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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FDIC Approves Varo Money to Offer Deposit Insurance
02/10/2020On February 10, 2020, mobile banking company Varo Money, Inc. announced that it has received approval from the Federal Deposit Insurance Corporation (FDIC) to offer federal deposit insurance, bringing it one step closer to becoming the first federally chartered all-mobile bank in the United States. Varo received preliminary approval for a national bank charter from the Office of the Comptroller of the Currency (OCC) in 2018 and must still be approved for Federal Reserve System membership before obtaining final approval from the OCC.
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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. -
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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Building a Data Business
10/7/2019Shearman & Sterling partners Emma Maconick, Nathan Greene and Barney Reynolds and counsel Sara Ashall discussed the business-planning considerations around building a data business at a recent roundtable event, moderated by Of Counsel Simon Dodds.
The amount of data available to institutions and its infusion into all aspects of business is one of the key developments of the past few years. Data brings with it a range of interesting and complex legal issues, including data ownership, data privacy and cyber. These issues are particularly challenging because they are novel, at least in the data context. -
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. -
Court Rejects CSBS Suit Over OCC FinTech Charter
09/09/2019Last week, Judge Dabney Friedrich of the U.S. District Court for the District of Columbia dismissed a lawsuit brought by the Conference of State Bank Supervisors (CSBS) that would have prevented the Office of the Comptroller of the Currency (OCC) from offering a special purpose national bank charter (or “FinTech charter”) to certain non-bank financial services firms. The CSBS brought the lawsuit in October 2018 following the OCC’s July 2018 announcement that it would begin accepting applications for the FinTech charter, arguing that the OCC lacks the authority to award bank charters to non-depository institutions. However, Judge Friedrich concluded that the CSBS did not have standing to bring the suit given the fact that the OCC has yet to award a FinTech charter to any non-bank financial services firms.
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How Should Competition Law React to FinTech?
08/05/2019
FinTechs are an increasingly prominent and disruptive presence in the financial services market. While these technologies are having a significant impact on the competitive landscape, the European Commission and national competition authorities have expressed concern as to whether the current competition legal framework is equipped to deal with the challenges created by these new technologies, some of which we discuss in the article.
Read this chapter in Shearman & Sterling’s 2019 Antitrust Annual Report, “How Should Competition Law React to FinTech?” -
SEC and FINRA Clarify Position on Broker-Dealer Custody of Digital Asset Securities
07/11/2019On July 8, 2019, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued a joint statement clarifying how their traditional regulatory approaches would apply to how broker-dealers handle their customers’ digital asset securities and transactions. Specifically, the statement focuses on how certain SEC and FINRA rules apply to broker-dealers that wish to take custody of digital asset securities or perform other noncustodial activities involving such assets.
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Financial Services Regulation for FinTech Companies
06/19/2019Partner Nathan Greene and Associate Justin Reda (both New York-Investment Funds) have published a two-part article in Law360 titled "Financial Services Regulation For FinTech Companies." Part 1 of the article uses relevant case studies to examine the ways that FinTech entrepreneurs can best anticipate and navigate financial services regulations, and Part 2 of the article focuses on the regulatory environment in the financial services sector and reviews key regulations surrounding various types of financial and investment products and services.
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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.
Read "Real Estate Equity Tokenization: A Path for Enhanced Liquidity." -
SEC Must Solve Its Cryptocurrency Custody Conundrum
05/06/2019Partner Jay Baris (New York – Investment Funds) authored an article in the Financial Times titled “SEC Must Solve Its Cryptocurrency Custody Conundrum.” The article discusses the novel challenges posed by blockchain and digital assets with respect to custody and calls for a balanced approach to regulating custody of digital assets.
Read "SEC Must Solve Its Cryptocurrency Custody Conundrum." -
FinCEN Settles Charges Against Peer-to-Peer Virtual Currency Exchanger for Violating Registration and AML Requirements
05/02/2019Last month, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that it has settled charges against Eric Powers, a peer-to-peer exchanger of convertible virtual currency, for violating the registration, program and reporting requirements of the Bank Secrecy Act (BSA). This marks FinCEN’s first enforcement action filed against a peer-to-peer exchanger of virtual currency and represents the first time that FinCEN has disciplined an exchanger of virtual currency for failure to report currency transactions, as required under the BSA.
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Shearman & Sterling Fintech Foundry Podcast, Ep. 1: The Value of Mentor-Mentee Relationships
04/26/2019The Shearman & Sterling FinTech Foundry Podcast has launched its first episode, The Value of Mentor-Mentee Relationships, featuring partner Russ Denton (Austin-Emerging Growth) and Sheryl O’Connor, winner of Quesnay’s Female Founders in FinTech competition and creator of Income Conductor, a platform that provides financial professionals the ability to create and manage income plans that help individuals achieve their retirement goals. In this episode, Russ and Sheryl discuss how mentorships can help FinTechs start off on the right foot and avoid costly legal mistakes.
Listen to Ep. 1: The Value of Mentor-Mentee RelationshipsCATEGORY: Financial Services -
Regulatory Trends to Watch For in the U.S. Mobile Payments Market
04/22/2019Earlier this month, Partner Reena Agrawal Sahni participated in a breakfast panel on the U.S. mobile payments market, which we sponsored alongside S&P Global Market Intelligence as part of New York FinTech Week. The panelists covered an array of topics including major challenges to growth in the space, competition among large mobile payment services and new types of services unlocked by mobile payments.
