Shearman & Sterling LLP | Financial Regulatory Developments Focus
Financial Regulatory Developments Focus

The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • European Supervisory Authorities Issue Final Report on Financial Institutions' Use of Big Data

    The Joint Committee of the European Supervisory Authorities has published a final report on the use of Big Data by financial institutions. The Final Report has been prepared following feedback to a discussion paper published in December 2016 by the Joint Committee’s sub-Committee on Consumer Protection and Financial Innovation. “Big Data” is the term used to refer to situations where high volumes of different types of data, produced with high velocity from a wide variety of data sets and sources, is processed (often in real time) by IT tools, such as powerful processors, software and algorithms. Big Data tools have been in use for several years in some sectors, but less so in others. Nevertheless most respondents to the ESAs’ discussion paper agreed that Big Data may have an impact on almost all financial institutions and on their products and services. The use of Big Data techniques can help financial institutions to improve their understanding of customers’ preferences and their interactions with customers and clients. This can enable them to tailor products to their target markets and support effective product governance. However, the use of Big Data also entails risk.

    Read more.
  • European Banking Authority Publishes FinTech Roadmap

    The European Banking Authority has published a Roadmap setting out its conclusions following responses to its August 2017 discussion paper on its approach to financial technology. The EBA adopts the definition of FinTech that is used by international standard-setting bodies, namely, “technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services”.
    Regulators and supervisors must balance, on the one hand, the needs for consumer protection, a level playing field, the integrity of financial markets and the stability of the financial system against, on the other hand, the need to ensure the opportunities presented by FinTech can be fully realized.

    Read more.
    TOPIC: FinTech
  • International Standard Setters Report on the Implications of Central Bank Digital Currencies

    The Committee on Payments and Markets Infrastructures and the Markets Committee of the Bank for International Settlements have issued a joint report that considers two types of central bank digital currency: (i) a wholesale CBDC for use in financial markets and limited to select financial institutions; and (ii) a general purpose CBDC that would be available for use by the public. The report analyzes the implications of both types of digital currency in the core central banking areas of payments, monetary policy implementation and financial stability.

    As regards wholesale CBDCs, the report finds that, while they might be useful for payments, more work is needed to assess their full potential. The report also finds that a wholesale CBDC would not alter the basic mechanics of monetary policy implementation, but that its transmission could be affected. The report states that a general purpose CBDC could have wide-ranging implications for banks and the financial system and could also have effects on the efficiency of financial intermediation. As a result, the report concludes that any jurisdiction considering the launch of a CBDC should carefully and thoroughly consider the implications before making any decision.

    The joint report has been published in advance of the meeting of the G20 central bank governors and finance ministers, scheduled for March 19-20, 2018, which, among other things, proposes to discuss the technology behind cryptocurrencies.

    View the joint report.

    View the press release.
    TOPIC: FinTech
  • European Commission Calls for Acceleration of Completion of the Capital Markets Union

    The European Commission has published a Communication on completing the Capital Markets Union by 2019. The Communication confirms the Commissions commitment to completing the CMU by mid-2019 and announces the publication of the FinTech Action Plan, including a proposed Regulation on Crowdfunding, and the Sustainable Finance Action Plan. Legislative proposals on covered bonds, the cross-border distribution of collective investment funds and the law applicable to third-party effects of assignment are expected to be published on March 12, 2018. In May 2018, the Commission intends to publish a proposed Directive on credit servicers, credit purchasers and the recovery of collateral as well as impact assessments on the SME listing regime and the resolution of investment disputes.

    The Commission states that completion of the CMU is more urgent due to the impending exit by the UK from the EU because the UK is currently the EUs largest financial centre. The Commission notes that an effective CMU will need to "open-up markets to give better access to finance for EU businesses and more and innovative investment opportunities for savers." 

    Read more
  • European Commission Proposed Legislation to Regulate Cross-Border Crowdfunding Service Providers

    The European Commission has published a proposed Regulation on European Crowdfunding Service Providers for Business. The proposed ECSP Regulation is part of the EU Capital Markets Union initiative and the Commission's FinTech Action Plan. It aims to increase access to finance through crowdfunding for innovative companies, start-ups and SMEs.

    The Commission is seeking to introduce an "EU label for crowdfunding service providers" which would be authorized and supervised by the European Securities and Markets Authority and able to passport their services across the EU. Currently, different EU Member States apply different levels of regulatory requirements to CSPs. Some Member States require CSPs to comply with onerous obligations under the Markets in Financial Instruments package, some apply more lenient regimes, while others allow CSPs to benefit from exemptions and remain unregulated. The Commission's view is that this divergence hampers the potential scaling-up of crowdfunding activity, because CSPs need to comply with different legal and regulatory requirements and adjust their business models accordingly if they want to provide services in more than one EU Member State. The Commission is not proposing that current national frameworks be repealed. Instead, those frameworks can continue to exist, which will allow CSPs to choose to either provide or continue providing services on a domestic basis under national laws or to provide services under the proposed ECSP Regulation. However, the Commission is proposing that the MiFID II Directive be amended to exclude CSPs from its obligations.

    Read more
  • European Commission Outlines its Action Plan for FinTech

    The European Commission has issued a Communication on FinTech to the European Parliament, the European Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions.

    The Communication sets out the Commission's Action Plan for FinTech, building on responses from the Commission's public consultation on its policy approach to FinTech, which ran from March to June 2017, and on the work of the Task Force on Financial Technology which was established in November 2016. The Action Plan is part of the Commission's efforts to build a Capital Markets Union and a true single market for consumer financial services. It is also part of its drive to create a Digital Single Market. The Communication is accompanied by Frequently Asked Questions on FinTech and a factsheet.

    At this stage, the Commission considers that there is limited need for regulatory or legislative action or reform. However, the outcome of ongoing monitoring and assessment of innovative technologies may point to the need for regulatory action at EU level in the future. The current Action Plan is concerned with initiatives designed to facilitate the emergence of innovative models throughout the EU (through sandboxes and similar approaches), to enable innovative models to scale up (through consistent licensing, common standards and interoperability). The Commission also aims to improve the uptake of technological innovation in the financial sector, by ensuring the suitability of the regulatory regime, reducing barriers to entry for innovative firms such as cloud service providers and, in particular, harnessing the potential of blockchain and other distributed ledger technologies. The Action Plan further outlines planned initiatives to strengthen cybersecurity as well as the integrity of the financial system.

    Read more
    TOPIC: FinTech
  • UK Parliament Launches Inquiry into Digital Currencies and Distributed Ledger Technology

    The House of Commons Treasury Committee has launched an inquiry into digital currencies and distributed ledger technology in the U.K. The inquiry will consider the risks and opportunities of digital currencies for consumers, businesses and the Government as well as the impact of DLT on financial institutions, financial market infrastructure and the central bank. The regulatory response of the Bank of England and the Financial Conduct Authority in relation to anti-money laundering legislation will also be assessed against the need to ensure the protection of consumers without repressing innovation.

