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The Court held that software developers do not owe a duty of care to bitcoin owners who lost their private keys.

By Christian F. McDermott, Andrew C. Moyle, and Nara Yoo

In Tulip Trading Ltd (TTL) v. Bitcoin Association for BSV and others, TTL claimed that personal computers of its CEO, Dr. Craig Wright, were hacked and the encrypted private keys to two addresses holding around 111,000 bitcoin (currently worth over £3.6 billion) belonging to TTL were stolen. TTL also claimed that the hackers deleted copies of the keys, preventing Dr. Wright and TTL from accessing the digital assets at those addresses.

TTL brought action against 16 core developers (Developers) that allegedly control the software in respect of the four relevant digital asset networks (Networks), consisting of one “original” network and three subsequent blockchain copies. In this case, the Court looked at the extent of the Developer’s liability to TTL for the stolen/lost keys.

Assertive regulators are bringing greater clarity and new challenges as they step up oversight of fintech innovation.

By Stuart Davis, Tom D. Evans, Nicola Higgs, Christian F. McDermott, David J. Walker, Brett Carr, Catherine Campbell, and Charlotte Collins

As the fast-growing fintech industry thrives, the sector has begun to attract greater regulatory scrutiny. We expect new legal and regulatory focus and oversight of those players operating on the unregulated perimeter of financial services.

While the level of supervision is set to increase and pose challenges for industry participants, a more robust regulatory environment could play into the hands of PE buyers and create opportunities for portfolio companies best able to navigate this rising regulation. In our view, PE firms must pay heed to the tone of more assertive regulators, but that approach coupled with new regulation will create a space in which firms in nascent fintech verticals can legitimately pursue their aims with greater certainty, no longer looking over their shoulders.

While the UK government is keen to stress that the new regulation will be applied proportionately, proposals are likely to result in the redirection of resources and attention of firms, and buyout firms should remain alert to changes that may impact a range of fintech investments.

The report, from UK Finance, The Payments Association, and Latham & Watkins, urges fresh thinking about regulating payments in the growing digital economy.

By Stuart Davis and Brett Carr

UK Finance, The Payments Association, and Latham & Watkins have published UK Payments Regulation Review: Making sense of where to go now, a new report examining regulation of the UK’s payments industry and its impact on the financial sector, consumers, and businesses.

Amidst the rapid digitalisation of the UK economy,…

The HKMA’s discussion paper seeks feedback on its proposed regulatory approach to stablecoins, with responses due by 31 March 2022.

By Simon Hawkins and Adrian Fong

On 12 January 2022, the Hong Kong Monetary Authority (HKMA), Hong Kong’s principal regulator for banks and payment systems, published a discussion paper seeking the public’s views on its proposed approach to the regulation of stablecoins (Discussion Paper). The HKMA outlines its views on the development of stablecoins and proposes questions and its initial outlook for establishing an effective regulatory framework for stablecoin activities in Hong Kong.

The Discussion Paper comes three months after the HKMA issued its technical whitepaper on retail central bank digital currency in October 2021, which considers a proposed architecture for issuing e-HKD. These publications, together with recent consultation conclusions from the Financial Services and the Treasury Bureau on implementing a regulatory regime for virtual asset service providers, (see Latham’s blog post), indicate that Hong Kong regulators are moving quickly to create guardrails as financial innovation accelerates.

The guidelines set out the MAS’ expectation that digital payment token service providers should not promote their services to the general public in Singapore.

By Simon Hawkins, Farhana Sharmeen, and Tan Gen Huong

On 17 January 2022, the Monetary Authority of Singapore (the MAS) issued new guidelines (the Guidelines) setting out restrictions on the promotion of services related to digital payment tokens (DPTs) in Singapore. The Guidelines apply to banks and financial institutions providing DPT services in Singapore, and entities providing DPT services in Singapore that have either been granted a licence under the Payment Services Act (PSA) or that are currently operating under transitional exemptions under the PSA (collectively, DPT service providers).

NFT creators should craft strategies to avoid minting or auctioning NFTs that use the likeness of an individual without their consent.

By Ghaith Mahmood, Nima H. Mohebbi, and Tara McCortney

As non-fungible tokens (NFTs) increase in popularity, the so-called common law “right of publicity” may create additional legal risks for NFT minters. The common law right of publicity prevents the commercial exploitation of an individual’s identity without that person’s consent.[1] Most U.S. states have defined a right of publicity and, correspondingly, a standard tort for violation of that right — frequently referred to as the tort of appropriation.

While the law is similar across most US jurisdictions, California — the heart of the entertainment industry — has particularly well-developed authority in this area. For this reason, this blog post focuses on California law in describing the unique issues that NFTs may present.

Gary Gensler asserts the SEC’s broad powers over digital assets, and puts consumer protection at the forefront.

By Stephen P. Wink, Adam Zuckerman, and Deric Behar

On August 3, 2021, Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), gave a speech on the digital asset industry. The speech offered some indication of what he expects the SEC to focus on in this area but did not provide concrete guidance for industry participants looking for clarity on regulatory uncertainties. He did, however, make clear that he believes “we just don’t have enough investor protection in crypto” and that the SEC will play a more active role in regulating the industry.

A new Executive Order could help open the door for the portability of consumer financial data.

By Charles Weinstein and Deric Behar

Definitive regulation for open banking may be on the horizon in the US. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy (the Order), which contains a section on banking and consumer finance that encourages the Consumer Financial Protection Bureau (CFPB) to issue rules on consumer financial data portability.

The Order’s request to the CFPB could help foster competition and reduce market concentration among banking institutions by simplifying personal data portability for consumers and making open banking functionality more readily available.

A new Payments Charter could enable entities to engage in payments-related activities on a nationwide basis, rather than by state.

By Alan W. Avery, Todd Beauchamp, Pia Naib, Loyal T. Horsley, and Charles Weinstein

The US Office of the Comptroller of the Currency’s (OCC) newly appointed Acting Comptroller, Brian P. Brooks, is already advancing the agency’s fintech-focused modernization initiatives and taking steps to fulfill his promise to support technological innovation in the banking industry. On June 25, 2020, while speaking on the American Bankers Association’s podcast, Brooks announced that the OCC will introduce a new Payments Charter 1.0 (Payments Charter) this fall that will serve as a federal alternative to obtaining state money transmitter licenses. That announcement came less than a month after the OCC issued an advance notice of proposed rulemaking (ANPR) requesting public comment regarding the OCC’s regulations relating to “digital activities” of national banks and federal savings associations (FSAs). The ANPR was issued in an effort to ensure that such regulations continue to evolve with industry developments. Comments in response to the ANPR are due August 3, 2020.

MAS confirms regulatory approach for derivative contracts on payment tokens.

By Farhana Sharmeen and Marc Jia Renn Tan

On 15 May 2020, the Monetary Authority of Singapore (the MAS) issued its response to feedback about its proposed regulatory approach for derivative contracts that reference payment tokens as underlying assets (Payment Token Derivatives), confirming that it will regulate Payment Token Derivatives offered to Singapore investors through approved exchanges. (See MAS’ current list of approved exchanges.) The MAS considers it crucial that it has effective oversight of products offered on approved exchanges due to the systemic importance of such trading facilities and the risk of contagion to the wider financial system.