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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.

  • Financial Stability Board Plenary Meets to Review Global Financial System Vulnerabilities, FinTech and its 2020 Work Program

    The Financial Stability Board has met in Paris to review key issues facing financial markets, including vulnerabilities in the global financial system, FinTech developments and its 2020 work program. 

    Read more.
  • IOSCO Confirms That Stablecoins Are Potentially Within the Securities Regulatory Perimeter

    The International Organization of Securities Commissions has issued a statement confirming that it is possible, depending on their structure, for stablecoins to fall within the scope of securities market regulation. IOSCO has undertaken an in-depth study (not published) of stablecoins and has concluded that each proposed stablecoin, the manner in which it is intended to operate and the rights and obligations conferred on participants needs to be analyzed to assess the risks and benefits of the particular stablecoin. The statement is widely considered to be in response to Facebook's announcement about its proposed stablecoin, Libra. According to IOSCO, certain stablecoins may have features that are similar to securities and accordingly will be within the regulatory perimeter of some countries. IOSCO calls on entities that wish to launch stablecoins to engage with regulators so that any risks associated with the operation of the stablecoin might be mitigated.

    View IOSCO's statement.
    TOPICS: FinTechSecurities
  • G7 Working Group Reports on the Impact of Global Stablecoins

    The G7 working group on stablecoins has published a report investigating the impact of global stablecoins. The working group is comprised of senior officials from the G7 central banks, the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board, and is chaired by Benoît Cœuré (Chair of the Committee on Payments and Market Infrastructures). 

    Read more.
  • Financial Stability Board to Assess Potential Risks of Stablecoins

    The Financial Stability Board has published a report on regulatory issues arising with respect to so-called stablecoins. The FSB defines a stablecoin as "a crypto-asset designed to maintain a stable value relative to another asset (typically a unit of currency or commodity) or a basket of assets" which may be "collateralised by fiat currency or commodities, or supported by algorithms".

    Read more.
  • Financial Stability Board Publishes Letter to G20 Ministers on Effect of Reforms and Future Work

    The Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors describing the progress of post-financial crisis reforms and key focus areas for the future. Over the past ten years, the FSB has proposed a number of reforms to the global financial system, working with international organizations on implementation to improve financial stability.

    Read more.
  • UK Financial Policy Committee Issues Summary of UK Financial System

    The U.K. Financial Policy Committee has issued a summary of the resilience of the U.K. financial system to potential economic shocks and the vulnerabilities it faces. The summary follows the FPC’s meeting on October 2, 2019, at which the FPC agreed on its intended policy action going forward. The FPC is made up of Bank of England staff, the Chief Executive of the U.K. Financial Conduct Authority and certain external members who work to identify, monitor and take action to remove or reduce systemic risks to the U.K. financial system.

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  • European Banking Authority Publishes Strategic Focus Areas for 2020

    The European Banking Authority has published its 2020 Work Programme. The Programme details six strategic areas of focus for 2020 and these are:
    1. Support the development of the risk reduction package and the implementation of the global standards in the EU. The EBA will work on developing level 2 legislation required by the revised Capital Requirements Regulation and Directive, the revised Bank Recovery & Resolution Directive and the new Covered Bonds Directive and Investment Firm Regulation and related Directive (the latter two have not yet entered into force). The EBA will continue to work on the implementation of the market risk requirements, following the finalization of the Basel Committee on Banking Standard's fundamental review of the trading book (FRTB). In particular, in 2020, the EBA anticipates implementing the reporting requirement and certain aspects of the FRTB revisions for the internal model approach and for the treatment of non-trading book positions subject to FX or commodity risk. Another priority will be finalization of the EBA's roadmap for the internal ratings-based approach for calculating minimum capital requirements for credit risk.
    2. Providing efficient methodologies and tools for supervisory convergence and stress testing. The EBA intends to consult on Pillar 2 changes during 2020 and will conduct the 2020 stress test for EU banks.
    Read more.
  • International Organization of Securities Commissions Review of Suitability Requirements for Complex Products

    The International Organization of Securities Commissions has published a report, "Thematic Review on Suitability Requirements with respect to the Distribution of Complex Financial Products". The report summarizes the outcome of the review IOSCO undertook of a sample of member jurisdictions' implementation of the IOSCO 2013 Suitability Requirements for the Distribution of Complex Financial Products, which aims to prevent mis-selling of complex products. The Suitability requirements comprise nine principles relating to classification of customers, general duties regardless of customer classification, disclosure requirements, customers protections, incentives and enforcement.

