In the months following director William Hinman’s noteworthy speech on whether and when a digital asset is subject to securities laws, U.S. regulators have continued their stern warnings regarding the importance of compliance with the securities laws. This post highlights three important regulatory updates:
- On August 14, 2018, the Securities and Exchange Commission (SEC or Commission) issued an administrative order, In the Matter of Tomahawk Exploration LLC and David Thompson Laurance, taking action against an unregistered and fraudulent initial coin offering (ICO).
- On August 28, the North American Securities Administrators Association (NASAA) released an update on the progress of its ongoing Operation Cryptosweep.
- The Financial Industry Regulatory Authority (FINRA) issued two investor alerts, on July 27 and August 16, regarding blockchain tokens and ICOs.
On August 7, a group of regulators from 11 jurisdictions published a consultation (the Consultation) on the Global Financial Innovation Network (the GFIN), which aims to promote international cooperation on innovation and the use of technology in financial services (FinTech) and in regulatory processes (RegTech).
The group — which includes the U.S. Consumer Financial Protection Bureau, the UK Financial Conduct Authority (the FCA), the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) — is one of the first major collaborative efforts on FinTech and RegTech issues among regulators in developed financial services markets. The Consultation builds on the FCA’s proposal earlier this year to create a “global sandbox” for innovative financial services firms.
This post summarizes the proposed role of the GFIN, the issues on which its founding regulators are consulting and how these may affect financial services firms.
On Feb. 13, 2018, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on the Proposed E-Payments User Protection Guidelines (Consultation Paper). Under the Consultation Paper, the MAS proposes to issue a set of guidelines (Guidelines) to standardize the protection offered to individuals or micro-enterprises from losses arising from unauthorized or mistaken payment transactions.
The Guidelines are part of MAS’s ongoing review of Singapore’s regulatory framework for payment services. They are meant to provide general guidance and are not intended to be comprehensive or to replace or override any legislation.
As the FinTech industry continues to expand, regulators around the globe are starting to react. The past 18 months have seen the emergence of a new trend in financial services regulation, the “sandbox.”
Since the launch of the UK’s regulatory sandbox in May 2016, regulators across the globe have adopted similar frameworks. There are now regulatory sandboxes in Abu Dhabi, Australia, Canada, Hong Kong, Lithuania, Singapore, Switzerland and Thailand, to name a few, and the European Union recently set out proposals for a possible EU-wide regulatory sandbox. (more…)
On March 15, 2017, the Office of the Comptroller of the Currency published a draft supplement to the Comptroller’s Licensing Manual that sets forth details of the OCC’s proposal to accept applications from financial technology companies for special purpose national bank charters. The OCC’s guidance makes clear that it intends to hold fintech companies to the same chartering standards as entities seeking a traditional national bank charter and that there will be no “light-touch” supervision of chartered fintechs. While there may be debate over whether the guidance provides a viable alternative for organizing fintech firms, the OCC’s move signals their desire to modernize their licensing framework to keep pace with an evolving financial services industry. The OCC invites comment on the draft supplement through close of business on April 14, 2017.
The Office of the Comptroller of the Currency (OCC) has confirmed its intention to explore issuing limited-purpose national bank charters to fintech firms engaged in banking activities — commonly called the “fintech charter.” Earlier this year, the OCC had signaled this possibility. Now, through the release of a policy paper titled “Exploring Special Purpose National Bank Charters for Fintech Companies” (FinTech Paper) and a speech by the Comptroller on Dec. 2, the OCC has taken a more formal step.
On Oct. 19, the Board of Governors of the Federal Reserve System (the Board), the Office of the Comptroller of the Currency (the OCC) and the Federal Deposit Insurance Corporation (the FDIC, and collectively with the Board and the OCC, the Agencies) issued a joint advanced notice of proposed rulemaking (ANPR) inviting comment regarding enhanced cyber risk management standards for large and interconnected entities under their supervision and those entities’ service providers. As financial technology continues to advance, the largest, most complex financial institutions have relied more and more on technology to carry out their banking activities and to provide critical services to the financial sector and the U.S. economy. In the event of a cyber attack on a covered entity, the ANPR is intended to enhance the covered entity’s ability to continue to function and to reduce the overall impact on the financial system resulting from interconnectedness.
As the financial services sector becomes ever more reliant on new technologies to decrease costs and create more efficient systems, it becomes more vulnerable to cyber attacks. On October 11, 2016, the Group of Seven (“G7”) industrial nations agreed on a set of guidelines to combat the cyber risks that are “growing more dangerous and diverse, [and] threatening to disrupt our interconnected global financial systems and the institutions that operate and support those systems.” These issues have been particularly visible following a number of high profile cybersecurity attacks at financial institutions.
On Sept. 6, the Hong Kong Monetary Authority (the HKMA) announced two initiatives targeted at raising Hong Kong’s profile as a fintech hub: the setting up of the Fintech Innovation Hub (the Hub) and the Fintech Supervisory Sandbox (the Sandbox).
On Tuesday, Sept. 13, the Office of the Comptroller of the Currency (OCC) published a notice of proposed rulemaking and request for public comment (the Proposed Rule) introducing a regulatory regime to govern the receivership of national banks that are not insured (uninsured banks) by the Federal Deposit Insurance Corporation (FDIC). See OCC, Receiverships for Uninsured National Banks, 81 Fed. Reg. 62,835, 62,835 (Sept. 13, 2016) (the Proposed Rule). While the Proposed Rule would apply to the existing pool of 52 uninsured national trust banks, its broader impact would be to establish a receivership regime that would support the creation of new forms of limited purpose, uninsured banks for the financial technology (FinTech) industry. The Proposed Rule would not apply to uninsured federal branches and agencies of foreign banks under the International Banking Act of 1978. Proposed Rule at 62,838. (more…)