Welcome to Shearman & Sterling’s FinTech Blog, where we provide you with insight on key trends in the FinTech ecosystem. Here you can find relevant information with the latest on digital banking, FinTech regulation, digital assets, blockchain, AI, and more.
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Committee on Payments and Market Infrastructures Publishes Report on Wholesale Digital Token
12/12/2019The Committee on Payments and Market Infrastructures (CPMI) has published a report on wholesale digital tokens. The report focuses on how digital tokens might be used to effect settlement in wholesale transactions, replacing existing systems where such transactions are settled by updating balances in account records on a centralized register. The CPMI confirms that any wholesale digital token arrangement would need to comply with the applicable regulatory requirements, including, if the arrangement is systemically important, the Principles for Financial Market Infrastructure.
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EU Statement on Stablecoins
12/05/2019The Council of the European Union and the European Commission have published a joint statement on stablecoins. The statement reiterates many of the messages of the G7 working group paper on the impact of stablecoins. The EU statement confirms that no global stablecoin arrangement should begin to operate in the EU until the legal, regulatory and supervisory issues can be identified and dealt with appropriately. In the statement, the two EU bodies allude to the lack of information as a key impediment to global stablecoin arrangements being able to operate in the EU, in particular, because without it the authorities are unable to consider the impact on monetary policies or assess how to address other risks presented by this type of cryptoasset.
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UK Legal Statement on CryptoAssets and Smart Contracts
11/18/2019The UK Jurisdiction Taskforce has published a legal statement on cryptoassets and smart contracts under English private law. UKJT is part of the LawTech Delivery Panel, an industry-led group established in 2018, with the aim of identifying barriers and opportunities for growth. The legal statement provides the UKJT's view of the principles applicable under English and Welsh private law for determining when a cryptoasset will be considered property and when an enforceable contract is concluded through a smart contract. The intention of the statement is to help improve confidence among market participants and investors due to the perception of legal uncertainty on the legal status of cryptoassets and smart contracts.
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Shearman & Sterling and the Global Blockchain Business Council Convene Panel on Stablecoins
11/04/2019Shearman & Sterling and the Global Blockchain Business Council (GBBC) convened a panel on Monday to discuss the world’s most talked about digital assets – stablecoins and their proliferation on a global scale.
The evening’s dialogue focused on the impetus for companies launching enterprise digital assets, including factors such as the fast settlement of cost-efficient transactions without incurring the risk of price volatility, as well as questions raised around the regulations of such coins. How accessible should they be? What are the AML and transparency concerns and how will they be addressed? Who ultimately should be responsible for the monetary policy of these coins?
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Jay Baris Authors Chapter in Global Legal Insights: Blockchain & Cryptocurrency Regulation 2020
11/01/2019Partner Jay Baris (New York-Investment Funds) authored a chapter titled "The custody of digital assets – 2020" in the latest Global Legal Insights edition entitled Global Legal Insights: Blockchain & Cryptocurrency Regulation 2020. The publication covers the regulation of cryptocurrency, as well as taxation, money transmission laws, anti-money laundering requirements, licensing requirements, ownership and mining in 38 global jurisdictions.
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Paxos Awarded No-Action Letter for Blockchain-Based Equity Securities Settlement Platform
10/31/2019On October 28, 2019, the Securities and Exchange Commission (SEC) awarded a no-action letter to Paxos Trust Company that will allow the company to roll out a blockchain-based equity securities settlement platform for a limited time under certain conditions. The settlement platform, referred to as the Paxos Settlement Service, is a private and permissioned blockchain network that maintains a distributed ledger to record changes in ownership of securities and cash and is designed to bilaterally settle equity securities transactions on a gross trade-by-trade basis. Under the no-action relief, Paxos will be able to operate the Paxos Settlement Service for a period of 24 months without being subject to the clearing agency registration requirements of the Securities Act of 1934.
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Distilling U.S. Regulatory Environment and Market Access Considerations for Growing FinTechs
10/22/2019The rise of global FinTech has brought markets together and enabled cross-border business formation and innovation, but local regulations still prevail worldwide. The United States, with its developed capital markets, solid investor base and deep pool of talent within the finance and technology sectors, is a desirable location for FinTech businesses to expand or launch operations. But it’s also home to one of the most complex and sophisticated regulatory regimes in the world.