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  • US Court Rejects Suit Over Office of the Comptroller of the Currency FinTech Charter

    Judge Dabney Friedrich of the U.S. District Court for the District of Columbia has dismissed a lawsuit brought by the Conference of State Bank Supervisors (CSBS) that would have prevented the Office of the Comptroller of the Currency from offering a special purpose national bank charter to certain non-bank financial services firms. The CSBS brought the lawsuit in October 2018 following the OCC's July 2018 announcement that it would begin accepting applications for the FinTech charter, arguing that the OCC lacks the authority to award bank charters to non-depository institutions. However, Judge Friedrich concluded that the CSBS did not have standing to bring the suit given the fact that the OCC has yet to award a FinTech charter to any non-bank financial services firms.

    Read more.
    TOPIC: FinTech
  • UK Court Grants Asset Preservation Order over Bitcoin

    A U.K. court has granted an asset preservation order over Bitcoin stolen in a "spear phishing" attack on a major crypto-currency trader. The decision confirms that proprietary claims over Bitcoin constitute serious issues that should be tried in the courts. Although the presiding judges did not make a final ruling on the legal questions surrounding the nature of Bitcoin ownership, it is believed that this is the first time the English courts have considered the nature of crypto-currencies as property.

    Read more.
  • UK Regulator Provides Guidance on Regulatory Perimeter and Crypto-Assets

    The U.K. Financial Conduct Authority has published a Policy Statement and final Guidance on Crypto-assets. The Policy Statement summarizes the feedback received to the FCA's consultation on draft Guidance and sets out the FCA's response to that feedback. The final Guidance is, for the most part, the same as that on which the FCA consulted, except the FCA has made some drafting changes to provide further clarity and has added some guidance on stablecoins and airdrops. In addition, the FCA has revised the taxonomy by making a distinction between: (i) unregulated tokens, which are exchange tokens and utility tokens; and (ii) regulated tokens, which are security and e-money tokens.

    The Guidance is intended to clarify the FCA's expectations for firms carrying on crypto-asset activities within the U.K. by providing insight for market participants on whether certain crypto-assets are within the FCA's regulatory perimeter or are otherwise regulated. The FCA highlights that the Guidance should be used by firms to understand the regulatory status of their crypto-asset activities, but assessing whether a crypto-asset or related activity is within the regulatory perimeter can only be done on a case-by-case basis. Firms should also refer to the FCA's Perimeter Guidance Manual (PERG) in its Handbook, and where firms need further clarification, they should contact the FCA and/or obtain external legal advice.

    The Guidance provides an overview of the U.K. regulatory perimeter and discusses relevant concepts, such as "by way of business." It also refers to the territorial scope of the regulatory perimeter, referring to the detailed guidance in PERG and highlighting that where part of an activity is carried on outside the U.K., a firm may still be carrying on a regulated activity in the U.K.

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  • European Banking Authority Reports on Regulatory Perimeter, Regulatory Status and Authorization of Fintech Activities

    Fulfilling its mandate under the European Commission's FinTech Action Plan to map the current authorization and licensing approaches for innovative FinTech business models in Europe, the European Banking Authority has published a report on the regulatory perimeter, regulatory status and authorization of FinTech activities under its remit, in particular the banking, payment services and electronic money services sectors. The European Securities and Markets Authority published its related report on July 12, 2019.

    Read more.
  • European Securities and Markets Authority Publishes Report on the Licensing of FinTech Business Models

    Fulfilling its mandate under the European Commission's FinTech Action Plan to map the current authorization and licensing approaches for innovative FinTech business models in Europe, the European Securities and Markets Authority has published a report on the licensing of FinTech business models. The report sets out the key conclusions identified from the information collected from national regulators through two surveys that ESMA conducted in the last two years, and some of the actions that have been taken to address the emerging challenges. The report does not make any recommendations, but instead refers to previous advice and reports that make recommendations for an EU-level response to the issues.

    Read more.
    TOPICS: FinTechSecurities
  • US Regulators Clarify Position on Broker-Dealer Custody of Digital Asset Securities

    The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority have issued a joint statement clarifying how their traditional regulatory approaches would apply to how broker-dealers handle their customers' digital asset securities and transactions. Specifically, the statement focuses on how certain SEC and FINRA rules apply to broker-dealers that wish to take custody of digital asset securities or perform other noncustodial activities involving such assets.

    The SEC and FINRA staffs (collectively, the "Staffs") said that a number of firms have applied to FINRA to engage in broker-activities involving digital asset securities, and a number of registered broker-dealers have also submitted applications to expand their businesses to include digital asset securities services. Many of these applications cover proposed business models that would involve the applicant taking custody of digital asset securities, while others would involve certain noncustodial activities.

