Global Fintech & Payments Blog

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

Creative Crypto: IP Implications of Selling Creative Works Tied to Non-Fungible Tokens

Posted in Cryptoassets

As the market heats up for art-related NFTs, buyers should be aware of limitations on their rights to use those works.

By Ghaith Mahmood, Jordan Naftalis, and Veronica Ye

The convergence of blockchain technology and creative intellectual property (IP) through a non-fungible token (NFT) is having a mainstream moment. Media stories abound with reports of artwork, tweets, and other digital media selling for millions of dollars on blockchain marketplaces when they are represented by an NFT.

This post explains how NFTs are linked to sales of digital media, and the practical IP considerations that can arise when buying or selling the creative works that the NFTs are attached to. Continue Reading

NFTs: But Is It Art (or a Security)?

Posted in Blockchain, Cryptoassets

As the market for NFTs heats up, market participants should remain mindful of the regulatory implications of complex schemes.

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

As the current crypto boom has progressed, it seemed Decentralized Finance (DeFi) had cemented its position as the dominant new narrative of this cycle. This view is supported by the tens of billions of dollars that have flowed into DeFi protocols over the past 12 months. Yet amid renewed public interest, non-fungible tokens (NFTs) show signs that they should not be overlooked in discussions regarding the hottest new developments in the crypto space. As with any fast-moving market driven by explosive consumer interest and waves of money, regulators will likely take an interest and scrutinize market practices against existing regulations. Continue Reading

Implementing Technology Change — Successes and Pitfalls in Financial Services

Posted in Data Privacy, Cybersecurity, and AI

An FCA report evaluates the chequered implementation of technology change and identifies risks and best practices to help firms better navigate this change.

By Andrew C. Moyle, Alain Traill, and Jagveen S. Tyndall

Of the nearly 1,000 “material incidents” reported to the UK’s Financial Conduct Authority (FCA) in 2019, 17% were caused by change-related activity. It was against this backdrop that, on 5 February 2021, the FCA set out the findings of its review entitled Implementing Technology Change regarding the execution of technology change within the financial services sector (the Report). While the Report focuses on the UK, its findings apply equally to financial services organisations implementing technology change across all geographies. Continue Reading

2020 Digital Asset Regulatory Lookback (US Edition)

Posted in Cryptoassets

Regulators once again offered piecemeal guidance, while focusing on risks and enforcement. Meanwhile, innovation and institutional adoption took off.

By Stephen P. Wink, Todd Beauchamp, Yvette D. Valdez, Eric S. Volkman, Adam Bruce Fovent, and Deric Behar

Last year, Latham & Watkins sounded a hopeful note that 2020 would provide a clearer vision than 2019 for the regulation of digital assets in the US. In the wake of the emergence of COVID-19, priorities changed, along with forecasts and expectations. The second and third quarters of 2020 had regulators of all stripes in triage mode, and any attention they may have directed at cryptoassets was understandably shelved. On the other hand, far from sidelining digital asset growth, the pandemic appears to have spurred further innovation and adoption. Regulators are now continuing to reckon with an asset class that remains without a comprehensive regulatory framework in the US. Continue Reading

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