    View the announcement.
    TOPIC: FinTech
  • UK Financial Conduct Authority Consults on Machine Executable Regulatory Reporting

    The Financial Conduct Authority is seeking input on using technology to assist firms to meet their regulatory reporting requirements. The FCA would like to improve regulatory reporting by firms so that it is more accurate, efficient and consistent, less reliant on human interpretation and quicker for firms to implement changes to the requirements.

    As part of its RegTech strategy, the FCA holds regular TechSprint events which are attended by financial services providers, technology companies and financial regulation experts to develop solutions to regulatory challenges. The Call for Input explains the proof of concept for Model Driven Machine Executable Regulatory Reporting which emerged at the November 2017 TechSprint.

    The proposed Model Driven Machine Executable Regulatory Reporting has the potential to make regulatory reporting requirements machine-readable and executable, enabling firms to use automated, straight-through processing of regulatory returns. The proof of concept successfully used rules from the FCA Handbook, the Prudential Regulation Authority's Rulebook and International Financial Reporting Standards, illustrating the possibility for firms to comply with multiple regulatory reporting requirements.

    Read more
    TOPIC: FinTech
  • 10 Key Implications and Considerations of FinTech for Banks and Bank Supervisors Published by the Basel Committee on Banking Supervision

    The Basel Committee on Banking Supervision has published a report, "Sound Practices on Implications of FinTech developments for banks and bank supervisors." The report is a result of the analysis by the Basel Committee-mandated taskforce of financial technology innovations and emerging business models in the banking industry, including the consultation that was run last year. The report sets out the final 10 key implications and considerations for banks and banking systems and for bank supervisors and regulatory frameworks. The report also provides an overview of the current state of play in the industry.

    The Basel Committee has decided not to determine whether there is a need to stipulate specific requirements at this stage. It will continue to monitor FinTech developments and assess whether any updates to the implications and considerations are warranted.

    View the report.
    TOPIC: FinTech
  • US Commodity Futures Trading Commission and UK Financial Conduct Authority Agree to Collaborate on Regulating FinTech Innovation

    The Commodity Futures Trading Commission and the Financial Conduct Authority have signed a Cooperation Arrangement on Financial Technology Innovation, an arrangement that commits both regulators to collaborating and fostering innovation through their respective FinTech initiatives, LabCFTC and FCA Innovate. This is the CFTC's first agreement of its kind with a non-U.S. counterpart and the FCA's first such agreement with a U.S. regulator. The arrangement will focus on information-sharing based on FinTech market trends and developments in each jurisdiction, simplify the referral process for FinTech companies interested in entering the other's market and facilitate sharing insight gained from each regulator's relevant sandbox, proof of concept or innovation competitions.

    CFTC Chairman J. Christopher Giancarlo in a statement said he believes this collaboration will allow the CFTC to contribute to the growing role of regulators in new technology markets, and FCA Chairman Andrew Bailey argued that international borders should not inhibit global technological innovation. Chairman Bailey also announced an upcoming joint event between the CFTC and FCA in London to demonstrate how firms can work and engage with both regulators in the FinTech space.

    View the joint press release.

    View the Cooperation Arrangement.
    TOPIC: FinTech
  • US Commodity Futures Trading Commission Issues First Customer Advisory on Virtual Currency Pump-and-Dump Schemes

    The Commodity Futures Trading Commission has issued its first customer advisory regarding pump-and-dump schemes in virtual currency markets. The CFTC warned customers to exercise extreme caution when investing in virtual currency listings promoted on social media, reportedly backed by famous high-tech business leaders and investors or accompanied by posts creating false urgency or telling investors to purchase right away.

    The CFTC noted particular concern with the anonymous nature of virtual currencies, which makes enforcement actions against pump-and-dump schemes difficult. These schemes may occur in the largely unregulated virtual currency cash markets, over which the CFTC only has anti-fraud and anti-manipulation enforcement authority.

    Additionally, the CFTC stated it has received multiple complaints from customers who have suffered losses due to virtual currency pump-and-dump schemes. The CFTC warned that virtual currencies should only be purchased after they have been thoroughly researched and that customers should avoid purchasing virtual currencies based on sudden price spikes.

    The CFTC also encouraged market participants to come forward with any information that could lead to an enforcement action against a virtual currency pump-and-dump scheme.

    View the CFTC’s customer advisory.

    View the CFTC’s press release.
    TOPIC: FinTech
  • UK Financial Conduct Authority Moots Global Sandbox

    The Financial Conduct Authority has issued a questionnaire on whether a global regulatory sandbox for fintech and other innovative businesses would be beneficial and how it would operate. The FCA set up the United Kingdom's Regulatory Sandbox in 2016 to provide a controlled environment for firms looking to develop and launch innovative businesses models. Similar sandboxes have been introduced in other countries as diverse as the United States, Australia, Bahrain, the Abu Dhabi Global Market, the Netherlands, Hong Kong, Malaysia, Thailand, Canada and Singapore. Other countries have officially announced the establishment of a sandbox or are in the process of setting up their sandbox.

    The FCA considers that a global sandbox could allow firms to conduct tests in different jurisdictions at the same time. It could also bring regulators together to identify and work on solutions to common cross-border regulatory issues. Recognizing that establishing a global sandbox would be an enormous task, the FCA also suggests, as an interim measure, the establishment of an international college of regulators with innovation or sandbox models, so that firms could access multiple regulators simultaneously. This approach would also allow the regulators to share and learn from each other about new innovative business models.

    The FCA requests feedback on the ideas by March 2, 2018. The FCA expects to provide an update on the global sandbox proposition later in March 2018.

    View the FCA webpage.

    View the questionnaire.
    TOPICS: CompetitionFinTech
  • European Securities and Markets Authority Outlines 2018 Plans for EU Supervisory Convergence

    The European Securities and Markets Authority has published its Supervisory Convergence Work Programme for 2018. It highlights a total of five key priorities for its work on supervisory convergence in 2018, comprised of three ongoing priorities (application of the revised Markets in Financial Instruments framework, data quality and investor protection) and two new priorities (Brexit and financial innovation).

    In addition to the key priorities, the 2018 programme also sets out ESMA key objectives and main planned outputs in relation to a number of thematic and cross-cutting issues, including: investor protection and intermediaries; secondary markets; investment management; market integrity (including market abuse and benchmarks); post-trading (including CCPs, securities financing and settlement); corporate finance (in particular the new prospectus regime); corporate reporting; market data; financial innovation; IT infrastructure; and peer reviews.

    Read more.

  • EU Blockchain Observatory and Forum Launched

    The European Commission has announced the launch of the EU Blockchain Observatory and Forum. The Commission intends the new Forum to build on existing initiatives and to ensure the feasibility of Blockchain use cross-border. It is also expected to assist in tackling difficulties arising from the use of Blockchain, such as disintermediation, trust, security and traceability. Furthermore, the Blockchain Observatory and Forum will support cross-border cooperation on practical use cases and be an open forum for discussing and developing new ideas.