    Read more.
    TOPICS: FinTechSecurities
  • European Banking Authority Publishes Report on FinTech's Impact on Payment and Electronic Money Institutions' Business Models

    The European Banking Authority has published a report on the impact of financial technology on the business models of payment and electronic money institutions. The report aims to provide an overview of the current FinTech landscape and raise awareness of the main trends affecting business models. It follows major developments in the industry including the introduction of the revised Payment Services Directive (known as PSD2), the emergence of new market entrants offering innovative products and the growth of instant and mobile payment methods.

    Read more.
  • UK Conduct Regulator Proposes Banning the Sale to Retail Clients of Derivatives Referencing Crypto-Assets

    The U.K. Financial Conduct Authority has launched a consultation proposing to restrict the sale, marketing and distribution of derivatives and exchange-traded notes that reference certain types of unregulated, transferable crypto-asset to all retail clients by firms in, or from, the U.K. The FCA consultation follows the final report of the U.K. Crypto-Assets Task Force in October 2018. The FCA's view is that although the U.K.'s market in crypto-assets is relatively small, there is still a consumer protection issue that needs to be addressed.

    Read more.
  • Bank for International Settlements to Establish Innovation Hub for Central Bank Financial Technology

    The Bank for International Settlements has announced it will establish an innovation Hub to encourage international collaboration on innovative financial technology for central banks. The Hub's purpose will be to: (i) identify trends in technology affecting central banks; (ii) develop "public goods" in the technology space aimed at improving the functioning of the global financial system; and (iii) act as a focal point for central bank innovation.

    Read more.
    TOPIC: FinTech
  • UK Financial Conduct Authority Issues Response to EU Opinion on Strong Customer Authentication

    The U.K. Financial Conduct Authority has issued a statement confirming its intended approach to enforcing firms' compliance with EU "strong customer authentication" rules that will apply across the EU from September 14, 2019.

    Read more.
  • Global Financial Innovation Network Publishes Progress Report

    The Global Financial Innovation Network, the group of financial regulators established in 2018 to support international financial innovation, has published a report on the progress made during its first year. The group is made up of 35 global regulators from 21 jurisdictions that work together to share knowledge and market experiences and enable innovative firms to interact with a network of regulators.

    Read more.
  • Commodity Futures Trading Commission Launches LabCFTC Accelerator

    The Commodity Futures Trading Commission has announced two new programs as part of its LabCFTC initiative. The first is LabCFTC Accelerator, which will provide the agency with a number of tools to drive its understanding and potential adoption of emerging technologies. The second is the CFTC's second annual FinTech Forward conference, which will take place on October 24, 2019 and bring together a variety of stakeholders in the FinTech ecosystem to explore the latest developments in the space.

    As part of the LabCFTC Accelerator program, the agency seeks to better understand emerging technologies through the use of tools such as internal pilots and tests, market research and innovation competitions. The topic for the upcoming innovation competition will be announced at the FinTech Forward 2019 conference.

    FinTech Forward 2019 will bring together innovators, regulators, market participants, thought-leaders and the general public to cover a number of areas in the FinTech space, including digital assets, commodities and platforms, machine learning and AI, RegTech and algorithmic trading. The agency also said it expects there to be a greater focus on international FinTech, as the event will coincide with the CFTC's Office of International Affairs' International Regulators Symposium. Registration for the FinTech Forward 2019 conference will be open to the public early this fall.

    View the CFTC's announcement.

    View details of the CFTC LabCFTC initiative.
    TOPIC: FinTech
  • Financial Action Task Force Publishes Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers

    The Financial Action Task Force has published the outcomes of its third and last Plenary meeting under the U.S. Presidency in Orlando on June 19-21, 2019. The FATF considered key issues such as strategic initiatives, mutual evaluations and the upcoming focus areas under the Chinese Presidency.

    Read more.
  • European Banking Authority Publishes Opinion on Strong Customer Authentication Under Payment Services Directive

    The European Banking Authority has published an Opinion on market approaches to payment authentication that will be deemed compliant with the new rules on strong customer authentication coming into force later this year.

    Read more.
  • Bank of England Publishes Report on the Future of the UK Financial System and the Bank's Priorities for the Future

    Huw van Steenis, the Bank of England financier appointed by the BoE in 2018 to review the future of the U.K. financial system, has published his "Future of Finance" report, setting out a vision for the medium-term future of the U.K. financial system and the BoE's role in supporting that. The report was based on consultations with entrepreneurs, financiers, tech firms, global investors, consumer groups, charities, policymakers and business leaders across the U.K. and overseas. In response, the BoE has published a document which sets out the actions it intends to take to deal with the challenges and opportunities identified in the report.

