Global Fintech & Digital Assets Blog

Podcast: Will Insurtech Reach New Heights in 2023?

Posted in Fintech Regulation, Investing in Fintech, Uncategorized

Poised for a banner year, insurtech has drawn the attention of investors and regulators alike.

Insurtech has become a darling of both traditional players in the insurance market and disruptive fintech operations. The coming year looks to continue this trend, with companies looking to insurtech as a venue for penetrating new markets. Yet as insurtech’s attractiveness continues to grow, potential investors will need to navigate a highly regulated industry and new regulatory considerations on the horizon.

In this episode of Connected with Latham, London partners Beatrice Lo and Shing Lo and associate Gabriel Lakeman discuss the path for insurtech to capture a larger market share in 2023, as well as recent regulatory developments that new and seasoned investors in the industry will need to address.

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HM Treasury Publishes Draft Legislation to Regulate BNPL Lending

Posted in Fintech Regulation

A consultation that will remain open until 11 April 2023 offers further clarity on the proposals to regulate buy-now-pay-later products.

By Rob Moulton, Becky Critchley, Ella McGinn, and Dianne Bell

On 14 February 2023, HM Treasury published its consultation and accompanying draft legislation on the regulation of buy-now-pay-later (BNPL) lending. The consultation follows the proposals in HM Treasury’s prior publications released in October 2021 and June 2022, since the government announced its intention to bring currently unregulated BNPL products within scope of the regulatory perimeter. This latest consultation provides some welcome clarity on the approach to this upcoming sea change for firms operating in the BNPL space.

The key changes will be effected by amending the current fixed-sum interest-free credit exemption in Article 60F(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). BNPL lending usually falls within this exemption as such agreements meet the conditions as interest-free loans repayable in under 12 months and in 12 or fewer instalments. Article 60F(3), which provides an exemption for running-account credit, will remain unchanged.

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Regulators Are Setting Sights on Crypto Market Manipulation

Posted in Cryptoassets

Cases filed in the past year by the DOJ, CFTC, and SEC represent a new phase in the US government’s digital asset enforcement efforts.

By Douglas K. Yatter, Matthew Valenti, and Deric Behar

Expanding beyond their earlier focus on registration and compliance violations and retail fraud, enforcement agencies have also begun to address other types of conduct involving digital assets. One such area is market manipulation. In the past year, the Department of Justice, the Commodity Futures Trading Commission, and the Securities and Exchange Commission each pursued cases alleging manipulation of the prices of digital assets.

The advent of this type of action has not yet received broad attention, perhaps because most of these cases also involved other types of conduct that may have obscured this novel set of claims. This article, published on Law360 by Latham lawyers Doug Yatter, Matthew Valenti, and Deric Behar, discusses five recent cases of note and offers insights into this emerging area of enforcement.

Dubai Virtual Assets Regulation Authority Enacts New Regime to Regulate Virtual Assets

Posted in Cryptoassets, Fintech Regulation

The new regime specifies licensing and reporting requirements for a range of activities related to virtual assets in the Emirate of Dubai.

By Brian A. Meenagh, Matthew Rodwell, and Ksenia Koroleva

On February 7, 2023, the Dubai Virtual Assets Regulation Authority (VARA) adopted the Virtual Assets and Related Activities Regulations 2023 (the Regulations) together with four compulsory and seven activity-specific rulebooks.

VARA adopted these Regulations further to Dubai Law No. 4 of March 11, 2022 on the Regulation of Virtual Assets in the Emirate of Dubai (the Law) (for more information, see Latham’s blog post).

The Law granted VARA powers to regulate activities relating to virtual assets in the Emirate of Dubai (excluding the Dubai International Financial Center (DIFC); DIFC has its own regime regulating virtual assets — see Latham’s blog post).

The Law laid down key definitions (such as the definitions of virtual assets (VAs) and distributed ledger technology (DLT)), and provided a broad list of activities requiring a license. The Law entitled VARA to adopt regulations for all relevant activities and VAs.

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ISDA Launches Version 1.0 of Definitions for Digital Asset Derivatives

Posted in Blockchain, Cryptoassets

The Definitions aim to support the safe and efficient development of the digital asset derivatives market through consistent contractual standards.

