Global Fintech & Payments Blog

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

FinCEN Looks to Rein In Cryptocurrency Transactions

Posted in Cryptoassets

A new proposal would subject financial institutions and exchanges to onerous recordkeeping and reporting requirements for certain digital currency transactions.

By Miles P. Jennings, Benjamin A. Naftalis, Eric S. Volkman, Margaret Allison Upshaw, and Deric Behar

In a surprise release in the waning days of the Trump administration, the Financial Crimes Enforcement Network (FinCEN) division of the Department of the Treasury issued a proposed rule (the Proposal) that would impose significant new obligations on market participants in the cryptocurrency and digital asset market (Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets). The Proposal “would require banks and money service businesses (MSBs) to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA) held in unhosted wallets, or held in wallets hosted in a jurisdiction identified by FinCEN.”

Under the Proposal, CVC and LTDA, such as Bitcoin and Ether, would be deemed ‘‘monetary instruments’’ under the Bank Secrecy Act (BSA). This classification would bring them under the BSA’s existing anti-money laundering and countering the financing of terrorism recordkeeping and reporting requirements for currency transactions. The Proposal would also establish a new recordkeeping requirement for certain CVC and LTDA transactions, similar to the recordkeeping and travel rule regulations applicable to funds transfers. Continue Reading

SEC Issues Guidance for Broker-Dealer Custody of Digital Assets

Posted in Digital

In a year-end change of course, the SEC identified the minimum steps that broker-dealers must take when acting as custodians of digital asset securities.

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

On December 23, 2020, the US Securities and Exchange Commission (SEC) staff issued a statement (Custody of Digital Asset Securities by Special Purpose Broker-Dealers) (the Statement) outlining its position on how broker-dealers must operate when acting as custodians of digital asset securities[i] in order to avoid enforcement action. The SEC’s Statement, which will be in effect for five years, is intended to encourage innovation while providing both industry participants and the SEC the opportunity to develop best practices with respect to the custody of digital asset securities. Continue Reading

Pay.UK Releases Paper on Protections in Consumer-to-Business Payments

Posted in Payments

The paper identifies potential gaps in protections for consumers, with a focus on consumer-to-business payments via the Faster Payments System.

By Christian F. McDermott, Claudia Sousa, and Alain Traill

In November, Pay.UK, the retail payments authority, released a summary paper exploring the consumer protection landscape relating to disputed retail payments.

The paper, titled “Consumer Protections in Payments”, was released in the context of changes in the usage of Pay.UK’s systems following recent regulatory developments, including the EU’s revised Payment Services Directive (2015/2366, known as PSD2) and the Open Banking initiative in the UK. Focusing in particular on real-time consumer-to-business (C2B) payments using the Faster Payments System (FPS), the paper explores the protections currently in place and consumers’ understanding of those protections. Together with ongoing primary research, the paper will be used to inform further policy work by Pay.UK and, potentially, introduce new rules and standards. Continue Reading

ISDA’s Legal Guidelines Herald a Smarter Future for Derivatives Contracts

Posted in Blockchain, Digital, Open Finance

In a new publication, ISDA explores the benefits of digitization and blockchain solutions for global foreign exchange derivatives markets.

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

As blockchain and distributed ledger technology (DLT) use cases continue to grow across the broad spectrum of financial markets, the International Swaps and Derivatives Association, Inc. (ISDA) is once again stepping into the crossroads of technology and derivatives with the publication of the ISDA Legal Guidelines for Smart Derivatives Contracts: Foreign Exchange Derivatives (the Guidelines). Continue Reading

Blockchain Is a Team Sport: Dispute Resolution Planning Is Key to Scaling Blockchain Solutions

Posted in Blockchain

A thorough dispute resolution model can help market participants navigate inevitable disputes in the blockchain network and minimize costly litigation.  

By Jenny Cieplak

Some of the biggest challenges in scaling blockchain solutions revolve around setting up an effective governance framework, particularly a component to manage the processes by which disputes among parties are properly settled. A new paper from the World Economic Forum (WEF) and Latham & Watkins explores forward-looking practical options for different dispute resolution mechanisms distilled from case studies, various existing solutions, and blockchain-based dispute resolution protocols.

The paper outlines the following five key insights to help market participants — blockchain professionals, businesspeople, and lawyers — not only plan for disputes related to on-chain transactions, but anticipate disputes that may arise in new and unexpected ways. Continue Reading

A VCOIN for Your Thoughts: Ethereum-Based Token Wins SEC No-Action Relief

Posted in Cryptoassets

The no-action letter is the first to expressly permit token transfer off-platform to non-users and conversion to fiat currency by token holders.

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

As crypto prices surge, we find ourselves in the midst of another crypto wave. Given the unrelenting flow of news that accompanies such periods, it may have been easy to miss that the SEC staff recently granted no-action relief to another Ethereum-based token, VCOIN.

In only its third no-action letter to date for digital tokens, the SEC cleared the way for the software development company IMVU, Inc. to sell VCOIN, an ERC-20 token, as a transferable non-security to its global platform users. In its incoming letter, IMVU stated that it operates “one of the largest online three-dimensional avatar-based social communities in the world” with “over 7 million monthly active users from more than 140 countries” and “a user-generated virtual goods catalog of more than 40 million items.” In the same letter, IMVU sought guidance from the SEC as to whether its offering of VCOIN would require registration under Section 5 of the Securities Act and Section 12(g) of the Exchange Act. Continue Reading

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