    Read more.
  • Basel Committee on Banking Supervision Discusses Supervisory Initiatives and Approves Implementation Reports

    Central bankers and banking supervisors of the Basel Committee on Banking Supervision met this week to discuss a range of policy and supervisory initiatives. 

    Read more.
  • UK Financial Conduct Authority Publishes First Annual Perimeter Report

    The U.K. Financial Conduct Authority has published its first annual perimeter report, which (i) describes the boundaries of the FCA's regulatory oversight, (ii) considers challenges to the regulatory perimeter and (iii) sets out its aims for the future. The motivations behind the report include recent high profile controversies involving firms on the periphery of the FCA's regulatory perimeter (including London Capital & Finance which issued non-transferable bonds to consumers), innovations in technology that test the boundaries of the perimeter and the post-Brexit future of U.K. financial regulation.

    Read more.
  • G20 Finance Ministers and Central Bank Governors Meet in Japan

    The G20 Finance Ministers and Central Bank Governors have published a Communiqué from the most recent G20 Summit held in Japan.

    Read more.
  • Financial Stability Board Publishes Report on Decentralized Financial Technologies

    The Financial Stability Board has published a report on the use of decentralized financial technologies and the implications these may have for financial stability, regulation and governance. The report has been delivered to G20 Finance Ministers and Central Bank Governors ahead of the G20 meeting on June 8-9, 2019.

    Read more.
  • Financial Stability Board Delivers Report on Crypto-Assets

    The Financial Stability Board has published a report on crypto-assets outlining the actions being undertaken by various international organizations in response to the challenges posed by crypto-assets and the FSB's own proposed course of action for the year ahead. The report will be delivered to G20 Finance Ministers and Central Bank Governors at the next G20 meeting in Japan on June 8-9, 2019.

    Read more.
  • US-UK Financial Innovation Partnership Announced

    The U.S.-U.K. Financial Regulatory Working Group has announced the establishment of a Financial Innovation Partnership between the U.S. and the U.K. The objective of the Partnership is to strengthen bilateral engagement on emerging trends in financial services innovation. It will focus on regulatory engagement and commercial engagement by providing opportunities for the private sector in one country to engage with industry associations and market participants in the other country.

    The U.S.-U.K. Financial Regulatory Working Group, formed in April 2018, is a forum for treasury staff and financial regulatory authorities to exchange views on the regulatory relationship between the United States and the U.K. The objectives of the Working Group are to further financial regulatory cooperation, improve transparency, reduce regulatory uncertainty, identify possible cross-border implementation issues, address regulatory arbitrage and work towards achieving compatibility of U.S. and U.K. laws and regulations.

    View the announcement.
  • UK Financial Conduct Regulator Seeks Input on a Cross-Sector Sandbox

    The U.K. Financial Conduct Authority has published a Call for Input on a Cross-Sector Sandbox, seeking input on whether a U.K. cross-sector sandbox is needed. The FCA has observed that due to emerging technologies, business models are constantly changing in all markets and that firms are diversifying into different sectors. In addition, across all sectors, firms are increasingly using big data. As a result, the FCA believes that the different sectoral U.K. regulators need to find new practical ways of collaborating. The FCA recently undertook a study into how a cross-sector sandbox involving multiple regulators could be established, engaging with a range of regulators, such as the Civil Aviation Authority, the Gambling Commission, the Information Commissioner's Office, Ofcom, Ofgem and the Prudential Regulation Authority, a small group of firms and other stakeholders. The study showed that there is potential for a cross-sector sandbox, but that further discussion is needed to understand the degree of interest and need before an operating model can be developed.

    Based on the success of the FCA's financial regulatory sandbox, the FCA suggests that a cross-sector sandbox would provide a single-point-of-entry sandbox for firms to test innovative propositions with multiple U.K. regulators. The FCA acknowledges that challenges exist to its proposal, including uncertainties about demand for the sandbox and a misunderstanding of its purpose. However, it is of the view that most of the challenges could be overcome or mitigated, as has been the case with its existing sandbox. The FCA has published the Call for Input to facilitate further discussions on the concept of a cross-sector sandbox. Responses are invited until August 30, 2019.

