Global Fintech & Payments Blog

CFTC Adds Another Building Block to its Digital Asset Framework

Posted in Cryptoassets

The CFTC issues stringent guidelines for FCMs seeking to custody digital assets in connection with physically delivered futures contracts or swaps.

By Yvette D. Valdez, Adam Bruce Fovent, and Deric Behar

The US Commodity Futures Trading Commission’s (CFTC’s) Division of Swap Dealer and Intermediary Oversight (DSIO) issued CFTC Staff Letter No. 20-34 (the Advisory) on October 21, 2020, clarifying its views on the acceptance, holding, and reporting of virtual currency (e.g., bitcoin or ether) in segregated accounts by futures commission merchants (FCMs) and the development of appropriate risk management programs in relation thereto.

Specifically, the Advisory relates to virtual currencies deposited by customers with FCMs in connection with physically delivered futures contracts or swaps. Due to the “custodian risk” associated with holding virtual currency as segregated funds, the Advisory lays out specific guidance for FCMs on virtual asset acceptance and custody, and their responsibility to implement appropriate policies, procedures, and oversight programs. The Advisory does not address virtual currency held by FCMs on behalf of customers trading derivatives on markets outside of the US, or virtual currency held by FCMs on their own behalf, including in a proprietary account. Continue Reading

Hong Kong Fintech Week 2020: SFC Announces New Crypto Regulatory Regime for Virtual Asset Exchanges

Posted in Cryptoassets

Hong Kong’s Securities and Futures Commission introduces new licensing regime to regulate previously unregulated markets and restates expectations regarding security token offerings.

By Simon Hawkins, Kieran Donovan, and Kenneth Y.F. Hui

The second day of Hong Kong Fintech Week again brought together regulators and market participants from across the fintech industry for a range of insightful discussions.

Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), delivered the day’s biggest headline in his keynote speech, announcing that the Financial Services and Treasury Bureau (FSTB) would be issuing a consultation paper proposing a new licensing regime for virtual asset service providers (VASPs), effectively creating a legal framework that brings previously unregulated activities within the SFC’s regulatory perimeter. (Further analysis is available in Latham’s Client Alert on the proposed framework.) Continue Reading

Privacy and Payments: New Draft EU Advice for Financial Institutions

Posted in Payments

As contactless transactions boom, EU regulators publish draft guidelines on the interplay between the GDPR and PSD2.

By Fiona M. Maclean, Christian F. McDermott, Calum Docherty, and Amy Smyth

Last year, more than half of all payments in the UK were made by card and contactless methods, while cash made up less than a quarter of all payments for the first time, according to the trade association UK Finance. The COVID-19 pandemic has accelerated the shift towards a cashless society, as governments across Europe encourage citizens and businesses to adopt cashless solutions. At the start of the lockdown, in the spring, ATM transaction volumes in the UK fell 62% year on year, while the daily cash transaction volumes dropped by as much as 90% in Spain, according to the Financial Times. Continue Reading

Hong Kong Fintech Week 2020: 3 Key Policy Initiatives of the HKMA

Posted in Data Privacy, Cybersecurity, and AI, Digital, Investing in Fintech

The HKMA introduces a new data sharing initiative, reported on the central bank digital currency initiative, and outlined regtech plans.

 By Simon Hawkins, Kieran Donovan, and Kenneth Y.F. Hui

The fifth annual Hong Kong Fintech Week conference kicked off with speeches and panels from both Hong Kong and international regulatory representatives, in addition to key market players. Topics explored ranged from the impact and complications of technology and big data to notable technological trends that have emerged as a result of the pandemic. Continue Reading

Prelude to a Digital Euro: European Central Bank Joins the CBDC Race

Posted in Payments

A new report explores the advantages, impacts, and approaches the Eurosystem is considering as it contemplates a digital currency.

By Max von Cube

In October 2020, the European Central Bank (ECB) published a Report on a Digital Euro (the Report). The Report sets out the main findings of a task force initiated in early 2020 to investigate the potential for a central bank digital currency (CBDC) in the euro area. Continue Reading

DOJ’s Evolving Framework for Cryptocurrency Enforcement

Posted in Blockchain, Cryptoassets

US Department of Justice’s sprawling report reveals regulatory enforcement priorities for cryptocurrencies and highlights multi-agency cooperation.

