Global FinTech & Payments Blog

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.

Navigating Data Processing Ethics for FinTech in Hong Kong

Posted in Data Privacy, Cybersecurity, and AI

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. Continue Reading

Let’s Settle This Immediately: The Fed Joins the Global Faster-Payments Trend

Posted in Payments

The Federal Reserve is finally stepping into the real-time payments arena.

By Todd Beauchamp, Loyal T. Horsley, and Deric Behar

On August 5, 2019, the Board of Governors of the US Federal Reserve System (the Fed) announced that it plans to roll out a real-time payment and settlement service by 2023 or 2024. The service, named FedNow, is being developed with the stated goal of modernizing the national payment system. Facing political and societal pressure to upgrade the national payment system, the Fed sought comment on the development of a faster payment service in late 2018. After receiving more than 350 comments, the Fed is now moving forward and seeking additional comment on the best way to design the system so that it maximizes inclusivity and utility for all stakeholders. The Fed envisions that FedNow will capitalize on its nationwide infrastructure to provide consumers, businesses, and banks the ability to safely make and receive immediate and fully settled payments 24 hours a day, seven days a week.

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Abu Dhabi Global Market Issues Updated Comprehensive Guidance on Cryptoasset Framework

Posted in Blockchain, Cryptoassets

By Brian Meenagh, and Khaled Alhuneidi.

In June 2018, the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA) unveiled a dedicated cryptoasset regulatory framework by way of various amendments to the FSRA’s core regulations – the Financial Services and Markets Regulation (FSMR) as well as supplementary guidance thereto.

In May 2019, the FSRA issued updated and greatly expanded guidance (FSRA Guidance) that includes a more granular level of detail and addresses a range of topics not covered in the initial guidance. We consider some of these topics below.

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Latest UK Developments on the Regulation of Cryptoassets

Posted in Cryptoassets

FCA finalises guidance on cryptoassets and consults on product intervention measures.

By Stuart Davis and Charlotte Collins

FCA guidance on the regulation of cryptoassets

As previously reported in this blog, the FCA consulted on guidance on cryptoassets in January 2019. This guidance is designed to help market participants understand how to classify different types of cryptoassets, within the existing regulatory framework. Although the guidance is not able to give definitive answers, and every cryptoasset must be assessed against the guidance based on its own particular features, this publication helps to create a much greater degree of clarity as to how the assessment ought to be performed, and which features are determinative for these purposes.

The FCA published its final guidance in PS19/22 on 31 July 2019. The guidance is substantially the same as that consulted on, save that the FCA has sought to reframe its taxonomy of cryptoassets to help market participants better understand which types of token are regulated. The FCA has included a new category of regulated tokens that constitute e-money, “e-money tokens”, rather than including e-money tokens within the utility tokens category. This provides a clearer distinction between regulated security tokens and e-money tokens on the one hand, and unregulated tokens (utility tokens and exchange tokens that do not fall within the above categories) on the other. However, the final guidance as to whether a token will constitute an e-money token has not changed from the draft version. The FCA has also provided further guidance on so-called “stablecoins”, and on when particular types of token might constitute e-money or securities. The FCA confirms that this determination will depend on the design and rights associated with a specific stablecoin and, therefore, requires a case-by-case assessment. Continue Reading

Meet Me at the Arcade: SEC Provides No-Action Relief for Ethereum-Based Gaming Token

Posted in Cryptoassets

The SEC issues second no-action letter for a digital token, but will “utility” token offerings reach the next level?

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

Gamers, rejoice! In only its second no-action letter to date for digital tokens, the SEC cleared the way for Pocketful of Quarters, Inc. (PoQ) to issue “Quarters,” one of two digital tokens issued by PoQ on the Ethereum blockchain.[i] PoQ, which was co-founded by a 12-year-old entrepreneur and his father, sought guidance from the SEC as to whether its offering of the stablecoin would require registration under Section 5 of the Securities Act and Section 12(g) of the Exchange Act. PoQ explained that Quarters are intended to be a “universal gaming token” that buyers can use across games deployed on PoQ’s platform. The benefit to gamers, PoQ asserts, is more efficient usage of value across participating online games rather than “siloed video game economies [that] result in large unspent balances of in-game currencies.”

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