Global Fintech & Payments Blog

The Road Ahead for Open Banking in the US

Posted in Open Finance

A new Executive Order could help open the door for the portability of consumer financial data.

By Charles Weinstein and Deric Behar

Definitive regulation for open banking may be on the horizon in the US. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy (the Order), which contains a section on banking and consumer finance that encourages the Consumer Financial Protection Bureau (CFPB) to issue rules on consumer financial data portability.

The Order’s request to the CFPB could help foster competition and reduce market concentration among banking institutions by simplifying personal data portability for consumers and making open banking functionality more readily available. Continue Reading

NFTs 101: The Basics of Non-Fungible Tokens, and Beyond

Posted in Cryptoassets

Learn about 2021’s defining cryptoasset in a new infographic video and webcast, the latest in a Latham series covering NFTs.

By Christian F. McDermott

Latham & Watkins Technology Transactions Partner Christian McDermott introduces the basics of non-fungible tokens (NFTs) in this short infographic video. In particular, he addresses the following questions:

  • What are NFTs?
  • How are they created and managed?
  • How does blockchain technology fit in?
  • What are the benefits of NFTs?
  • What legal issues do NFTs present?

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EDPB Issues New Guidance on Storing Credit Card Data for Future Purchases

Posted in Payments

Online retailers storing credit card data for the sole purpose of facilitating further purchases will likely need to obtain consumer consent.

By Christian F. McDermott, Calum Docherty, and Victoria Wan

Online shopping has boomed in recent years. In 2020, the European statistics agency Eurostat estimated that 7 out of 10 internet users made online purchases within a 12-month period. The European Central Bank found that the total number of non-cash payments in the euro area increased by 8.1% in 2019 (the last year statistics are available) year-on-year with a total value of €162 trillion, which included 45 billion transactions processed by retail payment systems worth €35 trillion. This growth has likely surged during the COVID-19 pandemic, when many consumers turned to e-commerce.

The opportunities for retailers also present data protection risks. On 19 May 2021, the European Data Protection Board (EDPB) adopted Recommendations 02/2021 on the legal basis for the storage of credit card data for the sole purpose of facilitating further online transactions (the Recommendations) to address the vast data processing operations behind these transactions. The Recommendations focus on when and how online retailers can store a customer’s credit card data after a sale or transaction for the sole purpose of facilitating future purchases by that customer. The EDPB has expressly excluded from the scope of the Recommendations the storage of credit card data in relation to ongoing contracts, such as for subscription services, and the activities of payment institutions operating in online stores. The Recommendations only reference credit cards and not payment cards more generally (such as debit cards, prepaid cards, etc.). It is unclear whether the EDPB might have similar expectations of online retailers that store other payment card or direct debit data for the same purposes.

The Recommendations are not legally binding, but provide a brief exploration of the EDPB’s assessment of the legal bases available to the online retailer. The EDPB concludes that, in its view, the only appropriate legal basis for such processing is consent under Article 6(1)(a) of the General Data Protection Regulation 2016/679. Continue Reading

El Salvador Christens Bitcoin as Legal Tender

Posted in Blockchain, Cryptoassets

A sovereign nation’s decision to adopt Bitcoin as legal tender raises interesting questions — and legal ramifications.

By Elena Romanova, Larry Safran, Yvette D. Valdez, Eric S. Volkman, Stephen P. Wink, Adam Bruce Fovent, and Deric Behar

On June 8, 2021, El Salvador’s Legislative Assembly voted to establish Bitcoin as unrestricted legal tender, making El Salvador the first sovereign nation to formally adopt the cryptocurrency. Bitcoin will assume the status as legal tender alongside the US dollar, not as a replacement for it. The US dollar has been the sole legal tender of El Salvador since December 2000, and will remain the country’s reference currency for accounting purposes.

The Bitcoin law, which will come into effect 90 days from its publication in the Official Gazette, holds that the state is obligated to promote financial inclusion and well-being for its citizenry. To that end, the state will promote the necessary training and infrastructure to its citizens to be able to transact in the new legal tender. Continue Reading

Taskforce Proposes New Approach to Financial Regulation in the UK

Posted in Investing in Fintech, Open Finance, Payments

A report from the Taskforce on Innovation, Growth and Regulatory Reform provides recommendations for how the UK can “re-imagine” its approach to regulation post-Brexit.

By Rob Moulton, Stuart Davis, and Charlotte Collins

On 16 June 2021, the Taskforce on Innovation, Growth and Regulatory Reform (the Taskforce) published a report (the Report) providing recommendations for how the UK could “refresh” its approach to regulation post-Brexit. The UK government convened the Taskforce in February with the directive to “re-imagine, quickly and creatively, the UK’s approach to regulation”.

