Global FinTech & Payments Blog

Open Finance: The Next Frontier in Fintech?

Posted in Digital, Investing in FinTech, Payments

Call for input: Industry needs to engage as the FCA moves forward on its transformative vision for open finance.

By Stuart Davis and Brett Carr

Imagine a world in which you could access your bank accounts, credit cards, mortgage, pensions, savings accounts and ISAs, brokerage account, home and car insurance, life insurance, and other financial products on one user interface or app, even if each of those products is held with a different provider. Then, imagine that the app could provide innovative financial management services across all of those products, such as automated switching to the best products, holistic investment advice and budgeting, and sweeping of excess cash into products yielding a better return than today’s current accounts. This world may be closer than you think, and it will likely have profound impacts for incumbent and new financial services business. Continue Reading

Crypto Coming of Age: UK Regulation Hits Cryptoasset Business

Posted in Cryptoassets

New regulatory requirements, including registration and customer disclosure requirements, apply to regulated and unregulated persons carrying on relevant cryptoasset business.

By Stuart Davis and Sam Maxson

On 20 December 2019, the UK government published the Money Laundering and Terrorist Financing Regulations (Amendment) Regulations 2019 (the Amending Regulations). The Amending Regulations update the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs) to meet the UK’s obligation to transpose Directive (EU) 2018/843 (5MLD) into UK law. A key element of the Amending Regulations is that they bring Cryptoasset Exchange Providers (CEP) and Custodian Wallet Providers (CWP) — including persons making an initial coin offering (ICO) — within the scope of UK money laundering regulations. Therefore, from 10 January 2020 CEPs and CWPs are required to comply with the requirements of the MLRs (subject to limited transitional provisions for existing cryptoasset businesses relating to registration with the FCA). Significantly, the Amending Regulations will impact any UK person conducting cryptoasset business of a kind that is captured by the new definitions of CEPs and CWPs (including, for example, existing UK authorised financial services firms that carry on cryptoasset business which will be subject to new requirements relating specifically to cryptoasset business).

HM Treasury consulted on its proposed changes in April 2019 in its paper Transposition of the Fifth Money Laundering Directive: Consultation (the Consultation Paper). As the UK has not yet formally withdrawn from the EU, its approach to implementing the changes introduced by 5MLD is not impacted by Brexit and it is anticipated that the UK will continue to apply EU financial regulatory standards (including anti-money laundering (AML) requirements) immediately post-Brexit through “onshored” legislation.

Continue Reading

2019 Digital Asset Regulatory Look Back (US Edition)

Posted in Blockchain, Cryptoassets, Digital

It was a year filled with tantalizing tidbits and many loose ends.

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

2019 marked the 10th year since blockchain technology was released into the wild by its still unknown inventor, Satoshi Nakamoto, who mined the first bitcoin block in January 2009. In the intervening decade, blockchain technology has catalysed widespread innovation, some of which has garnered the attention (and consternation) of US regulators. One topic in particular has spawned spirited debate: How should token-based economic activity, especially within the sphere of capital raising and value exchange, be treated under existing US regulatory infrastructure?

While US regulators did not provide any specific answers in 2019, the year was notable for providing the crypto space with additional pieces of the burgeoning regulatory puzzle in the form of agency guidance, enforcement actions, no-action letters, and highly publicized governmental concerns regarding private global stablecoins. Continue Reading

A Tipping Point for the Regulation of Cryptoassets in the EU?

Posted in Cryptoassets

The EC consults on existing cryptoasset regulatory framework and considers a separate EU framework for cryptoassets outside the current scope. 

By Stuart Davis

On 19 December 2019, the European Commission (EC) launched a public consultation to review the suitability and effectiveness of the current EU regulatory framework applicable to cryptoassets. The consultation will examine cryptoassets that are within the scope of the framework (In-Scope Cryptoassets) and determine whether a separate EU regulatory framework should be adopted for cryptoassets that do not currently fall within scope (Out-of-Scope Cryptoassets), either by introducing an EU directive (which would need to be incorporated into Member State laws) or an EU regulation (which would be directly applicable across the EU). The EC also published an inception impact assessment, which explains the rationale behind the consultation and the expected impacts of a new EU regulatory framework for Out-of-Scope Cryptoassets. Continue Reading

The SEC Greenlights a Blockchain Settlement Service for Public Shares

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

The US agency has used a no-action letter to enable a sandbox-like approach to blockchain-based trade settlements.