    The Commission's FinTech Action Plan is expected to be issued in Spring.

    View the press release.
    TOPIC: FinTech
  • European Commission Hints at Future Changes to the Second Electronic Money Directive

    The European Commission has published a report to the European Parliament and the Council of the European Union on the implementation and impact of the second Electronic Money Directive, known as 2EMD. 2EMD establishes a legal framework for the issuance and redemption of e-money and covers the rights and obligations linked to the redemption of funds by consumers, the licensing of e-money institutions and the prudential requirements applicable to e-money institutions, which updates the regime under the first Electronic Money Directive to align it with requirements on payment institutions under the revised Payment Services Directive. It applies to e-money service providers in the EEA. The regime has been sparsely used in practice, with few firms operating under its auspices.

    2EMD requires the Commission to assess its implementation and impact and to propose legislative changes, if appropriate. The report was due on November 1, 2012, however, the Commission delayed its publication because a majority of member states had failed to transpose 2EMD into their national laws by the transposition date of April 2011. The Commission also wanted to take into account the impact of PSD2, which includes numerous cross-references to 2EMD.

    Read more.
  • European Supervisory Authorities Deliver Opinion on Benefits, Risks and Challenges of Innovative Customer Due Diligence Solutions

    The Joint Committee of European Supervisory Authorities has published an Opinion addressed to EU national regulators to develop a common understanding of the appropriate use, by credit and financial institutions, of innovative methods to meet Customer Due Diligence obligations.

    All firms that are subject to the Fourth Money Laundering Directive must put in place effective policies and procedures, including effective CDD procedures, to address the risk that their businesses may be used for money laundering or for terrorist financing purposes. 4MLD is "technology neutral" and does not set out specific steps or procedures that must be followed for CDD. There is scope, therefore, for new ways to verify customers' identity, for example non-face-to-face verification using traditional identity documents (such as passports) through portable devices or verification via centralized databases. Innovative means such as artificial intelligence are also increasingly used for monitoring customer relationships, for risk assessment and in decision-making processes.

    The ESAs recognize that innovative solutions can improve the effectiveness and efficiency of AML/CFT controls and firms often use innovative solutions to meet demand for improved customer experience and costs savings. The ESAs believe that firms should not be prevented from using such solutions, provided that proper safeguards have been put in place to mitigate the ML/TF risk associated with the firm's business relationships and risk profile. The ESAs' Opinion highlights additional factors that national regulators can take into account when assessing the adequacy of any proposed use of innovative CDD solutions. These include: oversight and control mechanisms; the quality and adequacy of CDD measures; the reliability of CDD measures; delivery channel risk; and geographical risks.

    View the Opinion.
  • Commodity Futures Trading Commission Discusses Approach to Virtual Currency Futures Markets

    The Commodity Futures Trading Commission has released a backgrounder on the federal oversight of virtual currencies and its approach to regulating the virtual currency derivatives markets. Because virtual currencies have been deemed a commodity, certain derivative and other transactions in virtual currencies may be subject to CFTC oversight under the Commodity Exchange Act.

    The CFTC outlined its 5-pronged approach to the regulation of derivatives involving virtual currencies, which will focus on (1) consumer education; (2) asserting legal authority; (3) market intelligence; (4) robust enforcement; and (5) government-wide coordination.

    Read more
    TOPICS: DerivativesFinTech
  • Draft UK Legislation Confirms Regulatory Position of Borrowers on Peer-to-Peer Lending Platforms

    HM Treasury has published draft legislation to amend the Financial Services and Markets Act 2000 (Carrying on Regulated Activities By Way of Business) Order 2001 (S.I. 2001/1177), to clarify the position of borrowers who raise funds through peer-to-peer lending platforms.

    The draft Order will, once it is approved by Parliament, clarify that only firms whose core business involves borrowing through a peer-to-peer platform would need to obtain a banking license and be regulated as a "deposit taker". The draft legislation has been laid before Parliament to address uncertainty for businesses borrowing via peer-to-peer platforms (and for the platforms themselves) as there is a risk that those borrowers might in certain circumstances be carrying on the regulated activity of accepting deposits.

    Read more.
    TOPIC: FinTech
  • European Banking Authority Publishes Recommendations on Outsourcing by Financial Institutions to Cloud Service Providers

    The European Banking Authority has published its final report on Recommendations on outsourcing by financial institutions to cloud service providers. The EBA has developed the Recommendations on its own initiative as part of its broader work on FinTech, given the increasing importance and popularity of cloud services as an enabling technology used by financial institutions.

    The Recommendations are designed to complement the guidelines on outsourcing issued by the EBA's predecessor, the Committee of European Banking Supervisors on December 14, 2006. The Recommendations further specify the CEBS guidelines in five key areas: the security of data and systems; the location of data and data processing; access and audit rights; chain outsourcing; and contingency plans and exit strategies.

    The Recommendations are addressed to credit institutions, investment firms and national regulators and will apply from July 1, 2018.

    View the EBA Final Report.
  • UK Financial Conduct Authority Rules Out New Rules for Distributed Ledger Technology

    The Financial Conduct Authority has published a feedback statement on Distributed Ledger Technology, following the discussion paper it issued in April 2017.

    Respondents to the discussion paper provided the FCA with details of various use cases for DLT in the context of payments, asset management, securities trading, financial crime and regulatory reporting. The feedback statement summarizes stakeholder feedback and the FCA's response in relation to: the operational risks arising from permissioned and permissionless networks; the risks and legal and regulatory issues associated with digital currencies and initial coin offerings; digital asset trading and smart contracts; the ability of DLT to improve regulatory reporting and the benefits it could bring in tackling financial crime; and whether DLT is compatible with the requirements of the EU General Data Protection Regulation.

    Read more.
    TOPIC: FinTech
  • SEC Chairman Jay Clayton Releases Statement on Cryptocurrencies and Initial Coin Offerings

    Chairman of the US Securities and Exchange Commission Jay Clayton released a public statement regarding cryptocurrencies and initial coin offerings (ICOs). In the statement, Chairman Clayton notes rapid growth in these areas and how expanding areas of innovation in this space may impact retail consumers and market professionals. With regard to retail consumers, Clayton reiterated that these investments carry with them reduced investor protections in comparison to traditional investments, highlighting that no ICOs have been registered with the SEC to date. For market professionals, Chairman Clayton stressed that, ICOs, while an innovation in the field, may still constitute securities transactions subject to SEC regulation, noting that much of the distinction between ICOs and traditional offerings may be more of a matter of form, rather than substance. Clayton also raised this point as it relates to cryptocurrencies, stating that merely calling a product a “currency” does not change the analysis of whether it is a security. Chairman Clayton further discussed the need for adequate disclosure, processes and investor protections with regard to ICOs, and stated that for cryptocurrencies, market professionals should either be able to demonstrate that the product is not a security, or comply with securities regulations.

    full text of Chairman Clayton’s statement.
    TOPIC: FinTech
  • UK Financial Conduct Authority Elaborates on its Mission and Consults on Approaches to Competition and Authorization

    The UK Financial Conduct Authority has published two consultations, seeking feedback on draft documents setting out its regulatory approach to authorization and competition. The two documents, once finalized, will form part of a series of formal approach documents explaining the FCA's approach to regulation in more depth. They should be read alongside the FCA's Mission document, which was first published in October 2016 and most recently updated in November 2017.

