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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DOJ Seeks to Block Visa’s $5.3 Billion Acquisition of FinTech Start-up Plaid Due to Antitrust concerns over Nascent Competition
11/16/2020On November 5, 2020, the Department of Justice (DOJ) filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of California seeking to block Visa Inc.’s (Visa) $5.3 billion acquisition of Plaid Inc. (Plaid), announced in January. According to the DOJ, the acquisition would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers in violation of Section 2 of the Shearman Act and Section 7 of the Clayton Act, which make certain monopolization and monopoly maintenance conduct illegal. Visa stated the DOJ’s case is “legally flawed” and that it will “vigorously” defend the transaction.
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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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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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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. -
SEC Order Freezes Alleged Unregistered Digital Token Offering
10/21/2019Earlier this month, the Securities and Exchange Commission (SEC) obtained a temporary restraining order freezing an alleged unregistered digital token offering by a messaging service. The SEC alleged that the defendants violated the registration requirements of the Securities Act of 1933 by conducting a securities offering through a sale of digital tokens, without registering the offer and sale of the digital tokens (or relying on an exemption from the registration requirements).
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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! -
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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SEC Stays Active in the Digital Asset Enforcement Space, Delays Bitcoin ETF Decisions
08/22/2019In the first three weeks of August, the Securities and Exchange Commission (SEC) commenced or settled three enforcement actions related to digital assets and delayed rule change decisions on three separate bitcoin exchange-traded fund (ETF) applications. The enforcement actions reflect the SEC’s continued commitment to applying all aspects of the federal securities laws in the digital asset space. Meanwhile, the delay of resolving the ETF rule change applications suggests that the SEC is likely still collecting information to evaluate whether certain of the agency’s previous concerns regarding bitcoin ETFs, such as those related to potential market manipulation and liquidity, have been addressed.
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SEC Issues No-Action Letter Allowing Sale of Ethereum-Based Tokens
08/01/2019In a letter dated July 25, 2019, the Securities and Exchange Commission (SEC) Division of Corporation Finance (Division) stated that it would not recommend an enforcement action if a gaming startup, Pocketful of Quarters (PoQ), issues digital tokens on the Ethereum blockchain. This is the second no-action letter the Division has issued in respect of digital token sales. The Division’s position effectively will allow PoQ, led by 12-year-old CEO George Weiksner, to sell its Quarters tokens for in-game use immediately upon the launch of its Quarters Platform.
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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.
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Top Challenges Around Regulating Artificial Intelligence
07/16/2019Shearman & Sterling attorneys acted as the founding lead editors and contributors to key chapters in the latest Global Legal Insights edition entitled, AI, Machine Learning & Big Data, a book published by Global Legal Group Ltd, London. The publication covers the important considerations, legal issues and market practices in 31 global jurisdictions around artificial intelligence with respect to how it intersects with the laws of each country.
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Considerations in Venture Capital and M&A Transactions in the AI Mobility Industry
07/16/2019As part of the Global Legal Insights edition on AI, Machine Learning & Big Data, Partners Alan Bickerstaff (Austin – Emerging Growth), Mallory Brennan (New York – Litigation) and Emma Maconick (Menlo Park – Intellectual Property Transactions) authored a chapter titled “Considerations in Venture Capital and M&A Transactions in the AI Mobility Industry.” The chapter highlights AI mobility considerations related to investments and transactions, intellectual property, cybersecurity and regulatory issues, and outlines a number of potential liability concerns.
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SEC Approves First Regulated Token Offering under Regulation A+
07/12/2019On July 10, 2019, Blockstack PBC announced that the Securities and Exchange Commission (SEC) has qualified its offering circular, which would allow Blockstack to conduct an offering under Regulation A for its Stacks (STX) tokens. This is the first time that the SEC has approved a digital asset token offering under Regulation A. The offering, which opened on July 11th, is for up to $28 million and will be open to both accredited and non-accredited investors in the United States and globally, subject to certain restrictions.
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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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CFTC Approves LedgerX’s DCM Application
07/02/2019Last week, the Commodity Futures Trading Commission (CFTC) approved digital asset exchange LedgerX LLC’s application to be registered as a designated contract market (DCM), in addition to its previously approved role as a swap execution facility (SEF) and derivatives clearing organization (DCO) for swaps. A DCM is an exchange that operates under the regulatory oversight of the CFTC and may list for trading futures or option contracts.
