SEC Fines Alternative Data Provider for Securities Fraud
On September 14, 2021, the U.S. Securities and Exchange Commission (SEC) settled an enforcement action against App Annie Inc., an alternative data provider for the mobile app industry, and its former CEO Bertrand Schmitt. The SEC charged App Annie and Schmitt with securities fraud, under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, for engaging in deceptive practices and materially misrepresenting how App Annie derived its alternative data, thereby inducing trading firms to become subscribers to use App Annie’s data in their decisions to buy and sell securities. (more…)
Fintech and Blockchain 2021
Please join us for a program focused on the latest 2021 FinTech and blockchain developments. Sidley lawyers in the banking, white collar, and FinTech groups will discuss the key regulatory and enforcement issues related to enhanced focus by the DOJ, SEC, CFTC, FinCEN, CFPB, OCC, and Federal Reserve on FinTech, blockchain, and cryptocurrencies from both the criminal and civil enforcement perspectives.
Enhanced Focus on Digital Asset Intermediaries by SEC, Congress, and State Securities Regulators
Given the substantial growth in digital asset investments this year, intermediaries offering trading and lending services are now the target of regulatory and enforcement focus that we expect will continue in the coming months and years. Recent examples of this increased scrutiny of digital asset service providers and intermediaries include
- Securities and Exchange Commission (SEC) Chair Gary Gensler’s keynote for the American Bar Association Derivatives and Futures Committee, which touched on the regulation of cryptocurrencies, including statements that decentralized finance (DeFi) are implicated by securities laws
- the letter from Sen. Elizabeth Warren, D-Mass., to Chair Gensler requesting further information about the SEC’s authority to regulate cryptocurrency exchanges
- recent actions by state securities regulators against the financial services platform BlockFi related to a digital asset lending program alleging that these products are unregistered securities offerings
- the SEC settlement with Coinschedule, which operated a token-offering website and failed to disclose the compensation it received from token issuers in violation of antitouting provisions
UK FCA Consults on Changes to Strong Consumer Authentication, Dedicated Interfaces, and Guidance on Payment Services
On January 28, 2021, the UK Financial Conduct Authority (FCA) published Consultation Paper CP21/3, “Changes to the SCA-RTS and to the guidance in ‘Payment Services and Electronic Money – Our Approach’ and the Perimeter Guidance Manual” (Consultation Paper). This follows the FCA’s announcement in its 2020-21 business plan that payment services were one of its main supervisory priorities1 and its temporary guidance of July 9, 2020, on prudential risk management and safeguarding in light of the COVID-19 pandemic (Temporary COVID Guidance).
The FCA is proposing amendments to:
- the UK onshored versions of EU technical standards on strong customer authentication (SCA) and common and secure methods of communication (UK SCA-RTS);
- its Approach Document on Payment Services and Electronic Money (Approach Document); and
- its Perimeter Guidance Manual (PERG).
A Digital Europe – Digital Health and other Recent EU Data Initiatives
Taking a step into the digital age, the European Commission announced that the 2020s shall become the EU’s Digital Decade. The EU’s digitalization, including in the area of health, is one of the Commission’s key priorities and covers a wide range of actions and related initiatives.
Building on prior initiatives, in 2019 the Commission announced six key priorities (since supplemented by the COVID-19 recovery plan) that would shape the coming five years of policy making. One of these six key priorities is to create a Europe fit for the digital age and work on a digital strategy that will empower people with a new generation of technologies.
U.S. Office of the Comptroller of the Currency Finalizes Fair Access Requirements
On January 14, 2021, the U.S. Office of the Comptroller of the Currency (OCC) issued its controversial final rule (Rule)1 to establish a new requirement for covered banks to provide “fair access” to financial services to both natural persons and legal entities.2 The preamble to the Rule explains that it is intended to address situations in which large banks have denied access to financial services on the basis of a prospective customer’s industry affiliation or connection with a politically unpopular, but lawful, activity. The Rule instead requires, among other things, that access to all financial services at covered banks be provided on the basis of a person’s individual characteristics evaluated under quantitative, impartial risk-based criteria. The OCC claims that these fair access standards do not, however, require that a covered institution provide any specific type of financial service, do business with a particular person or industry, or operate in a particular market. Nonetheless, in part because of the perception that the Rule will impair the ability of banks to take into account issues like climate change in making underwriting decisions, the fate of the Rule under the Biden administration remains uncertain.
FinCEN Proposes Tracking and Reporting Virtual Currency Transactions Involving Unhosted Wallets
On December 18, 2020, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPR) regarding a proposal to impose on banks1 and money service businesses (MSBs) new recordkeeping, reporting, and identity verification requirements in relation to certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (legal tender digital assets or LTDA)2 if the counterparty to the transaction does not have an account with, including a digital asset wallet hosted by, a financial institution regulated under the U.S. Bank Secrecy Act (BSA) or certain foreign financial institutions not located in designated problematic jurisdictions. If adopted, the proposed rule will impose significant new burdens only on banks and MSBs involved in digital asset businesses and undercut the role of U.S. institutions in digital asset economies, including in the growing area of “decentralized finance.” The NPR proposes to exclude broker-dealers, futures commission merchants, and mutual funds, among others that are subject to the BSA from these new reporting requirements, but specifically requests the industry’s comment on whether these types of institutions should also be included within the scope of the rule.
Affected institutions will have very limited time to assess and comment on the NPR, as the comment period closes on January 4, 2021, notwithstanding two intervening federal holidays.
