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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 US derivatives regulator continues to foster FinTech adoption and leadership in US markets.

By Yvette D. Valdez, Douglas K. Yatter, and Deric Behar

The US Commodity Futures Trading Commission (CFTC) has affirmed its commitment to engaging the fast-moving financial technology world by elevating its LabCFTC unit to be an independent operating office within the CFTC, reporting directly to Chairman Heath Tarbert. LabCFTC is the agency’s FinTech hub, led since October 10, 2019, by Chief Innovation Officer and Director Melissa Netram. The announcement about LabCFTC’s new status was made at the agency’s second annual FinTech conference, “Fintech Forward 2019: Exploring the Unwritten Future,” held on October 24, 2019.

LabCFTC initiatives such as the annual FinTech conference provide a way for FinTech innovators to access the CFTC, while also allowing the CFTC to keep apace of new technologies and ideas impacting the financial markets. The CFTC also uses the forum to evaluate the potential of new technology for agency oversight activities.

SFC outlines new regulatory framework for virtual asset trading platforms, HKMA highlights recent FinTech initiatives, and PBOC discusses China’s forthcoming central bank digital currency.

By Simon Hawkins and Kenneth Y.F. Hui

The fourth annual Hong Kong FinTech Week conference kicked off with a major announcement from Mr. Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), who introduced a new, formalized regulatory framework for virtual asset trading platforms (VATPs). A panel of central bankers also discussed stablecoins and central bank digital currencies, including the People’s Bank of China’s (PBoC) forthcoming central bank digital currency, referred to as the digital currency / electronic payment (DCEP) coin.

In line with its previous guidance, FINRA has granted broker-dealer (but not custodian) status to a digital asset platform.

By Stephen P. Wink, Cameron R. Kates, Shaun Musuka, and Deric Behar

In a follow-up to the July 2019 SEC and FINRA joint staff statement (Joint Statement) clarifying the regulators’ position on the custody of digital asset securities by broker-dealers, on September 27, 2019, FINRA granted broker-dealer status to a digital asset firm. The recipient, Harbor Square Investments (HSI) — a subsidiary of a San Francisco-based FinTech startup eponymously named Harbor — helps issuers of alternative investments and private securities tokenize their offerings and bring the security tokens to market on its blockchain-based platform.

Latham & Watkins lawyers provide an in-depth look at the regulation of cryptoasset trading platforms in key jurisdictions.

By Todd Beauchamp, Nozomi Oda, Yvette D. Valdez, Stephen P. Wink, and Simon Hawkins

Cryptoasset trading is a fast-growing part of the financial sector. Some countries have wholeheartedly embraced cryptoassets; others have been more reticent to permit widespread adoption. Generally, countries either interpreted existing laws and regulations to apply to cryptoassets, adopted new laws or regulations to specifically…

If adopted efficiently, the PCPD’s Ethical Accountability Framework should help organizations to demonstrate and enhance trust with individuals.

By Kieran Donovan

In October, 2018, Hong Kong’s Privacy Commissioner for Personal Data (PCPD) presented the findings of an inquiry into the ethics of data processing, commissioned by the PCPD with the help of the Information Accountability Foundation (IAF). The result of the inquiry, published as the Ethical Accountability Framework, provides an “instruction manual” for processing data in an ethical and accountable manner.

Following on the heels of the PCPD’s report, the Hong Kong Monetary Authority (HKMA) issued a Circular titled Use of Personal Data in Fintech Development, encouraging authorized institutions (AIs) to adopt the PCPD’s Ethical Accountability Framework.

By Andrew C. Moyle, Grace Erskine, and Charlotte Collins

As leading global financial and FinTech centres, the UK and Singapore will benefit from strengthening their cybersecurity alliance.

On 13 June 2019, the Bank of England, the Financial Conduct Authority, and the Monetary Authority of Singapore announced that they will be working together to strengthen cybersecurity in their countries’ financial sectors.

The regulators have characterised the aims of this new collaboration as “identifying effective ways to share information and exploring potential for staff exchanges”.

All three regulators have identified cybercrime as an increasing global problem. Speaking about the new initiative, Mark Carney, Governor of the Bank of England, said, “The average cost of cybercrime for financial services companies globally has increased by more than 40% over the past three years. Cyber risk is not constrained by geographic boundaries, making international cooperation essential to address this growing threat”.

Report highlights key strengths and regulatory innovations to inform stakeholders for trade and investment.

By Laura Holden and Nootan Vegad

The Department for International Trade, with the support of Innovate Finance, has published a report titled the “FinTech State of the Nation”. Providing an overview of the UK’s FinTech industry and highlighting the UK’s appeal as a FinTech destination for entrepreneurs and investors, the report seeks to demonstrate how the UK’s FinTech sector has emerged as a global leader and why this will continue in the future.

The report describes the actions that the government, regulators, and industry have taken to stimulate and sustain growth of the UK’s FinTech sector. The report includes an overview of technology demand, a regional analysis of FinTech, details of the investment environment, views from the FCA, a summary of the talent, skills, and diversity in the industry and the “Essential Eight” technology trends — which includes block chain, drones, and artificial intelligence to name a few.

Federal court allows NYSDFS lawsuit against OCC FinTech charter to proceed, raising further questions about the charter’s viability.

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

In a May 2 order, US District Court Judge Victor Marrero rejected the Office of the Comptroller of the Currency’s (OCC’s) recent motion to dismiss the New York State Department of Financial Services’ (NYSDFS’) new lawsuit challenging the OCC’s FinTech charter, and by doing so, may have put the charter in limbo for the foreseeable future.

Overview

As detailed in this previous commentary, the NYSDFS’ then-Superintendent Maria T. Vullo sued the OCC and then-Acting Comptroller Keith Norieka in response to the OCC’s 2016 White Paper — “Exploring Special Purpose National Bank Charters for Fintech Companies.” Superintendent Vullo and the NYSDFS alleged that granting the proposed charter was outside the scope of the OCC’s statutory authority and would be harmful to the US financial system. The suit, however, was dismissed, primarily on the grounds that it was premature given the OCC had not yet taken any official action on the chartering process (i.e., the OCC had only released the White Paper). Following the dismissal of the NYSDFS suit, as well as the dismissal of a similar suit brought by the Conference of State Bank Supervisors, the OCC issued a policy statement in July 2018 announcing that it would begin accepting applications for special purpose national bank (SPNB) charters for non-depository FinTech companies. In the wake of this more formal movement on the FinTech charter, Superintendent Vullo again sued the OCC and the new Comptroller, Joseph Otting, in September 2018, seeking to block the OCC from taking further action to implement the chartering process. The OCC moved to dismiss the new NYSDFS suit, arguing that the claims were still premature because the OCC had not yet received — let alone approved — any FinTech charter applications.

Regulatory guidance on cryptoassets and digital currency companies may lead to a legitimisation of crypto-businesses as an investable asset class.

By Stuart Davis, Sam Maxson, David Walker, Tom Evans, and Catherine Campbell

Recent and upcoming regulatory guidance on cryptoassets and the regulation of companies engaged in digital currency, such as issuers, crypto-exchanges, crypto-custodians, crypto-brokers, and other service providers, could help facilitate private equity investment in this space. While there has been some institutional investment in crypto-businesses — such as Goldman Sachs’ investment in Circle (owners of the Poloniex crypto-currency exchange) and Tiger Global’s investment in Coinbase — this has been a relatively nascent market with most money coming in the form of early-stage and venture investing.