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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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Would-Be Bitcoin Fund Asserts Bitcoin Are Securities
06/24/2019Are bitcoin securities? One would-be closed end fund says yes.
Turning conventional wisdom on its head, the sponsor of a closed-end fund has argued in a letter dated June 14, 2019 to the Securities and Exchange Commission (SEC) that yes, bitcoin are securities.
The regulatory repartee began on May 13, 2019, when Cipher Technologies Bitcoin Fund filed a registration statement on Form N-2 to register shares of a closed-end interval fund that would invest in – you guessed it – bitcoin and related derivatives instruments.
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Striking the Right Regulatory Balance for the Investment Management Industry: Cryptocurrency Holdings and Digital Asset Custody
06/21/2019At the inaugural FinTech Forum that the Securities and Exchange Commission (SEC) sponsored on May 31, the investment management panel tackled the legal, risk and compliance challenges facing the SEC and market participants with respect to digital assets. Among other things, the panel analyzed issues such as regulation of custody of digital assets by investment companies and investment advisers, noting that proper, well-structured and balanced regulation is necessary for safeguarding the integrity of the capital markets, and critical for harnessing continued innovation in FinTech.
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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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SEC Sues Kik Interactive for Conducting Unregistered ICO
06/10/2019On June 4, 2019, the Securities and Exchange Commission (SEC) sued Canadian mobile messaging company Kik Interactive, Inc. (Kik) for allegedly conducting an unregistered securities offering in connection with the sale of digital tokens called “Kin.”
Kik offered and sold more than one trillion Kin and raised over $100 million through its initial coin offering (ICO) that took place between May and September 2017. The SEC in late 2018 sent a Wells Notice to the company alerting them that SEC staff had made a preliminary determination to file an enforcement action. Kik in response claimed, among other things, that Kin is not a security, but is rather more akin to a digital currency, such as bitcoin and ether.
Despite Kik’s response, the SEC said that through the agency’s interpretation of the Howey analysis, it has determined that the ICO constituted an offer and sale of securities. Therefore, by failing to register the offering with the agency, the SEC alleges that Kik was in violation of federal securities laws.
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In Pursuit of Perfection? A Primer on Digital Asset-Related ETPs
06/07/2019
Partner Jay Baris (New York-Investment Funds) co-authored an article titled “In Pursuit of Perfection? A Primer on Digital Asset-Related ETPs” in the inaugural issue of the Blockchain and Virtual Currencies Briefing. The article provides an overview of digital asset-related exchange-traded products and discuses some of the challenges faced by the SEC in establishing balanced regulation that will protect Main Street investors without stifling technological development and innovation.
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SEC Shoots Down Bitcoin Interval Fund Application
06/03/2018In a letter dated May 28, 2019, the staff of the Securities and Exchange Commission (SEC) asked a registrant to withdraw a registration statement to register shares of a closed-end bitcoin-linked interval fund. Cipher Technologies Management LP, the registrant’s sponsor, filed a registration statement for the fund on May 13, 2019. The proposed fund would invest substantially all of its assets in bitcoin, engage in loans of portfolio bitcoins, write covered calls on portfolio bitcoins and utilize bitcoin futures contracts.
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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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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.
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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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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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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.
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ABA White Paper Offers Roundup of Global Digital Asset Regulations
03/22/2019Last 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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SEC Chairman Clayton Addresses Application of Federal Securities Laws to Digital Assets
3/20/2019Earlier this month, Securities and Exchange Commission (SEC) Chairman Jay Clayton responded to a letter from Congressman Ted Budd (NC) regarding the application of federal securities laws to digital assets. Chairman Clayton reiterated the SEC’s “facts and circumstances” position as to whether a digital asset transaction involves the offer and sale of a security and highlighted the agency’s balanced regulatory approach, which “fosters responsible innovation in this area, while also protecting investors and markets.”
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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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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.
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SEC Settles Unregistered ICO without Penalty after Company Self-Reported to SEC
02/26/2019On Feb 20, 2019, the Securities and Exchange Commission (SEC) charged a company with conducting an unregistered initial coin offering (ICO), which the company self-reported to the SEC. Because the company self-reported the conduct, agreed to compensate investors and will register the tokens, the SEC did not impose a penalty.