The Report, which covers a broad range of sectors, includes notable recommendations in relation to financial services regulation. While it does not suggest a “bonfire of regulations”, the Report does convey a desire to move away from the European style of technical and prescriptive rule-making. The focus is very much on creating a flexible and adaptive regulatory system in the UK to encourage innovation and growth. The Report also hints at some specific areas of onshored EU legislation that the government may target for change in the near term. Continue Reading

Hong Kong Confirms New Regulatory Licensing Regime for Virtual Asset Exchanges

Posted in Cryptoassets

The Hong Kong government has issued its widely anticipated consultation conclusions on a new framework to regulate virtual asset exchanges.

By Simon Hawkins and Kenneth Y.F. Hui

On 21 May 2021, the Hong Kong Financial Services and the Treasury Bureau (FSTB) issued its consultation conclusions (Conclusions) on the introduction of a new regulatory framework in Hong Kong to licence and regulate virtual asset exchange (VA Exchange) operators.

New regulatory framework

The Conclusions adopt most of the proposals set out in the FSTB’s November 2020 consultation paper (Consultation Paper), as summarized in our Client Alert “Hong Kong Consults on a New Licensing Regime to Regulate Virtual Assets Exchanges”.

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The Return of the Token Safe Harbor

Posted in Blockchain, Cryptoassets, Digital

SEC Commissioner Peirce has revived and refreshed her proposed three-year safe harbor for qualifying token projects, but some unresolved ambiguities remain.

By Miles P. Jennings, Stephen P. Wink, Naim Culhaci, and Deric Behar

US Securities and Exchange Commission (SEC) Commissioner Hester Peirce, a longtime and vocal advocate for innovation in financial services, has not shied away from engaging with and supporting the fledgling digital asset ecosystem. One of the milestones along this path has been the unveiling of her Token Safe Harbor Proposal on February 6, 2020, in a speech at the International Blockchain Congress. (See Taking the Scarlet Out of the Letters I-C-O.) Now, following up on a promise to refresh the proposal in light of feedback received in the past year from “the crypto community, securities lawyers, and members of the public,” Commissioner Peirce has published Token Safe Harbor Proposal 2.0 (Proposal 2.0).

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Decentralized Autonomous Organizations Find a Home in Wyoming

Posted in Cryptoassets

The State of Wyoming is solidifying its position as the friendliest state in the US for digital asset innovation.

By Miles P. Jennings, Stephen P. Wink, and Deric Behar

Although comprehensive digital asset regulation at the federal level remains elusive, US states are angling to establish themselves as blockchain and crypto-friendly jurisdictions. At the forefront stands Wyoming, with a track record of fostering digital asset-friendly policies. Most recently, on April 21, 2021, Wyoming’s governor signed into law a bill sponsored by the state’s Select Committee on Blockchain, Financial Technology and Digital Innovation Technology, the first in the nation to allow decentralized autonomous organizations (DAOs) to obtain legal company status. The legislation becomes effective on July 1, 2021. Continue Reading

ESG and Cryptocurrency: Considerations for Market Participants

Posted in Cryptoassets

For market participants pivoting toward ESG and digital assets, weighing the issues at the crossroads of these two megatrends is critical.

By Paul A. Davies, Stuart Davis, Simon Hawkins, Nicola Higgs, Yvette D. Valdez, Thomas Vogel, Stephen P. Wink, and Deric Behar

The huge rise in popularity of Bitcoin — and the growing interest by mainstream financial institutions in virtual assets as an investable and tradable asset class — has shone a light on the cryptocurrency industry’s environmental, social, and governance (ESG) performance.

The vast majority of the world’s financial institutions manage climate risk and other ESG risks in their own portfolios. As a result, many financial institutions perform related diligence on corporates they look to service, whether by traditional lending, capital markets underwriting, or direct investment. While the focus has primarily been on the ESG performance of cryptocurrency miners (given their role in the creation of cryptocurrencies and the energy requirements associated with that process), the ESG performance of the broader cryptocurrency industry will increasingly need to be considered, particularly as institutional investment in this space is accelerating. Accordingly, investors in cryptocurrency miners, in cryptoasset service providers, and even in companies that put cryptoassets on their balance sheets must now weigh the potential for increased returns against the possible negative impact on their ESG credentials.

While much has been written about the sustainability challenges related to cryptocurrency mining, ESG represents a broad range of considerations. This post explores the ESG-related challenges that cryptocurrency market participants are facing and practical steps to meet them. Continue Reading

NFTs: A Beginner’s Guide to Understanding the Hottest Crypto Craze

Posted in Cryptoassets

An NFT is a special, one-of-a-kind digital asset that raises a number of novel legal questions.

By Christian F. McDermott and Calum Docherty

Earlier this month, a blockchain firm bought a US$95,000 print by the British street artist Banksy, only to burn it in a livestreamed video and re-sell it for US$380,000 as a virtual asset called a non-fungible token (NFT) — sparking a flurry of news around what may prove to be this year’s hottest crypto craze.

How did the Banksy sale work? The group explained that by removing the physical piece from existence and releasing the NFT as digital art, the value of the physical piece will be moved onto the NFT. This trend isn’t just setting the art world ablaze; in fact, musicians and even footwear companies are finding ways to break into the space. Continue Reading

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