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Welcome to Shearman & Sterling’s FinTech Insights, where we provide you with real time insight and key trends on the technological revolution that is transforming the financial services industry. Here you can find relevant information on the latest surrounding the regulatory framework, digital banking, blockchain, distributed ledger, cryptocurrencies, ICO’s and much more.

  • 5 Takeaways from the 2019 Empire FinTech Conference
    On April 3, members of Shearman & Sterling’s Fintech Foundry attended the 2019 Empire FinTech Conference in New York City.  The event featured panels on a variety of topics relevant to the FinTech ecosystem, including payments, incubators and AI, among many others.  The conference also hosted several demos from FinTech companies, held fireside chats with FinTech entrepreneurs and provided insights into trends to be watched throughout the year.

    Here are the 5 main takeaways from the conference.
  • Shearman & Sterling Launches Interactive FinTech Regulatory Sandbox Survey
    Through our FinTech Foundry, Shearman & Sterling today has launched an interactive survey of the FinTech regulatory sandboxes located throughout the world.  Each point on the map indicates the existence of a regulatory sandbox and a user may click to get further information such as launch date, governing commission, law & regulations and sandbox environment. 

    Regulatory sandboxes provide a controlled environment for eligible FinTech firms to conduct live testing in under regulatory supervision.  The number of regulatory sandboxes worldwide has grown significantly over the past two years, as now over 30 countries and jurisdictions have launched sandbox initiatives, with several others set to follow suit.

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    View the Interactive Survey
  • BCBS Says Crypto-Assets May Pose Risk to Financial Stability
    On March 13, 2019, the Basel Committee on Banking Supervision (BCBS) published a statement, cautioning that the continued growth of crypto-asset trading platforms and new crypto-asset related financial products has the potential to raise financial stability concerns and increase risks faced by banks.

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  • ABA White Paper Offers Roundup of Global Digital Asset Regulations 
    Last week, the American Bar Association (ABA) published a white paper surveying the regulation of digital assets in a number of global jurisdictions.  The most space is devoted to how digital assets fit in U.S. regulatory frameworks under the jurisdiction of certain federal regulators, including the Commodity Futures Trading Commission, Securities and Exchange Commission and the Treasury Department’s Financial Crimes Enforcement Network.  The paper also details certain U.S. state legislation, such as New York’s BitLicense, and surveys digital asset regulatory environments in all 50 states.   The paper also explores how digital assets fit in international regulatory frameworks, including those in the EU, the U.K., Switzerland, Japan, South Korea, Australia and China, among several others.  It highlights guidance from international standard-setting bodies as well, such as the International Organization of Securities Commissions, the Group of Twenty Nations and the Financial Stability Board.

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  • FSB Report Outlines Potential Effects of FinTech on Financial Stability
    Last week, the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, issued a report assessing the potential impacts of certain FinTech market developments on financial stability.  Specifically, the report examines the potential implications of (i) FinTech firms competing with traditional financial services providers; (ii) the provision of financial services by some of the world’s largest technology companies (referred to as “BigTech” firms); and (iii) reliance on third-party providers for cloud services.

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  • European Banking Authority Reports on EU Regulatory Perimeter for Crypto-Assets
    The European Banking Authority has published a report on the application and suitability of the EU bank regulatory framework for crypto-assets. The report is in response to the European Commission's request in its FinTech Action Plan 2018. The report confirms that EU activities related to crypto-assets are fairly low and do not present any financial stability risks. The European Securities and Markets Authority also published a similar report covering Initial Coin Offerings issues within its remit on the same day. 

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  • European Securities and Markets Authority Publishes Recommendations on Crypto-Assets and Initial Coin Offerings
    The European Securities and Markets Authority has published a report on the application and suitability of the EU securities regulatory framework to crypto-assets, including Initial Coin Offerings. The report is in response to the European Commission's request in its FinTech Action Plan 2018. Like the European Banking Authority, which published a report on the same day in relation to banking sector issues, ESMA found that EU activities related to crypto-assets are fairly low and do not present any financial stability risks.

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  • EU Report on Regulatory Sandboxes and Innovation Hubs
    Fulfilling the mandate in the European Commission's March 2018 FinTech Action Plan, the Joint Committee of the European Supervisory Authorities has published a report on regulatory sandboxes and innovation hubs, together referred to as innovation facilitators. Innovation hubs are a dedicated point of contact for firms raising queries with national regulators on FinTech-related issues. Regulatory sandboxes enable firms to test innovative financial products, services or business models under the supervision of a national regulator.

    The ESAs' report states that most EU member states have one or both forms of these innovation facilitators. The facilitators operate at national level and the ESAs identify this as a potential challenge to the EU objective of scaling-up FinTech. For example, national regulators are likely to adopt different approaches to the same innovation which can hinder opportunities for extending an innovation across the EU as well as present regulatory arbitrage risks. The potential absence of passporting innovative products throughout the EU can raise issues for their users.

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  • Three Central Banks Explore Advantages Of Wholesale Central Bank Digital Currencies
    On November 15, 2018, the Bank of England, the Bank of Canada and the Monetary Authority of Singapore published a joint report entitled, "Cross-Border Interbank Payments and Settlements." Referring to current industry projects to address existing problems in cross-border payments affecting end-users, commercial banks and central banks, the report analyzes these issues and discusses proposed new models for processing cross-border transactions. The report sets out three models for cross-border payments and settlements and discusses the key considerations and dependencies of each model. Each model is then assessed against the existing identified challenges in cross-border payments.

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  • UK Crypto-Assets Task Force Outlines the Path to Crypto-Asset Regulation
    The U.K. Crypto-Assets Task Force has published its Final Report. Established in March 2018 by the U.K. Chancellor of the Exchequer as part of the U.K. government's FinTech Sector Strategy, the Task Force comprises representatives from HM Treasury, the U.K. Financial Conduct Authority (FCA) and the Bank of England.