    In the consultation on its approach to authorization, the FCA explains the public value and purpose of requiring authorization to conduct regulated financial services activities and the FCA's current approach to authorizing firms and individuals. The FCA seeks feedback on four questions: (i) understanding of the Threshold Conditions that firms and individuals must meet for authorization, and any areas where the FCA might be more specific; (ii) how the FCA might improve its approach to supporting firms and individuals to meet the minimum standards and how the FCA might better promote competition; (iii) whether the FCA has suggested the correct commitments to firms making authorization applications and what other commitments could be made; and (iv) whether the FCA has prioritized the right strategic goals, and, if not, what additional goals could add the most public value to the FCA's work.

    Read more.
  • Federal Reserve Board Governor Lael Brainard Discusses the Impact of Fintech on Consumers

    US Federal Reserve Board Governor Lael Brainard discussed the evolution of FinTech including the impact in the consumer space and the important role that banks, data aggregators, consumers, and other stakeholders play in the evolution of this fast-changing market. Brainard noted that consumers often are unaware of how their data is collected, who it is collected by, and how it is used, which can present issues, particularly in the fast-moving and constantly evolving FinTech space. Governor Brainard highlighted the important role that the consumer plays in the FinTech market, and cautioned consumers against allowing their financial choices to be completely on autopilot without some consideration of the underlying processes.

    View Governor Brainard’s speech.
    TOPIC: FinTech
  • European Securities and Markets Authority Issues Alerts to Firms and Investors on Initial Coin Offerings

    The European Securities and Markets Authority has published a statement alerting investors about the high risks of investment in Initial Coin Offerings, including the risk of total loss of their investment. The statement is accompanied by an alert to EU firms involved in ICOs reminding them of their regulatory obligations.

    Read more.
  • US Securities and Exchange Chairman Jay Clayton Raises Concerns About Virtual Currency Offerings


    US Securities and Exchange Chairman Jay Clayton raised concerns about virtual currency offerings or so-called initial coin offerings. He noted that ICOs are  similar to securities offerings by firms required to register with the SEC. However, he was concern that there is a significant lack of information about online platforms that list and trade the virtual coins and tokens that are offered in such ICOs. Clayton highlighted the potential for misconduct, including price manipulation and trading practices. An SEC investigation into two ICOs, announced in September, is ongoing. Earlier this year, the SEC's Office of Investor Education and Advocacy issued an investor alert warning about the risks associated with ICOs.

    View Chairman Clayton's speech.
    TOPIC: FinTech
  • Financial Stability Board Considers Financial Stability Implications of Artificial Intelligence and Machine Learning in Financial Services

    The Financial Stability Board has published a report prepared by experts from its Financial Innovation Network, which examines the potential financial stability implications of the growing use of artificial intelligence and machine learning by financial institutions. Data on the extent of adoption of this technology is still relatively limited, but the FSB considers that, overall, AI and machine learning applications show great promise for the financial services industry, provided that their specific risks are managed properly. Potential risks for financial stability should be monitored over the coming years as this technology is adopted and more usage data becomes available. These potential risks include the possibility of third-party dependencies, which may introduce new systemically important players outside the regulated sector. There is also a risk of new and unexpected forms of interconnectedness developing between financial markets and institutions. The FSB is also concerned that it is not possible to interpret all aspects of AI and machine learning methods and stresses the importance of ensuring adequate testing and training of AI and machine learning applications with unbiased data and feedback mechanisms, to ensure applications behave as intended.

    The Report sets out a number of selected use cases and considers the possible effects of AI and machine learning on financial markets, financial institutions, consumers and investors along with a macro-financial analysis of issues such as possible market concentration and interconnectedness. The Report also considers the legal and ethical issues around AI and machine learning and sets out some preliminary thoughts on governance and the development and auditability of models.

    View FSB Report.

    View Press Release.
    TOPIC: FinTech
  • European Commission Furthers its Initiative on Crowdfunding and Peer-to-Peer Lending Platforms

    The European Commission has published an Inception Impact Assessment on the possible introduction of legislation for crowdfunding and peer-to-peer lending. The Inception Impact Assessment discusses the need for the EU to develop alternative financing sources as part of the Capital Markets Union and how this might be achieved through strengthening the EU crowdfunding market. The Commission has identified two issues that would need to be addressed - firstly, the relatively small scale of crowdfunding platforms and lack of cross-border activity and secondly, the market's perception of the lack of reliability of crowdfunding and peer-to-peer platforms. The Inception Impact Assessment discusses the policy options that will be included in the impact assessment, if the Commission decides to proceed with the proposal, which are: (i) no EU framework; (ii) a self-regulatory approach with minimum EU standards; (iii) a comprehensive approach that treats crowdfunding platforms like regulated trading venues or payment institutions; and (iv) a standalone opt-in EU framework for platforms wishing to undertake cross-border activity (leaving national regimes for purely domestic platforms). The Inception Impact Assessment is intended to inform stakeholders and market participants of the Commission's intentions and to seek feedback on the intended initiative and any related future consultations. Feedback is requested by November 27, 2017.

    View the consultation website.
    TOPIC: FinTech
  • Basel Committee on Banking Standards Consults on Implications of Fintech Developments for Banks and Bank Supervisors

    The Basel Committee on Banking Standards has issued a consultative document on the implications of fintech for the financial sector. The consultation document assesses how technology-driven innovation in financial services, or "fintech", may affect the banking industry, banks' business models and the activities of supervisors in the near to medium term.

    The Basel Committee has identified 10 observations and recommendations on supervisory issues for consideration by banks and their supervisors, which focus on risk management and the approaches that could be adopted to address the risks. The consultation considers various future potential scenarios - in addition to the banking industry scenarios, three case studies focus on technology developments (big data, distributed ledger technology and cloud computing) and three on fintech business models (innovative payment services, lending platforms and neo-banks). Responses to the consultation are requested by October 31, 2017.