    View the call for input on a cross-sector sandbox.
    TOPIC: FinTech
  • European Banking Authority Confirms 2019 Focus

    The European Banking Authority has published its annual report for 2018, setting out details of the work it undertook in 2018 and its focus areas in 2019. The EBA will, in 2019, focus on: (i) finalizing the guidelines on loan origination as part of its contribution to tackling non-performing loans in the EU; (ii) implementing the changes arising from the revised Capital Requirements Regulation, which was published in the Official Journal of the European Union on June 7, 2019; (iii) implementing the new Investment Firm Regulation and Directive by preparing various technical standards, guidelines and reports; (iv) preparing technical standards and guidelines, as required under the EU Securitization Regulation, that facilitate the use of internal models for banks investing in securitization positions; (v) assisting with the EU's implementation of Basel IV; (vi) the impact of FinTech, in particular, on payment institutions' and e-money institutions' business models; (vii) identifying regulatory and supervisory areas affected by the use of big data and developing best practices and principles for the application and implementation of data analytics by institutions; (viii) continuing to assess the risks of crypto-assets; (ix) supporting the European Commission's work on sustainable finance; and (x) improving the supervision of anti-money laundering and counter terrorism financing.

    View the EBA's annual report 2018.
  • International Body Consults on Issues Relating to Regulating Crypto-Asset Trading Platforms

    The International Organization of Securities Commissions has launched a consultation on the key issues to consider for regulating crypto-asset trading platforms (referred to as CTPs). The consultation paper, which aims to assist IOSCO member jurisdictions to assess the issues and risks relating to CTPs, is based on information obtained from national regulators on the operation of CTPs and their current or proposed regulatory approaches. The consultation does not cover Initial Coin Offerings, focussing instead on the secondary markets. Responses to the consultation are due by July 29, 2019.

    The consultation paper describes certain issues and risks related to trading of crypto-assets on CTPs. The paper also sets out key considerations and corresponding toolkits for each consideration. The considerations are: (i) access to CTPs; (ii) safeguarding assets; (iii) conflicts of interest; (iv) operations of CTPs; (v) market integrity; (vi) price discovery; and (vii) technology. The toolkits are for regulators to use to address the key considerations and related issues and risks. In addition, IOSCO notes that useful guidance on the issues is already available in its Objectives and Principles of Securities Regulation and the Assessment Methodology.

    View the consultation paper.
  • UK Consultation on Legal Uncertainty in the Application of English Private Law to Cryptoassets, Distributed Ledger Technology and Smart Contracts

    The UK Jurisdiction Taskforce has published a consultation paper on key issues of legal uncertainty regarding cryptoassets, distributed ledger technology and smart contracts. The UKJT is involved in preparing an authoritative legal statement on the status of cryptoassets and smart contracts under English private law. The final statement will consider whether English private law sufficiently covers cryptoassets, DLT and smart contracts and where legal uncertainty may arise. The issues in the consultation are limited to English private law and do not include any issues on regulatory characterization, taxation, criminal law, partnership law, data protection, consumer protection, settlement finality, regulatory capital, anti-money laundering or counter-terrorist financing.

    UKJT is part of the LawTech Delivery Panel, which was established in 2018, with the aim of identifying barriers and opportunities for growth. The consultation closes on June 21, 2019.

    View the consultation paper.
  • US Authority Settles Charges Against Peer-to-Peer Virtual Currency Exchanger for Violating Registration and AML Requirements

    The U.S. Treasury Department's Financial Crimes Enforcement Network has announced that it has settled charges against Eric Powers, a peer-to-peer exchanger of convertible virtual currency, for violating the registration, program and reporting requirements of the Bank Secrecy Act. This marks FinCEN's first enforcement action filed against a peer-to-peer exchanger of virtual currency and represents the first time that FinCEN has disciplined an exchanger of virtual currency for failure to report currency transactions, as required under the Bank Secrecy Act.

    Read more.
  • UK Government Consults on Implementation of the EU Fifth Money Laundering Directive

    HM Treasury launched a consultation on its proposed options for transposing the Fifth Money Laundering Directive into U.K. law. 5MLD makes a number of changes to the European Anti-Money Laundering and Counter-Terrorist Financing regime set out in the Fourth Money Laundering Directive. EU Member States are required to transpose 5MLD into national laws, which must take effect by January 10, 2020. HM Treasury is consulting on how it proposes to effect the transposition, in particular where the U.K. has discretion as to how certain aspects are implemented and where gold plating provisions are proposed. Notably, the U.K. government intends to implement 5MLD irrespective of when the U.K. leaves the EU, and is committed to implementing the Financial Action Task Force's standards, focusing on those areas highlighted in the FATF's mutual evaluation report of the U.K.'s AML/CTF regime. Responses to the consultation were to be submitted by June 10, 2019.