    The Task Force engaged with over 60 firms and other stakeholders to seek their views on topics including: the trajectory of the industry, the risks, benefits and underlying economic value of crypto-assets and the U.K.’s future regulatory approach. Stakeholders were of the view that there is a lack of regulatory clarity in the U.K. and that regulation should be introduced to support the legitimate players in the crypto-assets market. It is also crucial in mitigating risks. There were also calls for regulatory and tax frameworks to be aligned.

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  • New AML Recommendations for Virtual Assets
    Citing an “urgent need” to step up global efforts to prevent the use of virtual assets for crime and terrorism, the Financial Action Task Force (FATF) updated its recommendations for the regulation of virtual assets.  Among other things, the FATF recommended broader definitions of “virtual assets” and “virtual asset service providers” to include exchanges, wallet providers and certain initial coin offering service providers. 

    The FATF is an inter-governmental policy-making body responsible for promoting the implementation of legal, regulatory and operational anti-money laundering (AML) and combatting the financing of terrorism (CFT) standards.  Its recommendations are not binding law, but rather a set of standards intended for member nations to incorporate within their rulemakings.  FATF President Marshall Billingslea has said that the organization also plans to issue AML/CFT rule recommendations in respect of virtual assets and clarify how the FATF expects such rules to be enforced by June 2019.  Additionally, the FATF plans to review the scope of activities covered under its amended recommendations and glossary within the next 12 months and consider whether further updates are necessary. 

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  • EU Supervisory Authority Reports on ICO and Crypto-Asset Risks and Potential Regulation
    The European Securities and Markets Authority (ESMA) has published an own-initiative report prepared by its Securities and Markets Stakeholder Group (SMSG). The purpose of the report is to provide advice to ESMA on steps it might take to contain the risks of initial coin offerings (ICOs) and crypto-assets, on top of existing regulation.

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  • Financial Stability Board Recommends Vigilant Ongoing Monitoring of Crypto-Assets
    The Financial Stability Board has published a report entitled "Crypto-asset markets: Potential Channels for future financial stability," in which it outlines its findings following its assessment of the crypto-asset markets in 2018.

    The FSB has considered the primary risks present in crypto-assets markets as low liquidity, volatility, leverage risks, as well as technological and operational risks (including cyber security risks).  The FSB considers that crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value or a mainstream unit of account. Based on the available information, the FSB considers that crypto-assets do not pose a material risk to global financial stability at this time.  However, the FSB's report highlights that there could be financial stability implications from these primary risks through a variety of transmission channels including: (i) confidence effects; (ii) financial institutions' exposures to crypto-assets, related financial products and entities that are financially impacted by crypto-assets; (iii) the level of market capitalisation of crypto-assets; and (iv) the extent of their use for payments and settlements.

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  • CFTC and ASIC Agree to FinTech Information Sharing Arrangement 
    The Commodity Futures Trading Commission (CFTC) and the Australian Securities and Investments Commission (ASIC) last week signed an arrangement designed to support cross-border FinTech innovation through their respective FinTech initiatives, LabCFTC and the ASIC Innovation Hub.  The arrangement will facilitate information sharing between the two regulators in respect of emerging trends and developments, regulatory issues pertaining to FinTech innovations and best practices, among other things.  It also includes a referral mechanism that will allow the CFTC and ASIC to refer to one another innovators that wish to operate or have questions about operating in the other’s jurisdiction.  The arrangement further calls for joint proofs of concept, trials and innovation competitions, where permitted, as well as periodic meetings to update each other on FinTech and RegTech trends and developments of common interest.

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  • CFTC and Monetary Authority of Singapore Sign FinTech Collaboration Agreement
    The U.S. Commodity Futures Trading Commission (CFTC) and the Monetary Authority of Singapore (MAS) today signed a cooperation arrangement on FinTech innovation, which is to be supported by the agencies’ respective FinTech initiatives, LabCFTC and the MAS Financial Technology & Innovation Group.  The arrangement will facilitate inter-agency cooperation on FinTech innovation and referrals for innovators that wish to enter the other regulator’s market.  In addition, it will provide an information sharing framework between the agencies focused on FinTech market trends and developments, innovations and best practices within their respective jurisdictions.  The arrangement also calls for joint events, proofs of concept, trials and innovation competitions where permitted, along with periodic meetings to discuss FinTech issues of common interest.

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  • Regulators Unveil Plans to Launch Global Financial Innovation Network
    On August 7, 2018, the U.K. Financial Conduct Authority (FCA), the Consumer Financial Protection Bureau (CFPB) and 10 other international financial regulators and related organizations announced the launch of the Global Financial Innovation Network (GFIN).  The announcement, which was accompanied by a consultation paper on the role and objectives of the GFIN, serves as part two of a whitepaper published earlier this year by the FCA on the possibility of forming a “global sandbox.”  The GFIN, as proposed, would consist of three components: (i) information sharing and collaboration through a network of regulators; (ii) joint policy work and regulatory trials; and (iii) cross-border firm trials. 

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  • Government of Gibraltar Publishes Outline of Forthcoming Token Regulatory Framework 
    On March 14, 2018, the Government of Gibraltar published a white paper outlining forthcoming proposals to regulate token sales, secondary token market platforms and token investment services.

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    CATEGORIES: BlockchainDLTICOsInternational FinTechEUUK
  • The International Comparative Legal Guide to: Fintech 2017
    Reena Sahni led the effort to write a U.S. chapter of ICLG’s Fintech 2017 publication. They commented on what types of funding are available for new and growing businesses, regulatory frameworks, access to talent, and IP protection across the Fintech landscape.

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