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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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. -
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! -
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?” -
European Banking Authority Reports on Regulatory Perimeter, Regulatory Status and Authorization of FinTech Activities
07/25/2019Fulfilling its mandate under the European Commission's FinTech Action Plan to map the current authorization and licensing approaches for innovative FinTech business models in Europe, the European Banking Authority (EBA) has published a report on the regulatory perimeter, regulatory status and authorization of FinTech activities under its remit, in particular the banking, payment services and electronic money services sectors. The European Securities and Markets Authority published its related report on July 12, 2019.
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CFTC Launches LabCFTC Accelerator and Announces Second Annual FinTech Forward Conference
06/28/2019On June 27, 2019, the Commodity Futures Trading Commission (CFTC) announced two new programs as part of its LabCFTC initiative. The first is LabCFTC Accelerator, which will provide the agency with a number of tools to drive its understanding and potential adoption of emerging technologies. The second is the CFTC’s second annual FinTech Forward conference, which will take place on October 24, 2019 and bring together a variety of stakeholders in the FinTech ecosystem to explore the latest developments in the space.
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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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International Body Consults on Issues Relating to Regulating Crypto-Asset Trading Platforms
06/11/2019The International Organization of Securities Commissions has launched a consultation on the key issues to consider for regulating crypto-asset trading platforms (referred to as CTPs). The consultation paper, which aims to assist IOSCO member jurisdictions to assess the issues and risks relating to CTPs, is based on information obtained from national regulators on the operation of CTPs and their current or proposed regulatory approaches. The consultation does not cover Initial Coin Offerings, focussing instead on the secondary markets. Responses to the consultation are due by July 29, 2019.
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U.K. Financial Conduct Regulator Seeks Input on a Cross-Border Sandbox
06/07/2019The U.K. Financial Conduct Authority has published a Call for Input on a Cross-Sector Sandbox, seeking input on whether a U.K. cross-sector sandbox is needed. The FCA has observed that due to emerging technologies, business models are constantly changing in all markets and that firms are diversifying into different sectors. In addition, across all sectors, firms are increasingly using big data. As a result, the FCA believes that the different sectoral U.K. regulators need to find new practical ways of collaborating. The FCA recently undertook a study into how a cross-sector sandbox involving multiple regulators could be established, engaging with a range of regulators, such as the Civil Aviation Authority, the Gambling Commission, the Information Commissioner's Office, Ofcom, Ofgem and the Prudential Regulation Authority, a small group of firms and other stakeholders. The study showed that there is potential for a cross-sector sandbox, but that further discussion is needed to understand the degree of interest and need before an operating model can be developed.
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U.S.-U.K. Financial Innovation Partnership Announced
05/29/2019The U.S.-U.K. Financial Regulatory Working Group has announced the establishment of a Financial Innovation Partnership between the U.S. and the U.K. The objective of the Partnership is to strengthen bilateral engagement on emerging trends in financial services innovation. It will focus on regulatory engagement and commercial engagement by providing opportunities for the private sector in one country to engage with industry associations and market participants in the other country.
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Shearman & Sterling Launches FinTech Regulatory Sandbox Map Update
05/17/2019Shearman & Sterling’s FinTech Foundry last week updated its FinTech regulatory sandbox map, which provides an interactive look at the over 40 FinTech regulatory sandboxes located throughout the world. The updated map accounts for the launch of four new FinTech regulatory sandboxes, including those in Kenya, South Korea, the United Kingdom (Information Commissioner's Office) and the United States (Utah).
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View the Map -
Reena Agrawal Sahni Authors Chapter on U.S. FinTech Regulatory Environment
05/16/2019Partner Reena Agrawal Sahni (New York – FIA & FR) and Associate Eli Kozminsky (New York – FIA & FR) recently authored a chapter in the International Comparative Legal Guide to: FinTech 2019 on the FinTech regulatory environment in the United States. Among other topics, the chapter covers the U.S. FinTech landscape generally, the types of funding available to FinTech firms and the various state and federal regulatory regimes in the United States applicable to FinTech activities.
View the chapter. -
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. -
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." -
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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EU Report on Regulatory Sandboxes and Innovation Hubs
01/14/2019Fulfilling 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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CFPB Proposes Regulatory Sandbox and Revisions to No-Action Letter Policy
01/04/2019Last month, the Consumer Financial Protection Bureau (CFPB) proposed revisions to the agency’s no-action letter (NAL) policy and floated the idea of a federal regulatory sandbox. The proposed NAL policy would simplify and clarify the agency’s existing procedures for obtaining a NAL, while the sandbox would streamline the process for firms that seek regulatory relief when they roll out innovative products or services.
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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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Congressman Emmer Proposes Legislation in Support of Blockchain Technology and Digital Assets
09/26/2018Minnesota Congressman Tom Emmer, one of the co-chairs of the Congressional Blockchain Caucus, last week announced plans to introduce three bills designed to support blockchain technology and digital assets. The legislation would call for the U.S. to prioritize the growth and development of blockchain technology and digital assets, exempt blockchain entities that never take control of consumer funds from certain registration and licensure requirements and provide a safe harbor for taxpayers with forked digital assets.
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UK Parliamentary Committee Calls For Urgent Regulation of Crypto-Assets
09/21/2018The U.K. House of Commons Treasury Committee has published a report calling for crypto-assets to be regulated in the U.K. as a matter of urgency. The Treasury Committee considers that the current "ambiguity of the UK Government and regulators' position is clearly not sustainable" and is recommending that an amendment be made to the Regulated Activities Order to bring crypto-assets within the U.K. regulatory perimeter, supervised by the Financial Conduct Authority. The Committee does not specify in the report the activity related to crypto-assets that should go into the RAO, but recommends that it should at least include the issuance of crypto-assets through Initial Coin Offerings and the provision of crypto-exchange services. This will, according to the Committee's report, address anti-money laundering risks and consumer protection, aligning investor protections with those adopted in the U.S.
The Committee is also seeking the certain action be taken by the Government and the U.K. regulators.
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CFTC and Monetary Authority of Singapore Sign FinTech Collaboration Agreement
09/13/2018The 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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SEC Order Shows Free Tokens Do Not Get a Free Pass From Securities Laws
09/07/2018The Securities and Exchange Commission cracked down on another initial coin offering, despite the fact that the parties were unable to raise any money. The SEC found that the efforts to fund oil exploration and drilling in California through the issuance of digital tokens called “Tomahawkcoins” or “TOM,” by Tomahawk Exploration LLC and David T. Laurance constituted an illegal securities offering in which they made materially false claims about the exploration prospects, the firm and Mr. Laurance’s background.
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Regulators Unveil Plans to Launch Global Financial Innovation Network
08/17/2018On 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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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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