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SEC Commissioner Peirce Calls for Thoughtful Application of U.S. Securities Laws to Digital Assets
02/15/2019In a February 8, 2019 speech, Securities and Exchange Commission (SEC) Commissioner Hester Peirce suggested that the regulators should “tread carefully” when applying the Howey test to token offerings. Even though the Howey test generally makes sense in this context, she said, “token offerings go not always map perfectly into traditional securities offerings.” She urged the regulators to apply U.S. securities laws to digital assets thoughtfully, balancing the objectives of investor protection and market efficiency with fostering innovation in the financial industry.
Commissioner Peirce, who has been a vocal proponent of innovation and at times critical of the SEC’s approach to digital asset regulation, argued that regulators must “tread carefully” to avoid misapplication or overextension of existing U.S. securities laws with respect to digital assets and that they should take steps to provide much-needed clarity to market participants.
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Kik Interactive and Kin Ecosystem Foundation Respond to Wells Notice Alleging Violation of Securities Laws
02/12/2019In late 2018, the Securities and Exchange Commission (SEC) sent a Wells Notice to Kik Interactive Inc. and the Kin Ecosystem Foundation (together, the “Respondents”) providing that SEC staff had made a preliminary determination to recommend that the SEC file an enforcement action against them for alleged violations of Sections 5(a) and 5(c) of the Securities Act in connection with the issuance and sale of a digital currency, Kin. In sending this Wells Notice, the Respondents were given the opportunity to make a Wells Submission, which allows them to present facts and legal arguments to convince the SEC that no such enforcement action should be brought. In a somewhat unusual move, the Respondents published their Wells Submission on the company’s website, indicating that they would fight the proposed enforcement action.
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Cboe Refiles Bitcoin ETF Application
02/04/2019Last week, the Cboe BZX Exchange refiled its request to the Securities and Exchange Commission (SEC) for a proposed rule change that would allow it to list and trade shares of an exchange-traded fund (ETF) issued by the VanEck SolidX Bitcoin Trust. Cboe had withdrawn its request one week earlier due to the partial government shutdown, however Jan van Eck, CEO of Van Eck Associates, said that the entities had planned to refile the application once the government reopened and the SEC was back to operating at full capacity.
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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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Two Robo-Advisers Hit with Disclosure and Advertising (including Social Media) Violations
01/02/2019On December 21, 2018, the Securities and Exchange Commission (SEC) filed and settled charges against two robo-advisers (i.e., advisers that provide automated, software-based portfolio management services) for making false disclosures and publishing misleading advertising materials on their websites and social media pages. The two advisers agreed to cease and desist from further violations of the securities laws and to pay fines of $250,000 and $80,000, respectively.
Leaving aside the details of their alleged misstatements, what many observers will find most instructive are, first, that the twin settlements – announced on the same day – suggest a coordinated review of robo-adviser businesses and, second, the SEC’s focus in both settlements on social media practices.
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CFTC Requests Feedback on Ether and the Potential Introduction of Ether Derivatives Contracts
12/13/2018In order to further its understanding of Ether and its use on the Ethereum Network, the Commodity Futures Trading Commission (CFTC) earlier this week issued a request for input (RFI) on several topics related to the virtual currency. The RFI poses a number of questions in respect of Ether, including its functionality, underlying technology, governance, markets, cybersecurity and custody, among other things. In addition, the CFTC asks several questions regarding Ether’s susceptibility to market manipulation and the potential introduction of Ether derivatives contracts.
The CFTC said the requested feedback will inform the work of the CFTC and its LabCFTC initiative to enhance the agency’s oversight of virtual currency markets and develop regulatory policy. The CFTC also noted that it hopes to gain a greater understanding of the similarities and differences between Ether and bitcoin, along with potential risks and opportunities uniquely posed by Ether.
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Two Celebrities Charged in Connection with ICO Promotions
12/05/2018On November 29, 2018, the Securities and Exchange Commission (SEC) announced that it has filed and settled separate charges against professional boxer Floyd Mayweather Jr. and musical artist Khaled Khaled (known as DJ Khaled) for their failure to disclose payments they received in connection with promoting investments in initial coin offerings (ICOs). Without admitting or denying the charges, Mayweather agreed to pay $300,000 in disgorgement, a $300,000 fine and $14,775 in interest, while Khaled agreed to pay $50,000 in disgorgement, a $100,000 fine and $2,725 in interest. Mayweather also agreed not to promote “any securities, digital or otherwise,” for three years, and Khaled agreed to the same ban for a period of two years.
