Global FinTech & Payments Blog

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

Financial Institutions and the Cloud: How to Navigate an Evolving Regulatory Landscape

Posted in Data Privacy, Cybersecurity, and AI, Digital

Insights from Latham’s flagship event: Managing the risk and promise of digitisation in financial services.

By Fiona Maclean, Stuart Davis, and Alistair Wye

In a bid to keep pace with rapid advances in cloud adoption across financial services, regulators have published a raft of new guidance in the past year. Most recently, the European Insurance and Occupational Pensions Authority launched guidelines for insurers and reinsurers on outsourcing to cloud providers in July 2019, while the European Banking Authority (EBA) published updated guidance on outsourcing that came into effect on 30 September 2019, covering both cloud and other outsourcings.

We discussed some of the challenges facing financial institutions in the evolving area of cloud compliance at our recent event entitled Balancing the Scales: Managing the Risk and Promise of Digitisation in Financial Services. One key issue highlighted in the discussion is that the new EBA guidelines do not contain an overarching split between cloud and non-cloud arrangements, and there are no general exclusions or exceptions for new entrants or FinTech providers. Entities subject to the EBA guidelines will therefore face additional administrative burdens that they must balance with the need to stay ahead of the competition. Continue Reading

Hong Kong FinTech Week: Day 1 in Review

Posted in Cryptoassets, Investing in FinTech

SFC outlines new regulatory framework for virtual asset trading platforms, HKMA highlights recent FinTech initiatives, and PBOC discusses China’s forthcoming central bank digital currency.

By Simon Hawkins and Kenneth Y.F. Hui

The fourth annual Hong Kong FinTech Week conference kicked off with a major announcement from Mr. Ashley Alder, Chief Executive Officer of the Securities and Futures Commission (SFC), who introduced a new, formalized regulatory framework for virtual asset trading platforms (VATPs). A panel of central bankers also discussed stablecoins and central bank digital currencies, including the People’s Bank of China’s (PBoC) forthcoming central bank digital currency, referred to as the digital currency / electronic payment (DCEP) coin. Continue Reading

Report on IT Failures in the UK Financial Services Sector

Posted in Digital

UK Treasury Committee report warns that the current level and frequency of disruption and consumer harm is unacceptable.

By Carl Simon FernandesNicola Higgs, Fiona M. MacleanChristian F. McDermottRob Moulton, Andrew C. Moyle, Stuart Davis, and Charlotte Collins

On 28 October 2019, the Treasury Committee published a report on IT failures in the financial services sector. The report sets out the findings from the Treasury Committee’s inquiry, which was launched following a number of high-profile and significant IT incidents. (See Senior MP Calls for Regulatory Crackdown on Banks’ IT Systems: 3 Things You Can do to Prepare.) Rather than looking into specific failures, the inquiry looked more holistically at why such incidents are becoming more frequent, how firms should be guarding against and responding to these incidents, and the role of the regulators in preventing and mitigating the impact of these incidents through their rules.

The report looks at various different aspects of the issues surrounding IT failures, including the nature of IT incidents and their common causes, the role of the regulators, and emerging risks to operational resilience. Continue Reading

The G7 Draws a Line in the Sand for Global Stablecoins

Posted in Blockchain, Cryptoassets, Digital, Payments

Global monetary authorities and financial regulators have responded forcefully to the advent of privately developed global stablecoins.

By Todd Beauchamp, David L. Concannon, Stephen P. Wink, Simon Hawkins, Stuart Davis, and Deric Behar

A new report highlights the risks of global stablecoins and enumerates the legal, regulatory, and oversight hurdles a global stablecoin must clear before launching. The Group of Seven Working Group on Stablecoins released the report, titled Investigating the Impact of Global Stablecoins (G7 Report), at the October 2019 International Monetary Fund annual meeting. The G7 Report was published in tandem with a report by the Financial Stability Board (FSB) on the Regulatory Issues of Stablecoins (FSB Report). Taken together, the two reports provide insight into how some of the world’s most advanced economies (the US, the UK, Canada, France, Germany, Italy, and Japan) view digital assets and stablecoins, particularly those with the potential to launch and quickly scale on an established private-sector global network. Continue Reading

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