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Shearman & Sterling’s Fintech Foundry, this week, launched Entering the U.S. Market: A Guide for Fintech Firms, a demystifying overview of the issues, regulations and resources that FinTechs from the United Kingdom and around the world will want to be aware of before they expand into the U.S. -
G7 Working Group Reports on the Impact of Global Stablecoin
10/18/2019The G7 working group on stablecoins has published a report investigating the impact of global stablecoins. The working group is comprised of senior officials from the G7 central banks, the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board, and is chaired by Benoît Cœuré (Chair of the Committee on Payments and Market Infrastructures). The report discusses the existing challenges in payment service provision, particularly on a cross-border basis, and how cryptocurrencies were originally envisaged as having the potential to solve many issues, but due to other difficulties such as price volatility, have not done so. The report goes on to consider stablecoins, focussing on global stablecoins, and how they might improve cross-border payment services. The working group recognize that stablecoins are similar to cryptoassets, but are able to stabilize the price by linking the coin's value to a pool of assets. However, stablecoins still present risks that need to be addressed, such as legal certainty, sound governance, anti-money laundering checks, market integrity, data privacy and investor protection. Global stablecoins pose further risks to financial stability, monetary policy, fair competition and the international monetary system.
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Financial Stability Board to Assess Potential Risks of Stablecoin
10/18/2019The Financial Stability Board has published a report on regulatory issues arising with respect to so-called stablecoins. The FSB defines a stablecoin as "a crypto-asset designed to maintain a stable value relative to another asset (typically a unit of currency or commodity) or a basket of assets" which may be "collateralised by fiat currency or commodities, or supported by algorithms". It uses the term "global stablecoins" to refer to "stablecoins with a potential global reach and the ability to rapidly scale in terms of users/holders of the crypto-asset".
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Shearman & Sterling Demo Day with Empire Startups
10/15/2019Our Demo Day event with Empire Startups in Lower Manhattan brought together nearly a hundred members from the venture community, early stage entrepreneurs and subject matter experts including those from Shearman & Sterling to open up the dialogue around fundraising trends for FinTech firms and key considerations startups should be thinking about when it comes to complying to regulations.
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How Can Blockchain Track Conflict Minerals and Help with Compliance?
09/26/2019
In recent years, more companies have begun marketing ethically sourced or “conflict-free” diamonds, gold and other minerals in response to growing consumer appetite for information on responsible sourcing. They are also increasingly subject to regulatory obligations aimed at improving due diligence and transparency with respect to the minerals in their supply chains. But how can the source of these minerals be verified while also helping the companies comply with regulations?
Associate Naffie Lamin (New York-Derivatives & Structured Products), counsel Jonathan Handyside (London-Capital Markets) and partner Cynthia Urda Kassis (New York-Project Development & Finance) wrote an article for Mining.com which examines how blockchain could help verify the sourcing of these minerals and could assist companies that use these materials in their supply chains to comply with their regulatory reporting obligations pursuant to the U.S. Securities and Exchange Commission (SEC) “Conflict Minerals Rule” and its EU equivalent.
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Celebrating the One-Year Anniversary of Shearman & Sterling’s FinTech Foundry
09/24/2019It’s been a year since the launch of the FinTech Foundry, Shearman & Sterling’s program dedicated to supporting the FinTech-related activities of our clients and the wider global FinTech ecosystem. The FinTech Foundry touches upon every facet of the FinTech industry, including financial institutions, VCs, accelerators and incubators, startups, policymakers and more, and has put Shearman & Sterling at the forefront of advising on the latest developments in FinTech.
Over the last year, we have immersed ourselves in the FinTech ecosystem, and to commemorate the 12 months since our launch, we’ve put together a roundup of some of our industry observations and areas that our FinTech Foundry team has been watching, including those related to digital assets, open banking, big data, cybersecurity AI, challenger banks, regulatory sandboxes, antitrust, data privacy and more! -
Franklin Templeton Files Preliminary Prospectus for Blockchain-Based Money Market Fund
09/11/2019Franklin Templeton Investments will offer what may be the first money market fund to record share ownership using blockchain technology.
In a registration statement on Form N-1A filed on September 3, 2019, the asset manager said it will register shares of the Franklin Blockchain Enabled U.S. Government Money Fund. The fund will aim to maintain a stable $1.00 share price and will invest at least 99.5% of its total assets in U.S. government securities, cash and repurchase agreements fully collateralized by U.S. government securities and cash. The fund, however, will not invest in digital assets. -
Where Is the Digital Asset Market Headed?
07/30/2019Partner Donna Parisi (New York - Derivatives & Structured Products) recently sat down with Rebank podcast host Will Beeson to discuss the future of the digital asset space.
The conversation touches on a myriad of interesting topics including regulatory frameworks for digital assets, institutional infrastructures that are creating challenges for the market and what the future holds when the power of blockchain and cryptocurrency is fully harnessed alongside other emerging technologies like artificial intelligence (spoiler: digital identities for the untapped market).