By Susan Engel, Miles Jennings, Benjamin Naftalis, Yvette Valdez, Eric Volkman, Stephen Wink, Douglas K. Yatter, and Deric Behar

On October 8, 2020, the US Attorney General’s Cyber-Digital Task Force of the Department of Justice (DOJ) published an extensive white paper, titled Cryptocurrency: An Enforcement Framework (the Report). The Report gives a detailed overview of legitimate uses of cryptocurrencies, the risks of illicit cryptocurrency activity, and related federal enforcement challenges and response strategies. Continue Reading

A Map for the New World of Blockchain

Posted in Blockchain

A collaborative project led by the Global Blockchain Business Council represents an unprecedented effort to analyze the technical and regulatory blockchain landscape.

By Stuart Davis, Axel Schiemann, Farhana Sharmeen, Simon Hawkins, Max von Cube, Kenneth Y.F. Hui, and Gen Huong Tan

On October 14, 2020, the Global Blockchain Business Council (GBBC) and the World Economic Forum released the 2020 Global Standards Mapping Initiative (GSMI), the first comprehensive effort to assess and map global blockchain standards. The GSMI synthesizes key blockchain data and trends, and provides action-oriented guidance for public- and private-sector stakeholders. Latham & Watkins provided legal and regulatory review for the project.

The GSMI comprises two component reports (Technical Overview and Legal & Regulatory Overview) and an interactive world map of blockchain and digital asset legislation, regulation, and guidance. The survey encompasses data aggregated from 185 jurisdictions, 379 industry groups, and more than 30 technical standard-setting entities. The blockchain and digital asset landscape is mapped across three distinct areas: (i) technical standards; (ii) legislation and guidance by sovereign and international bodies; and (iii) industry best practices and standards. Continue Reading

MiCA: EU Commission Publishes Comprehensive Cryptoasset Market Regulation Proposal

Posted in Cryptoassets

The proposed regulation will provide greater consumer and investor protection and lessen the risks of participating in digital finance.

By Stuart Davis

The EU Commission has published a proposal for a wide-ranging EU regulation covering cryptoassets and e-money tokens, both of which are currently largely unaddressed in EU financial services legislation.

The draft Markets in Cryptoassets Regulation (MiCA) has been designed to:

  • Increase legal certainty in the area of cryptoassets
  • Support innovation and promote the development of cryptoassets and the wider use of distributed ledger technology (DLT)
  • Instil appropriate levels of consumer and investor protection and market integrity in an area that presents many of the same risks as traditional financial instruments
  • Ensure financial stability

Continue Reading

Settlement of Digital Asset Trading Just Got Easier

Posted in Cryptoassets

SEC relief streamlines noncustodial settlement of digital asset trades, but broker-dealer custody is still off-limits.

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

On September 25, 2020, the US Securities and Exchange Commission (SEC) issued a no-action letter (the Letter) granting more leeway to registered alternative trading systems (ATSs) that settle trades involving digital asset securities. The no-action relief is intended to reduce operational and settlement risks that ATSs face as they seek ways to provide noncustodial digital asset services, including settlement of trades involving virtual currencies, coins, and tokens. Continue Reading

Banks Can Hold Stablecoin Reserves, OCC States in Crypto-Friendly Letter

Posted in Cryptoassets

The US OCC allows banks, with certain restrictions, to hold assets in reserve for stablecoin issuers.

By Alan W. Avery, Todd Beauchamp, Stephen P. Wink, Pia Naib, Loyal T. Horsley, Charles Weinstein, and Deric Behar

On September 21, 2020, the US Office of the Comptroller of the Currency (OCC) issued Interpretive Letter #1172 (the Letter), giving national banks and federal savings associations (FSAs) the greenlight to hold deposits that serve as reserves for the underlying assets backing certain “stablecoins” on behalf of customers. According to the Letter, national banks and FSAs are granted this expanded authority to hold stablecoin reserves if all of the following conditions are met:

  • Deposits that constitute reserves for stablecoins are limited to stablecoin transactions involving hosted wallets.
  • The stablecoins are backed by a single fiat currency.
  • The stablecoins are redeemable by the holder on a one-to-one basis upon submission of a redemption request to the issuer.

Continue Reading

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