Global FinTech & Payments Blog

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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Cash Is (Still) King: Another US Jurisdiction Jumps on the Cashless Ban-Wagon

Posted in Payments

Several states and municipalities are requiring brick-and-mortar retail locations to accept cash from customers.

By Todd Beauchamp, Loyal T. Horsley, and Charles Weinstein

On May 7, the San Francisco Board of Supervisors voted unanimously to require all brick-and-mortar stores in the city to accept cash from customers. The Board reasoned that the trending practice of retail establishments and fast-casual restaurants going cashless discriminates against low-income individuals, predominantly minorities, who may not have access to credit or bank accounts. Specifically, the Board found that “[f]or many [San Francisco] residents (for example, those who are denied access to credit, or who are unable to obtain bank accounts), the ability to purchase goods and services depends on the ability to pay for those goods and services in cash. This is especially true of the very poor.” San Francisco follows Philadelphia and New Jersey in passing laws banning cashless brick-and-mortar retailers. Continue Reading

Investors Welcome ADGM’s Guidance on Dedicated Cryptoasset Framework

Posted in Blockchain, Cryptoassets

The Abu Dhabi Global Market’s Guidance clarifies and expands FSRA expectations for OCAB Framework license holders.

By Brian A. Meenagh

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. This blog will consider some of these topics in more detail.

Continue Reading

Can Broker-Dealers HODL? SEC and FINRA Say Keep It Noncustodial for Now

Posted in Cryptoassets

The regulators attempt to clarify their position on the possible custody of digital assets by broker-dealers, but questions remain.

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

The SEC and FINRA recently released a joint staff statement (Joint Statement) addressing the custody of digital asset securities by broker-dealers. For some time, registered broker-dealers and applicants have sought to facilitate digital asset transactions and the accompanying custody of such assets. However, their efforts have been stymied, in part due to a lack of interpretive guidance from the SEC and FINRA regarding how to custody digital assets in compliance with the relevant regulations. The Joint Statement is an initial step by the SEC and FINRA toward clarifying their positions on these issues. It makes clear that broker-dealers that do not seek to custody such assets but seek to otherwise engage in brokerage activities with digital assets (e.g., private placements or if the broker-dealer matches buyers and sellers who conduct settlement between themselves) should be permitted to do so. The bottom line, however, is that the regulators “are just not ready”[i] to approve broker-dealers to custody digital assets. Continue Reading

SCA: Storm Clouds Approaching?

Posted in Digital, Payments

Stripe-commissioned report projects that Europe’s online economy risks losing €57 billion when SCA goes into effect on 14 September.

By Christian F. McDermott

A recent report released by 451 Research and commissioned by Stripe, the online payment processing business, has found poor levels of readiness for the requirements of Strong Customer Authentication (SCA). The report projects that European businesses stand to lose €57 billion in economic activity in the first 12 months after SCA takes effect on 14 September 2019.

Background

The revised Payment Services Directive (EU) 2015/2366 (PSD2) introduced SCA as a means to help achieve the overall aim of “ensuring that all payment services offered electronically are carried out in a secure manner, [by] adopting technologies able to guarantee the safe authentication of the user and … reduc[ing], to the maximum extent possible, the risk of fraud.”[1]

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UK and Singapore Regulators Announce Enhanced Cybersecurity Collaboration

Posted in Data Privacy, Cybersecurity, and AI

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”. Continue Reading

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