Fintech Regulation

Subscribe to Fintech Regulation via RSS

The decision, which addresses a broad range of market activity by Coinbase relating to 13 third-party tokens, could have significant implications for market participants.

By Latham & Watkins’ Litigation & Trial Practice

On March 27, 2024, Judge Katherine Failla of the US District Court for the Southern District of New York (SDNY) ruled[i] (the Ruling) in favor of the Securities and Exchange Commission (SEC) on all but one argument raised in Coinbase’s motion for judgment on the pleadings, finding that the Commission adequately alleged the tokens at issue and Coinbase’s staking services are securities and that Coinbase has been operating as an unregistered broker, exchange, and clearing agency.  

The Ruling followed significant recent decisions in two other high-profile SEC enforcement actions regarding cryptocurrencies: SEC v. Ripple Labs, Inc., No. 1:20-Civ-10832 (SDNY), and SEC v. Terraform Labs Pte. Ltd., No. 1:23-cv-01346 (SDNY). The Coinbase decision, however, may be the most significant among the three decisions because (1) it addresses a broader range of market activity by a token exchange (as opposed to an issuer) and 13 third-party tokens (as opposed to fewer tokens from a single issuer), and (2) Judge Failla’s Ruling addresses the prior decisions in Ripple and Terraform and thus serves as the latest, most comprehensive opinion to date in the canon of case law on the issues.

Credit card

The rule targets a statutory loophole that the CFPB asserts large credit card issuers exploited to exact excessive late fees from consumers.

By Barrie VanBrackle and Deric Behar

On March 5, 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule (the Rule) to amend Regulation Z, which implements the Truth in Lending Act (TILA) to limit credit card late fees. The Rule was initially proposed in February 2023 and was intended to go into effect in October 2023 (for…

Implementation of Basel Committee cryptoassets standard to provide additional clarity for banks looking to engage in cryptoassets business.

By Simon Hawkins and Adrian Fong

On 7 February 2024, the Hong Kong Monetary Authority (HKMA) released a consultation paper on its proposal for implementing new regulations on the prudential treatment of cryptoasset exposures (Consultation Paper).

The Consultation Paper comes shortly after the Financial Services and the Treasury Bureau and the HKMA issued a consultation paper in December 2023 outlining their legislative proposal for a regulatory regime governing stablecoin issuers in Hong Kong (see this Latham blog post). On 20 February 2024, the HKMA also published guidance on digital asset custody services and sale and distribution of tokenised products conducted by banks. Together, these papers offer guidance and greater certainty to banks interested in providing digital asset services (including digital asset issuance, custody, and dealing services).

This blog post summarises the proposed regulations set out in the Consultation Paper as well as next steps for banks, known in Hong Kong as authorised institutions (AI).

feature-7

The requirements in the proposed framework are more extensive in scope and reach than what many virtual asset industry stakeholders anticipated.

By Simon Hawkins and Adrian Fong


On 8 February 2024, the Financial Services and the Treasury Bureau (FSTB) released a consultation paper on its legislative proposal to introduce a regulatory regime governing over-the-counter (OTC) trading of virtual assets (VA) in Hong Kong (Consultation Paper).

This blog post summarises the proposed regulatory framework set out in the Consultation Paper.

Background

…
World Map. business chart graph.

A recent bipartisan bill, if enacted, would particularly benefit small lenders and bank-fintech partnerships by promoting transparency, appellate rights, and examiner accountability.

By Arthur S. Long, Parag Patel, Barrie VanBrackle, Pia Naib, and Deric Behar

On December 14, 2023, a bipartisan group of senators introduced the Fair Audits and Inspections for Regulators’ Exams Act (FAIR Exams Act), which seeks to increase transparency in the bank examination process. The proposed legislation would require examining agencies to act quickly and transparently, while creating an independent review and appeals process under the Federal Financial Institutions Examination Council (FFIEC),[1] which would allow banks to seek independent review of material examiner findings.

binary code

The OCC outlines safety and soundness principles and appropriate risk management processes for its regulated institutions that engage in BNPL lending.

By Arthur S. Long, Parag Patel, Barrie VanBrackle, Becky Critchley, Deric Behar, and Charlotte Collins

On December 6, 2023, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2023-37 (Guidance), which clarifies the OCC’s policy positions on the risk management of “Buy Now, Pay Later” (BNPL) lending. These consumer lending arrangements (also known as “point-of-sale installment loans” or “pay-in-4”) involve short-term installment loans repayable in four or fewer payments and carry no finance or interest charges. The OCC expects that banks engaged in BNPL lending “do so within a risk management system that is commensurate with associated risks.”

The Guidance applies to all OCC-regulated institutions, including national banks, federal savings associations, covered savings associations, and federal branches and agencies of foreign banking organizations. The OCC also highlighted that the Guidance applies to community banks engaging in (or considering engaging in) BNPL lending.

Online internet Shopping

The proposal would subject certain large non-bank companies offering wallet and payment services to federal regulatory oversight on par with banks and credit unions.

By Jenny Cieplak, Parag Patel, Barrie VanBrackle, and Deric Behar

On November 7, 2023, the Consumer Financial Protection Bureau (CFPB) proposed a rule, Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications (the Proposal), to supervise large providers of digital wallets and payment apps. The Proposal aims to ensure that US-based non-bank financial service companies providing digital wallets and payment apps will be subject to the same federal supervisory rules as banks, credit unions, and other financial institutions that the CFPB already supervises.

According to the CFPB, fintech companies and other firms offering novel products and services in the consumer finance space have “blur[ed] the traditional lines of banking and commerce.” The Proposal therefore aims to “enable the CFPB to monitor for new risks to both consumers and the market,” and to “promote fair competition” through consistent enforcement between depository and non-depository institutions.

feature-3

Recognizing new realities in decentralization, the regulations aim to provide market players with governance flexibility within distributed ledger technology foundations.

By Stuart Davis, Brian Meenagh, Andrew Moyle, and Ksenia Koroleva

On October 2, 2023, the Board of Directors of Abu Dhabi Global Market (ADGM), a financial free zone in the United Arab Emirates (UAE), enacted the Distributed Ledger Technology Foundations Regulations 2023 (Regulations). The Regulations were published on November 1, 2023.

Latham & Watkins has advised ADGM in drafting the Regulations. The Regulations were developed following extensive benchmarking across a number of peer jurisdictions and incorporate stakeholder feedback from ADGM’s April 2023 consultation paper. The adoption of the Regulations is part of the strategy to promote ADGM as a global center for digital assets.

The Regulations recognize the suitability of common law foundation structures for projects related to digital assets, and aim to allow maximum flexibility for the sector with respect to governance.

Virtual-Currency-B-Single

A new guidance creates a regulatory framework for tokenisation of retail investment products and provision of services for tokenised financial instruments.

By Simon Hawkins and Adrian Fong

On 2 November 2023, the Securities and Futures Commission (SFC) issued two widely anticipated circulars on tokenisation during the 2023 Hong Kong FinTech Week.

One circular provides conduct-related guidance to intermediaries engaging in tokenised securities-related activities (Activities Circular). The other circular addresses the tokenisation of SFC-authorised investment products (Products Circular), such as retail investment funds.

Before the circulars were released, the SFC’s chief executive spoke of the regulator’s evolutionary rather than revolutionary approach to addressing digital asset-related activities. The circulars indeed reflect this gradual, incremental approach rather than a big-bang moment of regulatory change, and we expect market participants to welcome the SFC’s new guidance as some of them consider exploring tokenised products and services.