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

In what may be the first regulator-approved application of blockchain technology for the settlement of US equities trades, the Division of Trading and Markets of the US Securities and Exchange Commission (SEC) recently granted no-action relief to Paxos Trust Company (Paxos) to conduct a two-year “feasibility study” of a securities settlement service using distributed ledger technology. During this period, Paxos will be permitted to operate as a clearing agency under Section 3(a)(23) of the Securities Exchange Act without needing to register as a clearing agency under Section 17A(b)(1) of the Act. The no-action relief for the Paxos Settlement Service (PSS) is limited to clearing a volume-restricted number of trades per day of highly liquid publicly traded equities, for at most seven eligible broker-dealers. Continue Reading

The CFTC Takes New Steps to Promote Innovation and ‘Explore the Unwritten Future’

Posted in Data Privacy, Cybersecurity, and AI, Investing in FinTech

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. Continue Reading

The SEC Continues Its Enforcement Streak Against Unregistered Token Offerings

Posted in Blockchain, Digital

As the agency pursues and prevents offerings of tokens it deems unregistered securities, further issues emerge.

By John J. Sikora Jr., Stephen P. Wink, Douglas K. Yatter, Cameron R. Kates, Shaun Musuka, and Deric Behar

The recent wave of US Securities and Exchange Commission (SEC) enforcement actions relating to initial coin offerings (ICOs) continues with two orders and a judicial complaint issued against digital asset firms for conducting unregistered securities offerings. The actions against Block.one, Nebulous, and Telegram are each notable for the facts and circumstances under which they were issued, but also as counterpoints to each other and previous ICO-related enforcement actions. This blog post offers a brief synopsis of these actions and discusses their impact on the evolving regulatory and enforcement landscape. Continue Reading

Podcast: Macro and Regulatory Developments Impacting Stablecoins

Posted in Blockchain, Cryptoassets, Investing in FinTech

Latham FinTech partners discuss the evolving stablecoin landscape on the New Territories Podcast.

By Christian F. McDermott, Yvette D. Valdez, and Stephen P. Wink

New York partners Yvette Valdez and Stephen Wink and London partner Christian McDermott recently discussed the evolving stablecoin landscape on new episodes of The Brooklyn Project’s New Territories Podcast.

The partners, who are members of Latham & Watkins FinTech Industry Group, spoke with host Joyce Lai about a number of trends and regulatory issues impacting digital assets and blockchain technology, including:

  • Macro trends and geopolitical shifts
  • State-sponsored digital assets and payment systems
  • Status of digital assets under US securities laws
  • Stablecoin considerations (and complications) under US commodities laws
  • Decentralized finance
  • Global privacy considerations for potential issuers and other participants when designing and operating a stablecoin ecosystem

Continue Reading

The Yellow Brick Road for Consumer Tokens: The Path to SEC and CFTC Compliance (an Update)

Posted in Blockchain, Cryptoassets

Latham & Watkins provides an in-depth look at the intersection of CFTC and SEC regulatory jurisdiction in the crypto context.

By David L. Concannon, Yvette D. Valdez, and Stephen P. Wink, with Paul M. Dudek and Miles P. Jennings

With the rapid growth in the development of blockchain technology, virtual currencies, and token sales (sometimes referred to as initial coin offerings, or ICOs), token offerings came under increased regulatory scrutiny, particularly in the US. Since the US Securities and Exchange Commission (SEC) first started taking action with respect to token offerings, the question on the minds of many entrepreneurs and their counsel has been whether the issuance and sale of “consumer” or “utility” tokens — those designed for use by consumers on a distributed platform and not intended to constitute securities — is possible in the US. While there appears to be a viable regulatory path to the issuance of consumer tokens that would not necessarily be viewed as “securities” subject to SEC oversight, the framework remains unclear.

In this article, originally published in 2019 and fully revised for Global Legal Insights’ Blockchain & Cryptocurrency Regulation 2020 issue, Latham & Watkins lawyers discuss the legal issues surrounding such issuances under the US federal commodities and securities laws. The article reflects our most current and up-to-date thinking and analysis regarding the development of consumer token sales.

HMRC Issues Further Guidance on the Taxation of Cryptoassets

Posted in Blockchain, Cryptoassets

HMRC confirms that cryptoassets are not considered to be money or currency for tax purposes.

By Karl Mah and Amy Watkins

On 1 November 2019, HM Revenue & Customs (HMRC) issued a policy paper on the taxation of cryptoassets for businesses and companies. This follows guidance issued by HMRC in December 2018 for individuals holding cryptoassets. The new guidance does not contain any major surprises and generally follows, but elaborates on, the principles laid down in the initial guidance. It is useful as it provides further clarity for companies undertaking transactions involving cryptoassets and gives tax advice in respect of certain scenarios involving cryptoassets, such as blockchain forks. It addresses not only the corporation tax consequences of transactions involving cryptoassets, but also the stamp tax consequences, the VAT implications, and certain employment tax considerations. Continue Reading

LexBlog