By Yvette D. ValdezThomas Vogel, Naffie Lamin, Tiiu Lemsalu, and Deric Behar

On January 26, 2023, the International Swaps and Derivatives Association, Inc. (ISDA) published version 1.0 of the long-awaited ISDA Digital Asset Derivatives Definitions (the Definitions), intended to create “an unambiguous contractual framework for digital asset derivatives under the umbrella of the ISDA Master Agreement.” Latham & Watkins LLP was pleased to participate in the development of the Definitions as part of a working group of sell-side and buy-side market participants and digital asset legal advisors.

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Federal Reserve Narrows the Crypto Activities of Member Banks

Posted in Blockchain, Cryptoassets

Custodia Bank was denied Federal Reserve membership, while certain crypto principal activities are deemed presumptively not appropriate for member banks.

By Arthur S. Long, Pia Naib, and Deric Behar

On January 27, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve) took two actions, clarifying that it considers many cryptocurrency activities to be inconsistent with the business of banking. First, the Federal Reserve announced that it had denied the application of Custodia Bank, Inc. (Custodia) to become a member of the Federal Reserve System. Second, using its authority under Section 9(13) of the Federal Reserve Act, it issued a policy statement (Policy Statement) whose purpose was to “level the playing field” for state and national banks with respect to “novel activities.”

With these actions, and the current cautious attitude toward cryptocurrency at the Office of the Comptroller of the Currency (OCC), state banking supervisors will likely be the ones advancing new developments in crypto activities.

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New York Department of Financial Services Issues Crypto Custody Guidance

Posted in Blockchain, Cryptoassets

The Guidance clarifies the regulator’s expectations on safekeeping customer digital assets, and the disclosures that must accompany such arrangements.

By Arthur S. Long, Parag Patel, Marlon Q. Paz, Yvette D. Valdez, Barrie VanBrackle, Pia Naib, Donald Thompson, and Deric Behar

On January 23, 2023, the New York Department of Financial Services (NYDFS) published Guidance on Custodial Structures for Customer Protection in the Event of Insolvency (the Guidance). It guides virtual currency entities (VCEs) acting as custodians (VCE Custodians) on how to appropriately custody customer assets and properly disclose such holdings and arrangements. Issued in the wake of numerous connected crypto industry insolvencies that imperiled customer assets and funds due to commingling and rehypothecation, the Guidance instructs VCEs to put customer protection first. The NYDFS emphasized “the paramount importance of equitable and beneficial interest always remaining with the customer.”

The Guidance is addressed to VCE Custodians that are either licensed under New York’s BitLicense regulation (23 NYCRR Part 200) or New York state-chartered limited purpose trust companies (Regulated VCE Custodians), but reads as a broad statement of policy.

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New House Subcommittee to Prioritize Crypto Oversight

Posted in Blockchain, Cryptoassets

The Financial Services Committee seeks to bring order to an industry many say has suffered from lack of proper rulemaking.

By Stephen P. WinkNima H. Mohebbi, and Deric Behar

On January 12, 2023, incoming House Financial Services Committee Chair Patrick McHenry established a new subcommittee on digital assets, financial technology, and inclusion. Rep. French Hill will chair the subcommittee, while Rep. Warren Davidson will serve as its vice-chair.

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SEC v. Ripple: Approaching Judgment Day

Posted in Blockchain, Cryptoassets

While a conclusion to the much-hyped case may be approaching, market participants should be wary of doomsday prognostications.

By Stephen P. Wink, Douglas K. Yatter, John Sikora, Benjamin Naftalis, William Baker, Jack Barber, Natalie DeLave, and Deric Behar

As a new year begins, the digital assets industry is still enduring a deep and widespread crypto winter. When the story of this crypto winter is written, a chapter will likely be devoted to the impending resolution of a civil enforcement action brought by the Securities and Exchange Commission (SEC) on December 22, 2020, against Ripple Labs Inc. (Ripple), its former CEO, and its former COO and current CEO. The parties have been litigating this case since then in the US District Court for the Southern District of New York.

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Banking Regulators Issue Joint Statement on Crypto Risks

Posted in Blockchain, Cryptoassets

Banking organizations should ensure appropriate risk management, but regulators are skeptical of certain crypto activities as principal.

By Arthur S. Long, Pia Naib, and Deric Behar

On January 3, 2023, the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) issued a concise joint statement on crypto-asset risks to banking organizations.

Relatedly, on January 7, 2023, Mark Van Der Weide, the Federal Reserve general counsel, and Benjamin McDonough, the OCC general counsel, delivered remarks to the Banking Law Committee of the American Bar Association’s Business Law Section, reiterating that their agencies were staying the course on their “careful and cautious” approach to crypto.

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