Click to listen to the full podcast or from your preferred streaming service below.
iTunes
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Real Estate Equity Tokenization: A Path for Enhanced Liquidity
05/31/2019
Partner Kris Ferranti and staff attorney Cristiana Modesti (both New York-Real Estate) authored an article titled “Real Estate Equity Tokenization: A Path for Enhanced Liquidity” that was published in the May 30, 2019 issue of Commercial Property Executive. The article discusses some of the major benefits associated with trading real estate assets via tokenization and covers a few of the drawbacks and uncertainties that still remain about this emerging technology.
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Jay Baris to Participate in SEC FinTech Forum
05/14/2019Partner Jay Baris (New York - Investment Funds) will speak at the Security Exchange Commission’s (SEC) FinTech Forum on May 31. The SEC's Strategic Hub for Innovation and Financial Technology (FinHub) will host the event, which will focus on distributed ledger technology and digital assets.
Jay’s afternoon panel will explore investment management issues involving blockchain and cyptocurrencies. The session will be moderated by Jennifer McHugh, Senior Special Counsel, Division of Investment Management, and feature additional panelists John D’Agostino (DMS) and Amy Steele (Deloitte).
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Ferranti Interviewed in Fried on Business on Blockchain and Tokenization
04/04/2019
Partner Kris Ferranti (New York- Real Estate) was interviewed on AM 880’s Fried on Business show, where he discussed how blockchain and the tokenization of real estate assets can add value and efficiency to real estate transactions.
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CFTC Chairman Maps Agency’s Approach to FinTech Regulation
03/13/2019While speaking before the D.C. Blockchain Summit, Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo last week discussed the relationship between technology, regulation and markets, and described the steps the CFTC has taken to stay in step with innovations that have posed regulatory challenges.
Chairman Giancarlo touted the potential for such technological innovations, including blockchain and digital ledger technology (DLT), to transform the way that regulators gather information and lower operational costs for financial institutions. Interestingly, Chairman Giancarlo argued that blockchain and DLT could have helped regulators gather real-time trading data during the 2008 financial crisis, which he believes at a minimum could have prompted “better-informed” and “more calibrated regulatory intervention.”
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Three Central Banks Explore Advantages Of Wholesale Central Bank Digital Currencies
11/27/2018On 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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Congressman Davidson Hosts Roundtable on Digital Asset Regulation
10/01/2018At a roundtable hosted lasted week by Ohio Congressman Warren Davidson, lawmakers sought feedback from market participants on flaws and inefficiencies in the current digital asset regulatory framework. The roundtable, titled “Legislating Certainty for Cryptocurrencies,” included 48 representatives from a variety of digital asset and financial services firms, who pressed Congress for greater regulatory clarity in respect of digital assets.
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Federal Reserve Board Governor Speaks on Cryptocurrencies, Digital Currencies, and Distributed Ledger Technologies
5/18/2018On May 15, 2018, Federal Reserve Board Governor Lael Brainard delivered a speech at the Decoding Digital Currency Conference, sponsored by the Federal Reserve Bank of San Francisco, outlining some of her own thoughts on cryptocurrencies, digital currencies, and distributed ledger technologies.
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Baris Authors Article on Blockchain for Investment Managers
03/21/2018Jay Baris co-authored the article on “Blockchain Basics for Investment Managers: A Token of Appreciation,” published in the March 21, 2018 issue of The Review of Securities & Commodities Regulation. The article discusses the background and current uses of blockchain and the responses of regulators, most notably the SEC and CFTC, with a focus on implications of these changes for investment funds and investment advisers.
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Government of Gibraltar Publishes Outline of Forthcoming Token Regulatory Framework
03/14/2018On 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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Gemini Co-Founders Cameron and Tyler Winklevoss Propose Virtual Commodity Self-Regulatory Organization
03/13/2018On March 13, 2018, virtual currency exchange Gemini released a proposal to create the first SRO for U.S. virtual commodity exchanges. The so-called Virtual Commodity Association (VCA), as envisioned, would be a non-profit, independent regulatory organization that would operate to foster responsible virtual commodity markets by requiring members to implement specified sound practices and supervising members’ implementation of such practices. The VCA would also encourage greater cooperation with relevant regulators in an effort to assist with the maturation of the virtual commodity industry.
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Wyoming State Legislature Passes Several Measures to Foster Virtual Currency and Blockchain Innovation
03/06/2018The Wyoming state legislature recently passed the following virtual currency- and blockchain-focused bills intended to ease regulatory burdens at the state level for blockchain and digital asset ventures.
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Securities on Blockchain
Winter 2017/2018Reade Ryan contributed to an article, titled “Securities on Blockchain,” published in the Winter 2017-2018 edition of The Business Lawyer, which analyzes how blockchain securities fit within current laws covering uncertificated securities, and also provides guidance to corporate lawyers faced with providing a legal opinion related to the issuance of securities on a blockchain.
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