On January 14, 2020, the U.S. Securities and Exchange Commission (SEC) Office of Investor Education and Advocacy published an investor alert (Alert) regarding initial exchange offerings (IEOs), a type of digital asset fundraising facilitated by online trading platforms.1 Although the Alert is directed at investors, it provides important information to blockchain companies and trading platforms. The Alert highlights the following:
- an explanation of an IEO
- IEOs that are securities offerings must comply with federal securities laws
- a platform offering an IEO may need to register as a broker-dealer, national securities exchange or operate pursuant to an exemption, such as an alternative trading system (ATS)
- IEOs offered to U.S. investors, even if offered from outside the United States, must comply with federal securities laws
The California Department of Business Oversight (CDBO) recently concluded that the point of sale consumer financing programs offered by Sezzle, Inc., and another, unnamed party constituted making loans for purposes of the California Financing Law (CFL). A number of payment providers and technology companies have been developing innovative payment options, including consumer financing options, that are facilitated by advances in technology and mobile connectivity. Some market participants have structured their products such that a license should generally not be required under state law. The CDBO’s actions, however, may require companies to revisit that analysis and consider their licensing obligations.
On December 3, 2019, the five federal banking agencies1 issued a joint statement (the “Joint Statement”) regarding the use of alternative data for credit underwriting. The Agencies highlighted potential benefits that may arise from the use of alternative data, including the ability to make faster and more accurate credit determinations and the potential to provide credit at a lower rate or to individuals or small businesses that would otherwise be unable to access it. While the Agencies issued approving language regarding the use of certain types of alternative data, they also cautioned that the use of alternative data may have consumer protection implications, including fair lending, prohibitions against unfair, deceptive or abuse acts or practices and the Fair Credit Reporting Act.
On October 11, 2019, the leaders of the U.S. Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN) and the U.S. Securities and Exchange Commission (SEC) (together, the Agencies) issued a joint statement highlighting the application of anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA) to persons engaged in activities involving digital assets (Joint Statement). On the same day, the SEC filed an emergency action to halt a digital asset distribution, citing BSA/AML concerns.1
Under the revised Payment Services Directive (2015/2366) (PSD2), the European Banking Authority (EBA) and the European Commission were required to develop and adopt regulatory technical standards on strong customer authentication and common and secure open standards of communication. These regulatory technical standards were passed into EU law as Commission Delegated Regulation (EU) 2018/389 (the RTS), which entered into effect on September 14, 2019.
The RTS has direct effect on payment service providers (PSPs), including card issuers and acquirers, in all EU member states. However, certain EU member states, including the UK, have implemented transitional measures for a phased implementation of the rules in the context of card-based payments for e-commerce transactions.
This post discusses the requirements under the RTS for card issuers and acquirers to authenticate payment service users (PSUs), which is referred to as “strong customer authentication” (SCA).
On August 29, 2019, the Monetary Authority of Singapore (MAS) announced that it will begin accepting applications for new digital bank licenses. Interested parties have until December 31 to submit their applications. This follows the MAS’ initial announcement in June to issue up to two digital full bank (DFB) licenses and three digital wholesale bank (DWB) licenses, effectively opening up digital bank licenses to nonbank players.
On July 8, 2019, the long-awaited statement (Statement) on custody of digital asset securities was released jointly by the staffs (Staffs) of the U.S. Securities and Exchange Commission (SEC) Division of Trading and Markets and the Financial Industry Regulatory Authority (FINRA).1 The Statement is based on industry discussions with the Staffs and highlights the following:
- Certain noncustodial broker-dealer models may have a path forward for FINRA approval.
- The Staffs have concerns relating to broker-dealer custody of digital asset securities that remain unanswered, but certain good control locations (i.e., banks, issuers and transfer agents) may provide a viable custody solution under the Customer Protection Rule.2
- Market participants should consider other broker-dealer requirements, including books and records and financial reporting rules.
Data aggregators and fintech providers are now offering services that let consumers manage their finances using information from multiple accounts at multiple financial institutions. This kind of consumer data access raises serious questions about the relationship between financial institutions and consumer-designated third parties. This webinar will cover the risks that come with consumer-permissioned information sharing, current gaps and solutions in the existing legal framework to address these risks and issues that can be addressed contractually between various stakeholders.