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SEC Settles Charges Against Two Companies that Sold Digital Tokens in ICOs
11/29/2018For the first time, on November 16, 2018, the Securities and Exchange Commission (SEC) sanctioned two companies with civil penalties for violating the securities laws in connection with issuing digital tokens in an initial coin offering (ICO). Interestingly, the Division of Corporation Finance, Investment Management and Trading & Markets issued a joint statement in support of the Division of Enforcement’s actions. Without admitting or denying the findings, the two companies consented to the SEC orders finding that they violated Section 5(a) and 5(c) of the Securities Act of 1933 for failing to register the tokens as securities. The companies agree to $250,000 penalties and to cease and desist from future violations.
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LabCFTC Publishes Smart Contract Primer
11/29/2018LabCFTC, the Commodity Futures Trading Commission’s (CFTC’s) FinTech initiative, earlier this week published a primer on smart contracts. The primer defines smart contracts and explains some of their key attributes, discusses the CFTC’s role in regulating smart contracts, outlines some potential benefits and use cases and warns market participants of potential associated risks.
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SEC Charges Digital Asset Trading Platform Founder for Operating Unregistered Exchange
11/12/2018On November 8, 2018, the Securities and Exchange Commission (SEC) accused the founder of a digital asset trading platform of failing to register as a national securities exchange. Without admitting or denying the charges, the founder agreed to pay $300,000 in disgorgement and a $75,000 penalty, and to cease and desist from future violations of Section 5 of the Securities Exchange Act of 1934 (Exchange Act).
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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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SEC Announces Launch of Strategic Hub for Innovation and Financial Technology
10/19/2018On October 18, 2018, the Securities and Exchange Commission (SEC) launched its Strategic Hub for Innovation and Financial Technology (FinHub), designed to engage investors and market participants on FinTech issues and initiatives.
Valerie A. Szczepanik, the SEC’s Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC's Division of Corporation Finance, will lead FinHub, which will focus on topics such as distributed ledger technology (DLT) and digital assets, automated investment advice, digital marketplace financing, artificial intelligence and machine learning. The SEC’s various divisions will assign staff with expertise in the FinTech space. FinHub will replace and build on the efforts of several of the SEC’s internal FinTech working groups.
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CFTC Commissioner Quintenz Speaks on Smart Contract Regulation
10/19/2018On October 16, 2018, Commodity Futures Trading Commission (CFTC) Commissioner Brian Quintenz gave a wide-ranging speech at the GITEX Technology Week Conference in Dubai addressing a number of key issues faced by the CFTC in considering how to regulate smart contracts. While he acknowledged that there are still many questions to be answered in respect of smart contract regulation, Commissioner Quintenz expressed a number of important views that should make market participants pause before assuming that activity in smart contracts will avoid CFTC scrutiny.
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SEC Halts Fraudulent ICO that Claimed Regulatory Approval
10/17/2018On Oct 11, 2018, the Securities and Exchange Commission (SEC) announced that it halted a planned initial coin offering (ICO) and related pre-ICO sales by Blockvest LLC and its founder, Reginald Buddy Ringgold, III. In seeking an emergency court order, the SEC alleged that Blockvest had falsely claimed that it and its affiliates received regulatory approval from various agencies, including the SEC and a fake agency called the “Blockchain Exchange Commission.” Blockvest and Ringgold also allegedly used the National Futures Association (NFA) seal in making false claims about their regulated status, even after the NFA sent them a cease-and-desist letter for doing so.
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CFTC and ASIC Agree to FinTech Information Sharing Arrangement
10/09/2018The 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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Federal Judge Affirms CFTC’s Authority to Police Virtual Currency Fraud
10/03/2018On September 26, 2018, the U.S. District Court for the District of Massachusetts issued an order confirming that the Commodity Futures Trading Commission (CFTC) maintains the authority to police virtual currency fraud. The order was issued in response to a motion to dismiss charges against My Big Coin Pay, Inc. and several individuals for operating a fraudulent virtual currency scheme through which they solicited customers to purchase a virtual currency known as My Big Coin (MBC).
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