Global Fintech & Payments Blog

BIS Issues Consultation on Stablecoin Regulation

Posted in Cryptoassets

The global central bank cooperative body envisions stablecoins within the context of international standards for payment, clearing, and settlement systems.

By Alan W. Avery, Stuart Davis, Simon Hawkins, Stephen P. Wink, Pia Naib, and Deric Behar

Among the different types of digital assets, global authorities seem most focused on stablecoins.

This concern is the result of a few factors:

–Stablecoin use has ballooned in a very short time, going from less than US$3 billion in market capitalization at the beginning of 2019 to approximately US$130 billion as of October 2021.

–Stablecoins are intimately connected with the financial system because they function as an intermediary between traditional markets and cryptoasset markets.

–Stablecoin arrangements are in many cases opaque regarding the nature of the asset reserves underlying their currency peg.

–Stablecoins remain mostly unregulated.

Understanding and containing the systemic risks in this burgeoning asset class is therefore a top priority for regulators worldwide.

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The Token Safe Harbor Lands on Capitol Hill

Posted in Blockchain, Cryptoassets, Digital

The Clarity for Digital Tokens Act of 2021 would give token issuers the guardrails they need to innovate with far less regulatory anxiety.

By Stephen P. Wink and Deric Behar

US Securities and Exchange Commission (SEC) Commissioner Hester Peirce has always been something of a maverick. She has been a lone dissenting voice on the Commission on many topics, applying her libertarian leanings to question the need for regulations that could hobble free markets or stifle innovation.

Those who follow the digital assets markets also know Commissioner Peirce by her nickname “Crypto Mom,” for her relentless support of digital asset innovation and calls for clear regulatory guidance when she perceives they are lacking. To remedy some of those issues, Commissioner Peirce published a Token Safe Harbor Proposal on February 6, 2020, and reissued a revised version (Proposal 2.0) on April 13, 2021 (previously discussed in this post).

Proposal 2.0 never quite gained traction at the SEC, but it has found an ally in Congress. On October 5, 2021, Representative Patrick McHenry, the ranking member on the House Financial Services Committee, introduced a bill titled the Clarity for Digital Tokens Act of 2021 (the Bill) that substantially embodies Commissioner Peirce’s Token Safe Harbor Proposal 2.0. Continue Reading

New US Digital Assets Bill Casts Wide Net

Posted in Cryptoassets

An ambitious proposal could bring digital assets into the mainstream regulatory fold.

By Yvette D. Valdez, Stephen P. Wink, Adam Bruce Fovent, Adam Zuckerman, and Deric Behar

During an eventful summer for the digital assets industry, it may have been easy to miss US Representative Don Beyer’s introduction of the Digital Asset Market Structure and Investor Protection Act (the Bill) on July 28, 2021. The Bill is perhaps the most promising effort to date by Congress to enact legislation that would address some of the legal ambiguities for digital assets and better define their place within existing financial regulatory structures.

Rep. Beyer described the current legal landscape for digital assets as “ambiguous and dangerous for investors and consumers.” Broadly, the Bill seeks to address deficiencies and/or ambiguities relating to consumer protection, trade reporting and transparency, and anti-money laundering / know your client (AML/KYC) procedures for digital assets.

The Bill also seeks to address a wide range of practical issues, from the fundamental (such as defining industry terms and categorizing cryptoassets) to the more nuanced (such as establishing standards for transaction reporting and consumer protection and advisories). Continue Reading

NFTs and the Right of Publicity: Assessing the Legal Risks

Posted in Cryptoassets, Non-Fungible Tokens

NFT creators should craft strategies to avoid minting or auctioning NFTs that use the likeness of an individual without their consent.

By Ghaith Mahmood, Nima H. Mohebbi, and Tara McCortney

As non-fungible tokens (NFTs) increase in popularity, the so-called common law “right of publicity” may create additional legal risks for NFT minters. The common law right of publicity prevents the commercial exploitation of an individual’s identity without that person’s consent.[1] Most U.S. states have defined a right of publicity and, correspondingly, a standard tort for violation of that right — frequently referred to as the tort of appropriation.

While the law is similar across most US jurisdictions, California — the heart of the entertainment industry — has particularly well-developed authority in this area. For this reason, this blog post focuses on California law in describing the unique issues that NFTs may present. Continue Reading

New SEC Chairman Gives His First Speech on Crypto

Posted in Cryptoassets

Gary Gensler asserts the SEC’s broad powers over digital assets, and puts consumer protection at the forefront.

By Stephen P. Wink, Adam Zuckerman, and Deric Behar

On August 3, 2021, Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), gave a speech on the digital asset industry. The speech offered some indication of what he expects the SEC to focus on in this area but did not provide concrete guidance for industry participants looking for clarity on regulatory uncertainties. He did, however, make clear that he believes “we just don’t have enough investor protection in crypto” and that the SEC will play a more active role in regulating the industry. Continue Reading

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, Non-Fungible Tokens

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

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