    Read more.
  • Commodity Futures Trading Commission Chairman Maps Agency's Approach to FinTech Regulation

    While speaking before the D.C. Blockchain Summit, Commodity Futures Trading Commission Chairman J. Christopher Giancarlo discussed the relationship between technology, regulation and markets, and described the steps the CFTC has taken to stay in step with innovations that have posed regulatory challenges.

    Chairman Giancarlo touted the potential for such technological innovations, including blockchain and digital ledger technology, to transform the way that regulators gather information and lower operational costs for financial institutions. Interestingly, Chairman Giancarlo argued that blockchain and DLT could have helped regulators gather real-time trading data during the 2008 financial crisis, which he believes at a minimum could have prompted "better-informed" and "more calibrated regulatory intervention."

    Read more.
    TOPIC: FinTech
  • UK Regulator Wants Stronger Wind-Down Plans for Loan-Based Crowdfunding Platforms

    The Financial Conduct Authority has published a "Dear CEO" letter addressed to loan-based peer-to-peer crowdfunding platforms requesting the platforms to review their wind-down arrangements. The FCA implemented rules regulating FCA-authorized firms operating investment-based and loan-based crowdfunding platforms on April 1, 2014. Investment-based crowdfunding is governed by the Markets in Financial Instruments package and the Alternative Investment Fund Managers Directive, as transposed into U.K. law. The regime for P2P lending is a national one and is less detailed and prescriptive.

    Read more.
  • Basel Committee on Banking Supervision Announces Forthcoming Statements on Various Issues of Concern

    On February 27-28th, the Basel Committee on Banking Supervision met to discuss policy and supervisory issues, and the extent to which members had implemented post-financial crisis reforms.

    The Committee noted the implementation status of margin requirements for uncleared derivatives and it will publish in March a joint statement with the International Organization of Securities Commissions on certain implementation aspects of margin requirements.

    Read more.
  • Financial Action Task Force Publishes Outcomes Of Its February 2019 Plenary Meeting

    The Financial Action Task Force has published the outcomes from its Plenary meeting that took place in Paris on February 20-22, 2019. The FATF considered key issues such as the operations and streamlining of the FATF, major and other strategic initiatives and mutual evaluations.

    One of the major strategic initiatives covered by the Plenary was the FATF's work on mitigating money laundering and terrorist financing risks associated with virtual asset activities. The FATF published an amended Recommendation 15 in October 2018, clarifying that its standards apply to exchanges, wallet providers and providers of financial services for Initial Coin Offerings. The FATF has now published a draft Interpretative Note to Recommendation 15 to further clarify how the FATF Standards apply to activities involving virtual assets. The Interpretative Note has been finalized except for one section, which will be the subject of a public consultation in May this year. That section concerns the duty of virtual asset service providers to obtain and hold originator and beneficiary information on virtual asset transfers and submit such information to beneficiary service providers and counterparts (if any) as well as provide it on request to appropriate authorities. Following the consultation, the FATF intends to fully finalize the Interpretative Note and adopt it in June 2019.

    Read more.
  • US Conference of State Bank Supervisors Endorses FinTech Recommendations

    The U.S. Conference of State Bank Supervisors (CSBS), the nationwide organization of financial regulators from all fifty U.S. states, the District of Columbia, Guam, Puerto Rico, American Samoa, and the U.S. Virgin Islands, has released a series of action items to implement recommendations received from the CSBS Fintech Industry Advisory Panel. The panel was established in 2017 to help streamline multistate regulation of FinTech businesses and other nonbanks, and comprises thirty-three companies, including FinTech firms like SoFi, Ripple, and Circle. The panel also contains two subgroups: one focused on the lending industry; and the other focused on the payments industry.

    Read more.
    TOPIC: FinTech
  • Financial Stability Board Outlines Potential Effects of FinTech on Financial Stability

    The Financial Stability Board has issued a report assessing the potential impacts of certain FinTech market developments on financial stability. Specifically, the report examines the potential implications of: (i) FinTech firms competing with traditional financial services providers; (ii) the provision of financial services by some of the world's largest technology companies (referred to as "BigTech" firms); and (iii) reliance on third-party providers for cloud services.