    View the consultation paper.
    TOPIC: FinTech
  • European Banking Authority Discussion Paper on its Approach to Financial Technology

    The European Banking Authority has published a discussion paper seeking views on its assessment of areas in which it could conduct further work in the innovative field of financial technology. The discussion paper considers the work on FinTech already carried out in the EU and internationally. In the EU, this includes work by the European Supervisory Authorities and the European Commission and Parliament and at SSM level the work of the European Central Bank in developing policy on the assessment of licensing applications for FinTech credit institutions. Internationally, work has been carried out by both the FSB and the Basel Committee on Banking Supervision in order to assess the developments, risks, opportunities and challenges of FinTech.

    The discussion paper outlines the work carried out by the EBA in relation to FinTech, including the preliminary findings of a mapping exercise it carried out in May 2017 to gain a better insight into the financial services offered, and innovations applied, by FinTech firms in the EU, and their regulatory treatment.Based on the results of the mapping exercise, the EBA identifies a number of areas that merit further analysis. 

    Read more
    TOPIC: FinTech
  • G20 Leaders Outline Action Plan Following Hamburg Summit

    The G20 Leaders met in Hamburg, Germany on July 7-8, 2017 and have published a Leaders' Declaration and an Action Plan setting out the G20's strategy for achieving strong, sustainable, balanced and inclusive growth. The Action Plan includes ongoing and planned work on financial sector regulation and development.

    Read more.
  • US Government Accountability Office Releases FinTech Reports

    The US Government Accountability Office released the first in a series of planned reports on fintech. In the report, the GAO describes the general regulatory framework for oversight over four subsectors of fintech, including marketplace lending, mobile payments, digital wealth management and distributed ledger technology. The report also found that the regulation of each subsector depends on the extent to which the firms provide a regulated service and the format in which such services are provided.

    View the GAO report.
    TOPIC: FinTech
  • Financial Conduct Authority Publishes Discussion Paper on Distributed Ledger Technology

    The Financial Conduct Authority has published a discussion paper on distributed ledger technology (DLT). The FCA is seeking to start a dialogue on the potential for future development of DLT in the markets it regulates. The FCA describes DLT systems (such as Blockchain and Ethereum) as rapidly developing technology which offer exciting potential to support the needs of consumers and the market. However, it notes that DLT may also present new challenges and potential risks, such as how regulated firms allocate responsibilities for systems shared among them.

    In the discussion paper, the FCA discusses the risks and opportunities of DLT in relation to a number of specific areas, as follows:
    • governance and technology resilience;
    • DLT and distributed data;
    • recordkeeping and auditability;
    • smart contracts; and
    • the use of digital currencies to deliver financial services.
    The FCA generally takes a 'technology neutral' approach to regulating financial services. However, it is considering whether there is anything distinctive about DLT which would require it to take a different approach in order to support innovation in line with the FCA's competition objective. The discussion paper is aimed at both users and providers of DLT solutions in the sectors supervised by the FCA. Comments on the Discussion Paper are due by July 17, 2017.

    View the Discussion Paper and related webpage.

    View the online response form.
    TOPIC: FinTech
  • US Comptroller of the Currency Discusses Fintech

    US Comptroller of the Currency Thomas Curry provided remarks describing actions the OCC has taken to meet the needs of all types of consumers, businesses and communities in the US. Specifically, he described a new department at the OCC, Compliance and Community Affairs Department, which brings together policy, supervision and community outreach in respect of consumer compliance, fair lending, AML/BSA and the Community Reinvestment Act. Curry also discussed OCC’s focus on encouraging innovation and establishing a framework for responsible innovation in the federal banking industry. He noted that the OCC started conducting research and discussing opportunities for innovation and financial technology (fintech) with banks and other companies as well as community and consumer groups, academics and other regulators in 2015, before releasing its framework in October 2016. He also discussed the agency’s draft supplement to its licensing manual that provides additional detail on how the OCC would evaluate applications for national bank charters from fintech companies and how the agency would supervise these banks and ensure fair access and treatment of customers. Specifically, Curry emphasized that the supplement does not establish any new authority, charter or policy and rather builds upon existing rules, guidance and processes. He further noted that, although changes to the OCC’s manuals are not typically released for public comment, the OCC is accepting comment on the supplement until April 14, 2017 in order to appropriately incorporate industry feedback.

    View full text of speech.
    TOPIC: FinTech
  • US Office of the Comptroller of the Currency Releases Draft FinTech Charter Supplement

    The US Office of the Comptroller of the Currency released its proposed FinTech charter supplement to the Comptroller’s Licensing Manual. Among other things, the OCC supplement defends the decision to consider issuing special purpose national bank charters for FinTech companies and provides further guidance on (i) initial steps for applying for an SPNB charter; (ii) standards that would apply to such a charter; (iii) applicable business plan requirements (i.e., inclusion of alternative business strategies, contingency plans and recovery and exit strategies); and (iv) the approval process. Comments on the OCC draft supplement are due by April 14, 2017.

    View the OCC supplement.
    TOPIC: FinTech
  • Committee on Payments and Market Infrastructures Publishes Analytical Framework of Distributed Ledger Technology

    The Committee on Payments and Market Infrastructures published a report on distributed ledger technology in payment, clearing and settlement. In the context of payment, clearing and settlement, DLT enables entities to carry out transactions without relying on a central entity to maintain a single ledger. Financial market infrastructures are entrusted by their participants with maintaining a central ledger and, in some cases, managing certain risks on behalf of participants. It has therefore been commented that DLT could reduce the reliance on a central ledger managed by a FMI.

    The objective of the report is to provide central banks and authorities with an analytical framework for assessing DLT arrangements, focusing on those that involve restricted ledgers where access is limited to approved users only.

    Read more.
  • International Organization of Securities Commissions Publishes FinTech Research Report

    The International Organization of Securities Commissions published a research Report on financial technologies, or FinTech – innovative business models and emerging technologies that have the potential to transform the financial services industry. The Report focuses on the delivery of securities and capital markets products and services through FinTech, examining financing platforms, retail trading and investment platforms, institutional platforms and distributed ledger technologies. The Report analyzes the risks, benefits and opportunities of the products and services and summarizes some of the most recent regulatory responses. 

    View the Report.
    TOPIC: FinTech
  • New York State Department of Financial Services Grants Virtual Currency License to Coinbase, Inc.

    The NYSDFS approved the application of Coinbase, Inc., a wholly owned subsidiary of Coinbase Global, Inc., for a virtual currency and a money transmitter license. As part of its review of Coinbase’s application, NYSDFS analyzed the company’s anti-money laundering, capitalization, consumer protection and cyber security policies. Coinbase, which is subject to ongoing supervision by NYSDFS, offers services for buying, selling, sending, receiving and storing bitcoin.

    NYSDFS approved five firms for virtual currency charters or licenses, while denying other applications that did not meet NYSDFS’s standards. In addition to Coinbase, NYSDFS granted licenses to XRP II and Circle Internet Financial and charters to Gemini Trust Company and itBit Trust Company. ChangeCoin Inc., Ovo Cosmico Inc., Snapcard Inc. and OKLink PTE. LTD. each received application denial letters ordering them to stop any New York operations.

