accounts, which is helpful to crowdfunding services; (2) a regulatory FinTech innovation sandbox, which would include the current money laundering provisions but otherwise would not (yet) require monitoring by the Swiss Financial Market Supervisory Authority (FINMA); and (3) a new fintech license granted by FINMA, for institutions restricted to the deposit-taking business (acceptance of public funds) and thus not operating in the lending business, allowing less stringent regulatory requirements to apply rather than heavier regulatory burdens imposed on classical banks, including lower capital requirements.

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State AGs Double Down Focus on Financial Services, including FinTech

State attorneys General (AGs) continue to emerge as major regulators of financial services and show little sign of being cowed by their federal  counterparts….or efforts to preempt state authority.

This week, representatives of the consumer protection divisions of the AGs of nearly all 50 states plus officials from the FTC and CFPB met in Phoenix to compare notes and coordinate activity on a range of issues impacting consumers.  The meeting was sponsored by the National Association of Attorneys General (NAAG) which serves an educational function for AG offices, and also coordinates legal and policy issues to serve its AG members.  Issues discussed at NAAG meetings often signal the onset of increased legal and regulatory activity by AGs.

Among the issues addressed, none was more prominent that those involving consumer financial services.  Key panels at the meeting addressed state involvement in FinTech, Payday Lending and Structured Settlements.

“FINTECH – The New Frontier” in particular was keyed up for prominent discussion and included briefings by the FTC, the Utah Department of Financial Institutions and academics.  A particular theme that emerged that should be top of mind for FinTech companies is that many AGs believe they already have the tools to regulate and pursue legal matters regarding FinTech under state consumer protection statutes governing unfair or deceptive acts and practices (aka, “UDAP” laws) notwithstanding that new products may not be subject to laws specifically addressing them. Another area of concern, particularly for non-bank FinTech firms hoping for some relief from state-by-state regulatory compliance and enforcement through potential preemptive rules by the OCC, is that efforts to preempt state actions and regulations with respect to FinTech will be widely resisted by the states.

In light of this, as FinTech firms continue to expand and refine their products, they would do well to keep their eye on activities in the states.

CFPB Takes Enforcement Action Against FinTech Lender

Robert Jaworski reviews the September 27, 2016, Consumer Financial Protection Bureau (CFPB) Consent Order (the “Order”) with Flurish, Inc d/b/a LendUp (LendUp), a startup online lending company based in San Francisco that offers single-payment loans and installment loans in 24 states. The Order sends a powerful message to online lenders to make sure their legal houses are in order before opening their doors to customers. Read more.

 

 

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