    Although the report finds that the relationship between FinTech firms and financial institutions has been mostly complementary to this point, it also shows that FinTech firms have started to chip away at financial institutions' market share in certain industries, such as credit provision and payments. Further, the report posits that the entry of BigTech firms into the financial services space could also have significant competitive impacts, as such firms often have large, established customer bases, brand recognition, strong financial positions and access to low-cost capital, which could allow them to quickly achieve scale in the space. While this could lead to greater competition in the short-term, the FSB hypothesizes that cross-subsidization could allow BigTech firms to operate with lower margins and gain greater market share, which could in the long run lead to a less competitive market (e.g. China, where two firms account for 94% of the mobile payments market). Additionally, according to the report, increased competition over time could also press incumbent financial institutions to take on additional risk in order to maintain margins and profitability, which could have subsequent effects on financial stability.

    Read more.
    TOPIC: FinTech
  • UK Conduct Regulator Consults on Guidance on Crypto-Assets and the UK Regulatory Perimeter

    The U.K. Financial Conduct Authority has launched a consultation on proposed Guidance on whether certain crypto-assets fall within the U.K.'s regulatory perimeter (CP19/3). The FCA's consultation is in response to one of the commitments made by the U.K. Cryptoasset Taskforce last year in its final Cryptoassets Report. The Taskforce was established in March 2018 and comprises representatives from HM Treasury, the FCA and the Bank of England. The FCA's consultation closes on April 5, 2019. The FCA intends to publish the final Guidance on the existing regulatory perimeter in relation to crypto-assets by summer 2019.

    The FCA's proposed Guidance is intended to help firms determine whether certain crypto-assets fall within the FCA's regulatory perimeter. However, the FCA notes that assessing whether a crypto-asset is within the perimeter can only be done on a case-by-case basis and that the responsibility for ensuring that it has the correct permissions lies with the firm undertaking the activity. A firm that undertakes a regulated activity without the requisite permissions will be in breach of the 'general prohibition' in the Financial Services and Markets Act 2000. Any such breach by a person is a criminal offence and the person may be imprisoned or fined, or both. The consultation is relevant to a wide range of consumers, stakeholders and firms, in particular firms that issue or create crypto-assets, firms that market, sell, buy, hold or store crypto-assets, financial advisors, investment managers and investment exchanges.

    Read more.
  • Basel Committee on Banking Standards Finalizes Basel Market Risk Framework

    Following its consultation from March to June last year, the Basel Committee on Banking Standards has announced the final revisions to the Basel III market risk capital framework. At the same time, it has also announced its 2019 priorities.

    The objective of the Basel market risk framework is to ensure that banks hold enough regulatory capital to protect against losses arising from movements in market prices of instruments held in their trading book. Certain changes to the 2016 market risk framework are to:
    1. Clarify the scope of application. The Committee has provided further guidance on the regulatory book to which instruments should be assigned in circumstances where instruments could go into more than one book and has revised the treatment of structural foreign currency positions. The revised framework also allows equity investments in funds to be allocated to the trading book, provided that a bank: (i) is able to "look through" to the fund's underlying assets; or (ii) has access both to daily price quotes and to the information contained in the mandate of the fund.
    2. Revise the internal model approach to address implementation challenges, in particular, by amending the profit and loss attribution (PLA) test metric and failure consequence.
    3. Amend the standardized model approach. The approach to measuring risk factor losses was too high in relation to the actual risk and there was unnecessary operational burden. The changes in the standardized approach include widening the scope of currency pairs that are considered liquid in the FX risk class to ensure more currency pairs are subject to lower risk weights and introducing new "index" buckets for equity and credit spread risks so that each underlying position in an index does not need to be identified.
    Read more.
  • European Securities and Markets Authority Publishes Recommendations on Crypto-Assets and Initial Coin Offerings

    The European Securities and Markets Authority has published a report on the application and suitability of the EU securities regulatory framework to crypto-assets, including Initial Coin Offerings. The report is in response to the European Commission's request in its FinTech Action Plan 2018. Like the European Banking Authority, which published a report on the same day in relation to banking sector issues, ESMA found that EU activities related to crypto-assets are fairly low and do not present any financial stability risks.

    ESMA's report focuses on the legal qualification of crypto-assets under EU financial securities laws and highlights that this may differ across EU member states because it will be subject to the national laws implementing EU legislation. ESMA notes that there is currently no legal definition of crypto-assets and that a key consideration is whether a crypto-asset qualifies as a financial instrument under the revised Markets in Financial Instruments package. Where a crypto-asset qualifies as a MiFID financial instrument, the full requirements under various securities legislation may apply, subject to any applicable exemptions.  According to ESMA, the rules in the Prospectus Directive would apply to an issue of crypto-assets offered to the public, including through an ICO, where the instruments are transferable securities. 