    NYSDFS has previously licensed technology-based money transmitters under New York’s money transmitter law, online lenders under New York’s banking law and virtual currency exchanges under New York’s financial services law.

    View NYSDFS press release.
    TOPIC: FinTech
  • New York State Department of Financial Services Superintendent Submits Comment Letter to US Office of the Comptroller of the Currency Opposing Proposed Special Purpose National Bank Charter for FinTech Companies

    NYSDFS Superintendent Maria T. Vullo submitted a comment letter opposing the OCC’s proposal to create a new national bank charter for FinTech companies. Vullo noted that a one-size-fits-all federal charter will not work to create a level-playing field among all financial services companies, or to alleviate risks. Rather, she argued, the proposal increases risk, creates an opportunity for regulatory arbitrage and attacks states sovereignty.

    The letter provides that the OCC has never regulated nonbank financial institutions, and that state regulators like NYSDFS are experienced and therefore better equipped to regulate cash-intensive nonbank financial service companies. Furthermore, the NYSDFS argued that the National Bank Act does not provide the OCC with authority to create this new proposed charter, which would create an entirely new federal regulatory program resulting in regulatory uncertainty and possible evasion of important state consumer protection laws. The letter also notes that a national charter would likely stifle, rather than encourage innovation, since it would provide a means for large “too big to fail” firms to control the development of technology solutions, thereby harming existing banks and small businesses seeking to serve local communities.

    NYSDFS has called on state regulators, legislators and other policymakers to oppose the OCC’s proposed special charter and support the nation’s strong state-based regulatory system.

    View NYSDFS comment letter.
    TOPIC: FinTech
  • US Office of the Comptroller of the Currency to Grant Charters to Fintech Firms

    The Comptroller of the Currency, Thomas Curry, announced that the OCC would commence considering applications from financial technology companies that offer bank products and services for a grant of a special purpose bank charter. The ability to obtain a bank charter would eliminate the need for Fintech companies to register in multiple states, each with different laws and restrictions. Although the details of the charter are not final, the OCC released a paper discussing the issues and conditions that will be considered in granting special purpose bank charters. That paper indicates that such institutions would not be required to take FDIC-insured deposits. In a related Fintech development, Federal Reserve Board Governor Brainard gave a speech at a Federal Reserve Board conference on emerging financial technologies. She addressed various developments and the need to address related risks, and she noted the Federal Reserve Board’s earlier establishment of a working group on fintech innovation.

    View the OCC press release.

    View the OCC paper.

    View Governor Brainard’s speech.

    TOPIC: FinTech
  • US Federal Reserve Board Releases Discussion Paper on Distributed Ledger Technology

    In early December 2016, the US Federal Reserve Board’s Divisions of Research & Statistics and Monetary Affairs released a discussion paper entitled “Distributed Ledger Technology in Payments, Clearing, and Settlement.”

    The paper notes how digital innovations in finance, loosely known as Fintech, have garnered a great deal of attention across the financial industry. Distributed ledger technology (DLT) is one such innovation that has been cited as a means of transforming payment, clearing and settlement processes, including how funds are transferred and how securities, commodities and derivatives are cleared and settled. The paper examines how this technology might be used in the area of payments, clearing and settlement and to identify both the opportunities and challenges facing its practical implementation and possible long-term adoption. The authors state that DLT has the potential to provide new ways to transfer and record the ownership of digital assets; securely store information; provide for identity management; and other evolving operations through peer-to-peer networking, access to a distributed but common ledger among participants and cryptography. Potential use cases in payments, clearing and settlement include cross-border payments and the post-trade clearing and settlement of securities transactions. These use cases could address operational and financial frictions around existing services.

    Read more.
    TOPIC: FinTech
  • US Securities and Exchange Commission Commissioner Piwowar Calls for SEC to Take the Lead on FinTech

    SEC Commissioner Michael S. Piwowar spoke at the SEC’s Financial Technology Forum, calling for the SEC to take “the lead regulatory role” in the FinTech space, noting that the SEC is “uniquely situated” to do so. Piwowar claimed the current regulatory struggle for financial technology firms is not dealing with any specific regulation, but dealing with navigating multiple regulators and possibly contradictory regulation. He stated that the SEC is the ideal regulator for FinTech companies because many financial technology firms are already SEC registrants and the SEC has a unique mandate and capacity to regulate the emerging industry.

    View Commissioner Piwowar’s remarks.
    TOPIC: FinTech
  • US Office of the Comptroller of the Currency Issues Responsible Innovation Framework

    The OCC announced it will establish an office dedicated to responsible innovation and implement a formal framework to improve the agency’s ability to identify, understand and respond to financial innovation affecting the federal banking system.

    The Office of Innovation will be headed by a Chief Innovation Officer assigned to OCC Headquarters with a small staff located in Washington, New York and San Francisco. The office will be the central point of contact and clearinghouse for requests and information related to innovation. It will also implement other aspects of the OCC’s framework for responsible innovation, which include: (i) establishing an outreach and technical assistance program for banks and nonbanks; (ii) conducting awareness and training activities for OCC staff; (iii) encouraging coordination and facilitation; (iv) establishing an innovation research function; and (v) promoting interagency collaboration.

    The OCC expects the office to begin operations in first quarter 2017. To support implementation of the framework, the agency has named Beth Knickerbocker acting Chief Innovation Officer.

    View OCC’s Recommendations and Decisions for Implementing a Responsible Innovation Framework.
    TOPIC: FinTech
  • US Consumer Financial Protection Bureau Releases Project Catalyst Report Highlighting Consumer Innovation

    The US Consumer Financial Protection Bureau released a report highlighting market innovations with the potential for consumer benefits as part of its Project Catalyst, a collaborative effort for the CFPB to research and encourage new or emerging projects that are consumer-friendly. The CFPB highlighted how Project Catalyst has led to the regulator engaging with companies and entrepreneurs that are developing new financial productsthe report highlighted how the placing of the CFPB’s “trial disclosure waiver” program and no-action letter policy under the auspices of Project Catalyst has led to the CFPB better supporting innovation.

    Read more.
    TOPIC: FinTech
  • US Consumer Financial Protection Bureau Director Discusses Financial Innovation

    CFPB Director Richard Cordray delivered a speech at Money 20/20, focused on how financial innovation can better serve consumers. Cordray noted that CFPB, as a new agency, feels an affinity towards innovators in finance. Cordray highlighted how FinTech companies and financial institutions are developing products that “cut across” regulatory frameworks and pledged that CFPB will continue to work with companies to encourage innovation, while ensuring laws are complied with—he cited enforcement actions CFPB has taken focused on deceptive conduct, while noting that the agency is not looking to punish actors for “raising novel issues” or questions that fall into “unforeseen cracks in regulatory framework.”