From a regulatory standpoint, there is a lot to be seen in the sector, but our new infographic highlights some of the key takeaways from the panel for readers to keep in mind as the landscape continues to grow and evolve.
Click here to view the infographic. -
5 Takeaways from the 2019 Empire FinTech Conference
04/15/2019On 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. -
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.
Listen to the Fried on Business Episode -
Shearman & Sterling Launches Interactive FinTech Regulatory Sandbox Survey
03/28/2019Through 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
03/26/2019On 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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9 Data Considerations for Investment Management Attorneys
03/11/2019Partner Nathan Greene (New York – Investment Funds) authored an article in Law360 titled “9 Data Considerations for Investment Management Attorneys.” The article lists the most important questions investment fund lawyers or compliance officers reviewing a proposed data initiative should ask.
Read "9 Data Considerations for Investment Management Attorneys." -
FinTech: Achieving a Better Balance
03/08/2019Partner and Head of FinTech Donna Parisi (New York – Derivatives & Structured Products) authored an article with Michelle Tran of NYC Fintech Women titled “FinTech: Achieving a Better Balance.” The article discusses why it is important to support women-led start-ups and female venture capital investors as well as increasing the representation of women on boards.
Read FinTech: Achieving a Better BalanceCATEGORY: Financial Services -
FSB Report Outlines Potential Effects of FinTech on Financial Stability
02/22/2019Last 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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Conference of State Bank Supervisors Endorses FinTech Recommendations
02/21/2019Last week, the Conference of State Bank Supervisors (CSBS), the nationwide organization of financial regulators from all fifty U.S. states, the District of Columbia, Guam, Puerto Rico, American Samoa, and the U.S. Virgin Islands, released a series of action items to implement recommendations received from the CSBS Fintech Industry Advisory Panel. The panel was established in 2017 to help streamline multistate regulation of FinTech businesses and other nonbanks, and comprises thirty-three companies, including FinTech firms like SoFi, Ripple, and Circle. The panel also contains two subgroups: one focused on the lending industry; and the other focused on the payments industry.
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State Regulators Sue OCC Over FinTech Charter
11/01/2018The Conference of State Bank Supervisors (CSBS) has sued the Office of the Comptroller of the Currency (OCC) to prevent it from granting charters for special purpose national banks (SPNBs) to non-depository FinTech companies.
The CSBS filed the lawsuit upon the OCC’s announcement on July 31, 2018 that it would begin accepting these applications. The CSBS previously sued the OCC over its ability to provide SPNB charters in April 2017. The federal district court in D.C., however, dismissed the first suit for lack of subject matter jurisdiction and ripeness, stating that the OCC had not decided whether to grant SPNB charters to FinTech firms at that time.
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Fidelity Investments Announces Launch of Digital Assets Business
10/16/2018Fidelity Investments yesterday announced the launch of Fidelity Digital Asset Services, LLC (Fidelity Digital Assets), a new company that will provide custody, trade execution and client services for digital assets to institutional investors, including hedge funds, family offices and market intermediaries. Fidelity Investments said that it plans to leverage its existing infrastructure to support the new company and further market adoption of digital assets. Fidelity Digital Assets reportedly will have its services “generally available” to the market at some point during early 2019.
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Varo Money on Track to Be First All-Mobile National Bank Following OCC Approval
09/11/2018On September 4, 2018, banking startup Varo Money (Varo) announced that its application to form a de novo national bank has been preliminarily and conditionally approved by the Office of the Comptroller of the Currency (OCC). Varo applied for the national bank charter in 2017, and its approval marks the first time an all-mobile bank has been approved for a national bank charter by the agency.
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CME and Bloomberg Launch Virtual Currency Indices
5/30/2018Three new indices tracking various virtual currencies could be a signal that the asset class is one step closer to mainstream acceptance. The CME Group launched the Ether Reference Rate (ERR) and the Ether Real Time Index (ERTI) with Crypto Facilities Ltd., which track the performance of Ether against USD. Bloomberg also launched the Bloomberg Galaxy Crypto Index with Galaxy Digital Capital Management LP, which tracks a basket of leading virtual currencies against USD.
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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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Transformation and Innovation: A Guide to Partnerships Between Financial Institutions and FinTechs
11/2017Jeremy Kutner, co-head of the firm’s Technology, Media & Telecommunications Group and Nicholas Withers, Associate in the Mergers & Acquisitions Group, collaborated on a FinTech report with The CityUK and Santander UK. The report sets out the key models and real-world examples of how greater collaboration between financial services and FinTechs can aid the development of innovative digital products and services. It also offers seven possible models by which incumbents and FinTechs can partner together, highlighting both the benefits of doing so as well as some of the main legal issues to consider.
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Donegan & Serrato Discuss the Emergence of U.K. Crowdfunding as a Mainstream Financial Service in Payments & FinTech Lawyer
08/2017Thomas Donegan, Jeewon Serrato and Anna Doyle authored an article in the August 2017 issue of Payments & FinTech Lawyer discussing the growth of crowdfunding following the Financial Conduct Authority’s (FCA) granting of full authorization to two of the U.K.’s largest peer-to-peer lending platforms.
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