Investing in Fintech

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Revamped SFC and HKMA guidance applies to intermediaries that distribute products or provide dealing, advisory, and asset management services related to virtual assets.

By Simon Hawkins and Adrian Fong

On 20 October 2023, the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) issued a joint circular (Joint Circular) to provide updated guidance to intermediaries conducting virtual asset (VA) activities. The Joint Circular revises a previous joint circular issued on 28 January 2022 (see Latham’s Client Alert).

The need to update the 2022 joint circular emerged after a new regulatory regime for virtual asset trading platforms (VATP) was launched in June 2023, which allowed such platforms to onboard retail investors (see Latham’s Client Alert) for the first time.

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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.

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Hong Kong’s Core Climate aims to facilitate trading of carbon credits, while the Hub plans to expedite Singapore’s ESG ecosystem growth.

By Farhana Sharmeen, Paul A. Davies, and James Bee

On 28 October 2022, the Hong Kong Exchange and Clearing Limited (HKEX) launched Core Climate, Hong Kong’s International Carbon Marketplace. The birth of Core Climate is a further step toward the growth of ESG initiatives in Asia, which are gaining particular traction among the continent’s stock exchanges.

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A report from the Taskforce on Innovation, Growth and Regulatory Reform provides recommendations for how the UK can “re-imagine” its approach to regulation post-Brexit.

By Rob Moulton, Stuart Davis, and Charlotte Collins

On 16 June 2021, the Taskforce on Innovation, Growth and Regulatory Reform (the Taskforce) published a report (the Report) providing recommendations for how the UK could “refresh” its approach to regulation post-Brexit. The UK government convened the Taskforce in February with the directive to “re-imagine, quickly and creatively, the UK’s approach to regulation”.

The Report, which covers a broad range of sectors, includes notable recommendations in relation to financial services regulation. While it does not suggest a “bonfire of regulations”, the Report does convey a desire to move away from the European style of technical and prescriptive rule-making. The focus is very much on creating a flexible and adaptive regulatory system in the UK to encourage innovation and growth. The Report also hints at some specific areas of onshored EU legislation that the government may target for change in the near term.

The HKMA introduces a new data sharing initiative, reported on the central bank digital currency initiative, and outlined regtech plans.

 By Simon Hawkins, Kieran Donovan, and Kenneth Y.F. Hui

The fifth annual Hong Kong Fintech Week conference kicked off with speeches and panels from both Hong Kong and international regulatory representatives, in addition to key market players. Topics explored ranged from the impact and complications of technology and big data to notable technological trends that have emerged as a result of the pandemic.

The Fintech Strategic Review aims to ensure the ongoing growth and success of UK fintech as a world leader in financial innovation.

By Stuart Davis and Anna Lewis-Martinez

On 20 July 2020, HM Treasury announced the launch of an independent review into the UK’s fintech industry to “identify opportunities to support further growth in the sector”.

The Fintech Strategic Review aims to establish priority areas for industry, policy makers, and regulators to explore in order to support the continuing success of the UK fintech sector. The review will be led by Ron Kalifa OBE, the former CEO of Worldpay and non-executive director of the Court of Directors to the Bank of England. According to Kalifa, “Technology has a vital role to play in the UK’s COVID-19 economic recovery. The fintech review will ensure that we can leverage this innovative technology to help consumers and businesses, through a joined-up strategy that combines investment, skills and policy to deliver it.”

Bank for International Settlements selects Bank of England as UK centre to host new fintech hub.

By Stuart Davis, Brett Carr, and Sam Maxson

On 30 June 2020, the Bank of England announced that it had been selected to host a centre of the Bank for International Settlements’ Innovation Hub. The UK centre will support the global central banking and finance community through the development of digital public goods.

SEC’s motion for a preliminary injunction is granted, prohibiting delivery of Telegram tokens to purchasers.

By Stephen P. Wink, Shaun Musuka, Carolina Bernal and Deric Behar

On March 24, the Court in the Southern District of New York sided with the SEC and granted an injunction prohibiting Telegram Group Inc. and TON Issuer Inc. (together, Telegram) from delivering Telegram’s digital token, “Grams,” to 175 entities and high-net-worth individuals (Initial Purchasers).

As we previously discussed after the SEC filed its complaint, Telegram entered into agreements with the Initial Purchasers (Gram Interest Agreements), where, in exchange for US$1.7 billion from the Initial Purchasers, Telegram provided a promise to deliver Grams to the Initial Purchasers upon the launch of its blockchain (TON Blockchain).

Call for input: market players need to engage with the process for the procurement of the NPA

By Stuart Davis, David Little, Christian McDermott, Brett Carr, and Nathan Wilkins

This Call for Input is part of the development of the Payment Systems Regulator’s (PSR) policy for the future regulation of the newly procured New Payments Architecture (NPA). The PSR is asking for stakeholders’ views about possible competition issues so that it can provide greater clarity about the nature of regulation that might be applied to the NPA. The deadline for input is 24 March 2020.

The NPA will be the payment industry’s new way of organising the clearing and settlement of most of the UK’s domestic interbank payments, including payments that currently use the Bacs and Faster Payments systems.

The PSR plans to set out its regulatory policy in a consultation, and then publish its final policy statement by the end of 2020 (coordinating with Pay.UK’s NPA central infrastructure services (CIS) procurement timetable).

The landmark authorization signals the Mexican government will likely grant similar licenses to more FinTech companies in the coming months.

By Yvette Valdez, Roderick Branch, and Daniel Gallo Mainero*

Nearly two years after the Mexican government enacted its Financial Technology Institutions Law (FinTech Law), the Mexican National Banking and Securities Commission (CNBV) issued its first license on January 22, 2020. The license authorizes NVIO Pagos México, an affiliate of Bitso, a cryptocurrency market, to operate as a financial technology institution under the new law. This landmark authorization signals that the government will likely grant similar licenses to more FinTech companies in the coming months. At least 85 entities have filed license applications with the CNBV, creating more opportunities for investors to leverage the potential of Mexico’s FinTech market within a regulated environment.

Mexico became the first Latin American country to put specific and comprehensive regulation of the financial technology sector in place when it enacted its FinTech Law in March 2018, prompting a positive reaction among investors and FinTech companies with established business models. As with new regulation in any industry, however, certain participants — specifically the majority of FinTech startups — raised questions about how the government would approach implementation and enforcement.