    The majority of Cordray’s remarks focused on 2 points: (i) how innovation can facilitate access to financial markets and products to underserved populations and (ii) how technology can help consumers better manage their own finances. He noted that technology is giving customers who remain “locked out” of traditional banking system options beyond an all-cash economy. He also highlighted automatic or motivational tools that help encourage consumers to save and talked about various CFPB policies, including its no-action letter program that allows programs to hold promise for consumers but would be held back by regulatory uncertainty to proceed for a defined period. Cordray concluded that the interests the CFPB and FinTech firms are aligned at a deep level, as they both require a focus on service to consumers.

    View Cordray's remarks.

    TOPIC: FinTech
  • US Federal Reserve Board Governor Delivers Remarks on Distributed Ledger Technology

    As part of remarks delivered at an Institute of International Finance panel on blockchain, US Federal Reserve Board Governor Lael Brainard addressed distributed ledger technology, noting that this technology may represent the most significant development in many years in payments, clearing and settlement. Brainard highlighted the payments system as an important area of oversight, noting that the FRB wants to maintain public confidence in the payments system, while supporting innovation that provides broadly shared benefits to the public over time, including through reduction of unnecessary frictions, costs and delays.

    Among other things, Brainard discussed several use cases that the FRB explored in its discussions with industry stakeholders in order to illustrate the potential of distributed ledger technologies, as well as considerations important to the FRB in its assessment of benefits and risks. Regarding risk associated with the use of distributed ledgers, Brainard stated that, “[w]hat matters to us as policymakers and regulators is not only whether the migration to a new technological platform increases or reduces risks, but also whether risks are rendered more or less opaque, and how they are distributed among and between financial intermediaries and end users.”

    Brainard noted that going forward, the FRB will deepen its engagement with a range of financial institutions and other stakeholders to refine its understanding of the new technologies, and will focus specifically on is responsibilities for the payments system, as well as its oversight of financial market intermediaries. The FRB expects to publish a research paper later this year that summarizes some key findings from its industry engagement on this topic thus far.

    View Governor Brainard's remarks.
    TOPIC: FinTech
  • Representative Patrick McHenry of the US House of Representatives Introduces Fintech Legislation

    Representative Patrick McHenry (R-NC), introduced a bill entitled “Financial Services Innovation Act of 2016,” that would, among other things, establish Financial Services Innovation Offices (FSIOs) at applicable agencies in order to (i) support the development of financial innovations and (ii) establish procedures to streamline the time and cost of financial innovations. In addition, the proposed legislation includes a petition process through which covered persons (i.e., anyone offering financial services innovation products or services that submits a petition to an FSIO) may request a waiver from any regulation by submitting required information, including an alternative compliance strategy.

    View full text of the proposed legislation.
    TOPIC: FinTech
  • UK Regulator Publishes Findings on RegTech Call for Input

    The Financial Conduct Authority published a Feedback Statement on its call for input on implementation of future RegTech in the UK. The FCA defines RegTech as a sub-set of FinTech with a focus on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities. The Feedback Statement summarizes industry responses to the FCA’s call for input, outlines the FCA’s approach to RegTech for 2016/17 and the activities it will prioritize.  The FCA intends to increase engagement and collaboration with the RegTech community, noting that it has restricted potential to assist the industry in defining standards and guidelines to provide certainty for firms purchasing new technology capabilities. The FCA aims to improve compliance and reduce the overall costs of regulation by encouraging innovation development and the adoption of new technologies that help and improve the interface between the regulator and regulated firms. 

    View the feedback statement.
    TOPIC: FinTech
  • US Comptroller of the Currency Highlights Framework for Evaluating Responsible Innovation

    US Comptroller of the Currency Thomas J. Curry delivered remarks as part of the US OCC’s Forum on Responsible Innovation, highlighting the OCC’s efforts to develop a framework for identifying and evaluating responsible innovation. Comptroller Curry defined a responsible innovation as one that meets the changing needs of consumers, businesses and communities, is consistent with sound risk management and aligns with the company’s business strategy. Within the context of a federal banking system, a responsible innovation is one that would help institutions achieve their public purpose without compromising their safety or soundness. During his remarks, Comptroller Curry made references to the OCC White Paper on responsible innovation that was released in March 2016.

    In addition to Comptroller Curry’s remarks, the forum brought together thought leaders from banks, financial technology companies, academia, community and consumer groups and the OCC to discuss developments, opportunities and challenges related to financial innovation. The forum examined questions such as whether financial technology companies and banks could coexist and learn from one another and what the impact of innovation on consumers and communities may be.

    View Comptroller Curry’s remarks.
    TOPIC: FinTech
  • European Securities and Markets Authority Seeks Views on Distributed Ledger Technology

    The European Securities and Markets Authority published a discussion paper on how distributed ledger technology (including, for example, "blockchains") applies to the securities markets. ESMA is assessing the risks posed by DLT as well as the benefits and key challenges of DLT for securities markets. ESMA’s paper provides an analysis of the applicable EU regulatory framework, focusing on legislation for post-trading activities, which include the European Market Infrastructure Regulation, the Settlement Finality Directive, and the Central Securities Depositories Regulation. Responses to the discussion paper are invited by September 2, 2016. ESMA will assess the feedback to develop its position on the use of DLT in the securities markets and to assess the need for a regulatory response. 

    View the discussion paper. 
    TOPIC: FinTech
  • US Commodity and Futures Trading Commission Commissioner Addresses Regulatory Issues Associated with Distributed Ledger Technology

    US Commodity and Futures Trading Commission Commissioner Christopher Giancarlo discussed the potential of distributed ledger technology, which he called "the biggest technological innovation in the financial services industry and financial market regulation in a generation or more." He noted the potential for distributed ledger technology to reduce dependence on third parties, mitigate centralized systemic risk, and perform margin payments in the event of a counterparty default.  In addition to the operational and transactional advantages that distributed ledger technology could bring to firms, Giancarlo suggested that it could also help financial market regulators in overseeing the broader financial market. As he has done in prior speeches, Giancarlo emphasized that in order for this technology to flourish, regulators must take a “do no harm” approach. He noted that regulations regarding distributed ledger technology are likely years away but suggested five steps for regulators to take to ensure that they “do no harm” to allow for distributed ledger technology innovation. Specifically, he recommended that the CFTC and other regulators designate teams to work collaboratively with FinTech companies, foster a regulatory environment that spurs innovation, participate directly in proof of concepts to ensure they understand the technology, work with innovators to determine how rules and regulations should be adopted, and collaborate globally.

    View Commissioner Giancarlo’s speech.
    TOPIC: FinTech
  • Governor of the US Board of Governors of the Federal Reserve System Addresses Challenges of Distributed Ledger Technologies

    Federal Reserve Board Governor Lael Brainard, in a speech given at the Institute of International Finance Blockchain Roundtable, discussed the key challenges involved in the use of distributed ledger technologies in payment, clearing and settlement. In her comments, Governor Brainard discussed some key concerns inherent in distributed ledger technologies, including the challenge of balancing confidentiality and security of firm and client records with the effort to effectively manage access to transaction records for faster and more efficient clearance and settlement, and stressed the importance of fully understanding how different distributed ledger technologies interoperate with each other and with legacy systems.

