Global FinTech & Payments Blog

The Future Ain’t What It Used to Be: New Tax Guidance Issued for Cryptocurrencies

Posted in Cryptoassets

The IRS has published a Revenue Ruling and FAQs clarifying some long-standing virtual currency questions.

By Brian C. McManus, Elena Romanova, Stephen P. Wink, Sam (Seung Hyun) Yang, and Deric Behar

On October 9, 2019, the US Internal Revenue Service (IRS) issued its first guidance on the tax treatment of cryptocurrencies in at least five years. The guidance includes Revenue Ruling 2019-24 (Ruling) and a set of frequently asked questions (FAQs) for taxpayers who transact in virtual currencies and hold them as investment. The guidance supplements Notice 2014-21, which explains that virtual currency is treated as property for federal income tax purposes. The Ruling addresses whether a taxpayer holding a cryptocurrency has taxable income as a result of a “hard fork” with and without an “airdrop.” The FAQs provide guidance on the calculation of value and of tax basis of virtual currencies in various situations. Continue Reading

Bank of England Seeks Further Feedback on Migration to Standard Payments Messaging

Posted in Payments

The BoE is seeking feedback on the Introductory Phase of the ISO 20022 migration, that will create a common language for payments data globally.

By Christian F. McDermott, Grace E. Erskine, and Amy Smyth

In 2018, the Bank of England (BoE) consulted on the adoption of ISO 20022 — a global standard for payments messaging — for the payments industry in the UK. In response to consultation feedback and market developments such as SWIFT and the European Central Bank’s requirement that ISO 20022 messaging begin in November 2021, the BoE is now seeking further feedback from interested parties. The BoE’s latest consultation focuses on the Introductory Phase of the CHAPS ISO 20022 migration, specifically the early adoption of “enhanced” data. Feedback must be submitted by 16 October 2019. The BoE has set out two options for the implementation of the Introductory Phase: Continue Reading

FSB Concerns Over Cloud Concentration in Financial Services Continues

Posted in Data Privacy, Cybersecurity, and AI

The FSB is reviewing cloud provider concentration risk in the latest example of regulator concern over reliance on leading cloud providers by financial services institutions.

By Alan W. Avery, Nicola Higgs, and Fiona Maclean

The Financial Stability Board (FSB), an international body of G-20 central banks and supervisors, continues to scrutinize the use of cloud services by financial services institutions. The FSB previously noted its concerns about the concentration risk of cloud services in the financial markets in a report of February this year. In that report, the FSB encouraged regulators worldwide to review their national regulatory frameworks to ensure appropriate oversight of cloud providers.

Continue Reading

Harbor Finds Calmer FINRA Waters Outside the Custody Storm

Posted in Blockchain, Data Privacy, Cybersecurity, and AI, Digital

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. Continue Reading

PSD2 & Brexit: EU Card Issuers Must Apply SCA to UK Website Purchases Post-Brexit

Posted in Payments

European Commission confirms SCA measures should apply to EU consumers purchasing from UK websites in the event of a no-deal Brexit.

By Christian F. McDermott, Jagveen S. Tyndall, and Amy Smyth

Complex payment processing chains comprise multiple entities operating behind the scenes to support everyday transactions.

The strong customer authentication (SCA) requirements introduced by the revised EU Payment Services Directive (PSD2) aim to reduce fraud and make online payments more secure (as described in previous posts of June and August 2019). SCA requires that a customer provide two forms of identification that meet the following criteria: Continue Reading

What the SEC’s Lawsuit Against Kik Teaches Us About Token Presale Agreements

Posted in Blockchain

Latham & Watkins lawyers provide an in-depth look at recent issues impacting the use of token presale agreements.

By Stephen P. Wink, Miles P. Jennings, and Shaun Musuka

Token presale agreements are a popular type of financing instrument among startups in the blockchain space. In this article, originally published by Bloomberg Law, Latham & Watkins lawyers explore the initial impact of SEC v. Kik Interactive Inc. on the use of token presale agreements and discuss an approach Latham & Watkins developed to overcome challenges such as the “single plan of financing” issue. This approach, developed in collaboration with ConsenSys and OpenLaw, is encapsulated in the Automated Convertible Note, a free-to-use tool that addresses future token sales in a manner compliant with US securities and commodities regulations.

The Systemic Importance of Cloud-Based Service Providers to Banks

Posted in Data Privacy, Cybersecurity, and AI, Payments

US lawmakers urge FSOC to designate cloud-based storage systems used by major banks as systemically important financial market utilities.

By Alan W. Avery, Victoria McGrath, and Pia Naib

In an August 22, 2019, letter addressed to Treasury Secretary Steven Mnuchin, in his capacity as chair of the Financial Stability Oversight Council (FSOC), Congresswoman Katie Porter and Congresswoman Nydia Velazquez urged Secretary Mnuchin to designate the three leading cloud-based storage systems used by major banks — Amazon Web Services, Microsoft Azure, and Google Cloud — as systemically important financial market utilities (SIFMUs). This designation would subject such cloud-based storage systems to supervision and regulation by the Board of Governors of the Federal Reserve System (Federal Reserve). Citing Title VIII of the Dodd-Frank Act, which was enacted to promote stability in the financial system, the Congresswomen highlighted the dependence on cloud services by banks and financial institutions for their data needs and the subsequent risks such services pose to the safety and stability of the financial system. Continue Reading

SEC’s Crypto Summer Continues

Posted in Cryptoassets

SEC issues cease-and-desist orders for unregistered token presales and anti-touting violations.

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

Not content to let the dog days of summer slip by, the US Securities and Exchange Commission (SEC) recently issued two cease-and-desist orders relating to the offer, sale, and marketing of cryptocurrencies.

SimplyVital – Simply Saying a Sale Is Exempt Will Not Suffice

In the first order (SV Order), the SEC concluded that SimplyVital Health, Inc. (SimplyVital), a “health care-related blockchain ecosystem” start-up, violated the Securities Act of 1933 (Securities Act) by failing to register an initial coin offering (ICO) presale. Continue Reading

Readiness for PSD2: APIs Fall Short, but More Time for SCA

Posted in Digital, Payments

While the payments industry scrambles to meet new standards for APIs, the FCA grants an extension for SCA compliance.

By Christian F. McDermott, Jagveen Tyndall, and Amy Smyth

In an effort to evaluate the readiness of banks to comply with the revised EU Payment Services Directive (PSD2), Tink, a banking platform and data provider, has reported that it tested 84 application programme interfaces (APIs) spanning 2,500 banks and 12 European markets. According to Tink the results showed that none of these APIs were sufficiently robust to meet the new regulatory standards. Separately, the UK’s Financial Conduct Authority (FCA) has delayed the implementation of the strong customer authentication (SCA) requirements introduced by PSD2 to enhance the security of all electronic payment services. Continue Reading

Cryptoasset Trading Platforms: A Regulatory Trip Around the World

Posted in Cryptoassets, Investing in FinTech

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 address cryptoassets, or embarked upon some combination of the two. Due to their use of blockchain and other distributed ledger technology, cryptoassets are, in most cases, inherently cross-border and cross-jurisdictional, and nothing but legal regimes keep them within certain borders. Thus, most issuers of cryptoassets and trading platforms must address multiple legal and regulatory frameworks when attempting to enter the market.

In this article, originally published as a chapter in Global Legal Insights’ Fintech 2019 issue, Latham & Watkins lawyers explore the regulation of cryptoasset trading platforms in the European Union, the United States, Hong Kong, Singapore, the Philippines, Thailand, and Japan.

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