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  • European Banking Authority Reports on EU Regulatory Perimeter for Crypto-Assets

    The European Banking Authority has published a report on the application and suitability of the EU bank regulatory framework for crypto-assets. The report is in response to the European Commission's request in its FinTech Action Plan 2018. The report confirms that EU activities related to crypto-assets are fairly low and do not present any financial stability risks. The European Securities and Markets Authority also published a similar report covering Initial Coin Offerings issues within its remit on the same day.

    The EBA's report sets out the EBA's findings, the issues arising from the results, the EBA's advice to the Commission and the steps that the EBA intends to take in 2019. The EBA mapped the applicability to crypto-assets and crypto-asset activities of the EU Anti-Money Laundering Directive, the Capital Requirements Directive and Regulation, the second Electronic Money Directive and the second Payment Services Directive.

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  • EU Report on Regulatory Sandboxes and Innovation Hubs

    Fulfilling the mandate in the European Commission's March 2018 FinTech Action Plan, the Joint Committee of the European Supervisory Authorities has published a report on regulatory sandboxes and innovation hubs, together referred to as innovation facilitators. Innovation hubs are a dedicated point of contact for firms raising queries with national regulators on FinTech-related issues. Regulatory sandboxes enable firms to test innovative financial products, services or business models under the supervision of a national regulator.

    The ESAs' report states that most EU member states have one or both forms of these innovation facilitators. The facilitators operate at national level and the ESAs identify this as a potential challenge to the EU objective of scaling-up FinTech. For example, national regulators are likely to adopt different approaches to the same innovation which can hinder opportunities for extending an innovation across the EU as well as present regulatory arbitrage risks. The potential absence of passporting innovative products throughout the EU can raise issues for their users.

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    TOPIC: FinTech
  • US Consumer Financial Protection Bureau Proposes Regulatory Sandbox and Revisions to No-Action Letter Policy

    The Consumer Financial Protection Bureau has proposed revisions to the agency’s No-Action Letter policy and floated the idea of a federal regulatory sandbox. The proposed NAL policy would simplify and clarify the agency’s existing procedures for obtaining a NAL, while the sandbox would streamline the process for firms that seek regulatory relief when they roll out innovative products or services.

    The CFPB’s proposed NAL policy would supplant the agency’s existing policy, which was implemented in 2016. Under the current policy, the CFPB has only provided one NAL. To encourage more applications for NALs, the CFPB is proposing to streamline the NAL application and review processes by eliminating several redundant or overly burdensome requirements, such as data-sharing requirements. The updated NAL policy would also eliminate assumed time-period limitations on NALs and place an emphasis on coordination with other regulators that offer NALs or similar forms of relief.

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    TOPIC: FinTech
  • UK Financial Conduct Authority Publishes Its Final Approach to Authorization

    The Financial Conduct Authority has published its final document, entitled "FCA Mission: Approach to Authorisation," explaining the purpose of authorization and the FCA's approach to it. The paper sets out details of the FCA's approach to: (i) evaluating whether firms meet the requisite Threshold Conditions and assessing whether individuals are "fit and proper"; (ii) how the FCA uses authorization to promote competition; and (iii) revoking authorization.

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  • US Commodity Futures Trading Commission Consults on Ether and the Potential Introduction of Ether Derivatives Contracts

    To further its understanding of Ether and its use on the Ethereum Network, the Commodity Futures Trading Commission has issued a request for input on several topics related to the virtual currency. The RFI poses a number of questions on Ether, including, among other things, its functionality, underlying technology, governance, markets, cybersecurity and custody. In addition, the CFTC asks several questions regarding Ether's susceptibility to market manipulation and the potential introduction of Ether derivatives contracts.

    The CFTC stated that the requested feedback will inform the work of the CFTC and its LabCFTC initiative to enhance the agency's oversight of virtual currency markets and develop regulatory policy. The CFTC also noted that it hopes to gain a greater understanding of the similarities and differences between Ether and bitcoin, along with potential risks and opportunities uniquely posed by Ether.

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    TOPICS: DerivativesFinTech
  • First EU Blockchain Industry Roundtable

    The European Commission has published a press release on the outcome of the first EU Blockchain Industry Roundtable, which took place on November 20, 2018. The press release notes the establishment of the "International Association for Trusted Blockchain Applications" that will be open to any firm that wishes to contribute to the use of blockchain and distributed ledger technologies in the EU. This new Association will work with the European Commission and EEA states that are part of the European Blockchain Partnership to support interoperability, develop specifications and promote standards and regulatory convergence in this area. The European Blockchain Partnership was established earlier this year and has been signed up to by Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the U.K.

    View the press release.

    View details of the European Blockchain Partnership.
    TOPIC: FinTech
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