    View the full text of Governor Brainard’s speech.
  • UK Government Announces Steps to Support UK FinTech Growth

    The Economic Secretary to the UK Treasury, Harriett Baldwin, gave a speech at the 2016 Innovate Finance Global Summit in London. The Economic Secretary announced certain policies that the UK Government had adopted to support the FinTech sector, including establishing a FinTech panel, the delivery of a support function to set an overarching UK FinTech strategy and establishing ‘FinTech Bridges’ to work with priority global markets to assist UK FinTechs to grow internationally.

    View HM Treasury's press release
    TOPIC: FinTech
  • UK Government Consults on Draft Innovation Plan for Financial Services

    The UK Government launched a consultation on a draft innovation plan for financial services. The innovation plan covers the work of each of the financial services regulators – the Financial Conduct Authority, the Payment Systems Regulator, the Prudential Regulation Authority and the Bank of England – setting out the steps that each regulator has taken or intends to take to adapt to new technologies and disruptive business models to encourage competition and growth and to better utilize technologies to reduce burdens on business and create efficiency savings. The consultation seeks feedback on the UK's regulatory environment for financial services supporting innovation, whether the regulators understand innovation and where new technologies might emerge, if there are any gaps that the regulators should focus on and if there are ways that the regulators could better utilize technologies. Responses are requested by May 6, 2016.
    TOPICS: CompetitionFinTech
  • US Comptroller of the Currency Discusses Innovation in the Financial Services Industry

    At the American Banker Retail Banking Conference, US Comptroller of the Currency Thomas J. Curry discussed innovation in the financial services industry and its impact on retail bankers, consumers of banking services and regulatory agencies. Comptroller Curry noted that if banks are to remain relevant in a changing world, they have to be able to adapt quickly to changes in technology and business practices. He also noted the importance of regulators being open to such changes but cautioned that regulators do so in a responsible way that does not threaten the safety of the system or the financial well-being of bank customers. The Comptroller also spoke about the OCC’s principles for implementing a regulatory framework to support responsible innovation in the federal banking system.

    View Comptroller Curry’s remarks
    TOPIC: FinTech
  • US Office of the Comptroller of the Currency Releases White Paper on Financial Innovation; Comptroller Curry Discusses the Paper and the OCC's Approach to Innovation

    The US Office of the Comptroller of the Currency published a white paper on its vision for responsible innovation in the federal banking system and the eight principles that it will follow in developing a framework to evaluate new financial products and services, including formal outreach to the industry and collaboration with other regulators. The OCC also solicited feedback on how the OCC can facilitate responsible innovation, including what additional tools and resources could assist national banks and federal savings associations with regard to innovation. Comptroller Thomas J. Curry discussed the paper and the OCC's general approach to financial innovation in remarks he gave at Harvard. He discussed the challenges that financial technology companies pose to traditional banks, and how these challenges encourage banks to evolve and improve the products and services they offer to businesses and consumers, but cautioned that banks must do so in a responsible way that is consistent with sound risk management practices. Curry mentioned the possibility of creating a new office dedicated to innovation, and noted the OCC’s commitment to work with banks to identify and understand new technology and help banks manage associated risks and comply with consumer safeguards. Comments on the white paper are due by May 31, 2016. The OCC will host a forum on June 23, 2016, to discuss comments on the white paper and lead a discussion on financial services innovation.

    View the OCC's White Paper.

    View Comptroller Curry’s speech.
    TOPIC: FinTech
  • US Securities and Exchange Commission Chair Mary Jo White Discusses Technology Developments and Governance Challenges in Financial Markets

    US Securities and Exchange Commission Chair Mary Jo White discussed the importance of strong governance and investor protection in the wake of developments and innovation in technology and financial markets. Specifically, Chair White discussed the importance of pre-IPO companies making accurate disclosures, and in particular the implications and potential consequences of the increase in so-called "unicorns" which are private start-up firms with valuations that exceed $1 billion. White also remarked on the need to protect investors that are investing under new SEC rules for capital raising under the JOBS Act -Regulation D, Regulation A+ and Regulation Crowdfunding - all of which are designed to allow smaller companies to access the capital markets. White noted that implicit in improving investor protection are strong financial controls and corporate governance, topics which are particularly important for private pre-IPO companies particularly as they go public and grow, often exponentially. Tools such as ensuring relevant expertise on boards and implementing investor protections while pre-IPO companies are private can help mitigate against the risks faced by rapidly growing start-ups. Finally, White noted that the SEC is closely monitoring developments and related investor protection issues in digital finance or fintech, namely blockchain technology, automated investment advice (robo-advisors) and online marketplace lending platforms.

    View Chair White’s speech
  • US Commodity Futures Trading Commission Commissioner Giancarlo Discusses Blockchain Regulatory Framework

    US Commodity Futures Trading Commission Commissioner Christopher Giancarlo discussed distributed ledger technology, commonly known as DLT or blockchain and its potential to "revolutionize the world of finance." He noted some of the potential uses of blockchain technology, including increasing settlement efficiency and speed, linking recordkeeping networks, reducing transaction costs and increasing market access. Giancarlo also noted potential opportunities in payments, banking, securities settlement, title recording, cyber security and trade reporting and analysis. Citing the collapse of Lehman Brothers, Giancarlo emphasized that blockchain technology could provide regulators better visibility into trading portfolios between counterparties, allowing them to react sooner in the face of financial deterioration. Analogizing the development of blockchain to the inception of the internet, Commissioner Giancarlo called on US regulators to let the private sector lead and to avoid impeding innovation and investment as the technology develops. He advocated for a principles-based approach developed in coordination between US and foreign regulators. Finally, he noted that regulators should revisit existing rules and recordkeeping requirements to be sure that they do not inhibit innovation. With respect to the CFTC specifically, he said his agency will revisit Rule 1.31 - a recordkeeping rule that requires all books and records to be kept in their original form or native file format.

    View Commissioner Giancarlo’s speech.
  • US Comptroller of the Currency Delivers Speech Regarding Innovation in Banking 

    US Comptroller of the Currency Thomas J. Curry delivered remarks before the National Community Reinvestment Coalition, where he addressed how banks are adapting to financial technology changes and the Office of the Comptroller of the Currency’s role in supporting responsible bank innovation. Among other things, Comptroller Curry noted that the OCC will soon publish a paper outlining its views on financial services innovation that will enable the agency to “evaluate innovative products, services, or processes that require regulatory approval and identify potential risks associated with adoption.”

    View the Comptroller’s speech.  

    TOPIC: FinTech