U.S. Developments
Regulatory Updates
FinCEN Issues Advisory on FATF’s Updated Recommendations
On October 31, FinCEN published an advisory on the international Financial Action Task Force’s (FATF’s) updated list of jurisdictions with serious regulatory deficiencies in anti-money laundering and combatting the financing of terrorism (AML/CFT). The advisory focused on North Korea (DPRK) and Iran, and FinCEN reminded financial institutions of their obligations when dealing with those jurisdictions.
International Developments
Policy Updates
IMF and World Bank Launch Bali FinTech Agenda
On October 11, 2018, the International Monetary Fund (“IMF”) and the World Bank Group launched the Bali FinTech Agenda, “a set of 12 policy elements aimed at helping member countries to harness the benefits and opportunities of rapid advances in financial technology that are transforming the provision of banking services, while at the same time managing the inherent risks.” The 12 policy elements advance a pro-fintech agenda of fostering innovation and development of new technologies across the globe. Notably, the Bali FinTech Agenda emphasizes the importance of developing clear and predictable legal frameworks that keep pace with innovation.
The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Week of October 8-12, 2018 from our sister blog, VirtualCurrencyReport.
On October 3, 2018, a group of federal bank regulators and FinCEN announced in a joint statement that banks and credit unions could collaborate and share resources to manage their Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) obligations. A collaborative arrangement does not modify or abrogate any of the bank’s BSA/AML obligations, and the joint statement merely provides examples and guidance for how banks can manage their obligations more effectively and efficiently.
Banks that may be best served by a collaborative arrangement are those with a community focus, and lower-risk profiles for money laundering or terrorist financing. Utilizing a collaborative arrangement requires each bank to carefully consider its own individual risk profile. In light of sound principles of corporate governance and bank safety and soundness, each bank should enter into such an arrangement only after conducting appropriate due diligence, including adequate documentation, evaluation of legal restrictions on such an arrangement, and establishment of appropriate oversight.
Nothing in the joint statement alters the four pillars of a bank’s BSA/AML compliance program: (1) a system of internal controls to ensure ongoing compliance; (2) independent testing of BSA/AML compliance; (3) designating a BSA compliance officer; and (4) training appropriate personnel. With appropriate limits, each of these pillars can be addressed through a collaborative arrangement.
Sharing resources through a collaborative arrangement helps banks to meet their BSA/AML compliance obligations by providing access to specialized expertise, at reduced cost, that may be difficult to obtain in some markets. The joint statement provides examples of how collaborative arrangements can be utilized to meet a bank’s BSA/AML compliance needs.
Please click here for the press release and here for the joint statement.
The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.
Roundup of CFTC Resources
The Commodity Futures Trading Commission (CFTC) announced on September 20, 2018 that it would hold an open meeting on September 27, 2018 to discuss fintech cooperation agreements, among other topics not directly related to virtual currencies. The CFTC cancelled the open meeting on September 26, 2018, indicating that the agenda items were “resolved through the Commission’s seriatim process.” It is unclear how the matter on fintech cooperation arrangements was handled and whether there will be a subsequent meeting open to the public or related announcement.
The CFTC’s LabCFTC is co-hosting its first fintech conference, entitled “FinTech Forward 2018,” on October 3-4, 2018 in Washington, D.C. Speakers will include domestic and international financial regulators discussing a range of topics, from emerging technology, market and regulatory trends to the role of artificial intelligence. The conference is full but interested participants can sign up for the waitlist or watch the livestream on the CFTC’s homepage.
The CFTC’s Technology Advisory Committee (TAC) announced it will be holding a public meeting on October 5, 2018 that will be webcast live on the CFTC’s website. No definitive agenda has been released. The meeting’s primary topic appears to be RegTech, but the meeting will also involve presentations from select subcommittees of the TAC, which may include the Virtual Currencies subcommittee.
LabCFTC is going on the road with Office Hours in Austin, Texas on October 23-24, 2018, which will provide FinTech entrepreneurs, investors and others to discuss issues, ask questions or give a presentation to LabCFTC staff.
The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Week of September 24-28, 2018 from our sister blog, VirtualCurrencyReport.
The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.
State Bank Regulators and NYDFS to renew litigation against OCC
On September 12, the Conference of State Bank Supervisors (“CSBS”) announced that it would renew litigation efforts in opposition to the Office of the Comptroller of the Currency’s (“OCC”) decision to accept applications from financial technology firms for a special purpose national bank (“SPNB”) charter. A D.C. federal district court dismissed the CSBS’ first lawsuit on April 30, 2018 for failure to establish injury as the OCC had not yet determined if it would offer such a charter. In July of this year, the OCC said it would offer SPNB charters to fintech firms and it was announced earlier this month that Varo Money had received preliminary approval for the first SPNB charter. In the initial lawsuit, the CBS argued that the OCC”s 2017 proposal exceeded the authority granted to the OCC by Congress under the National Bank Act (“NBA”) and other federal banking laws to charter institutions that engage in banking. New York’s Department of Financial Services (“NYDFS”) filed a lawsuit against the OCC in federal court in Manhattan on September 14, 2018 alleging similar claims against the OCC of overstepping its authority in creating a charter.
The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Week of September 10-17, 2018 from our sister blog, VirtualCurrencyReport.
The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.
Varo Bank Receives Preliminary Approval for a National Bank Charter
On September 4, the organizers of the fintech start up Varo Bank, N.A. announced that they have been granted preliminary approval by the Office of the Comptroller of the Currency (“OCC”) for their application to form a de novo national bank. The charter will allow Varo to expand its financial products across the United States, largely preempting state financial regulatory licensing processes for certain money transmission activities. The OCC announced earlier this month that it would begin accepting national bank charter applications from fintech companies. Accordingly, Varo is the first fintech to receive preliminary approval under the new application process. For more information about the OCC national bank charter application process for fintech companies please see our regulatory update here.
Please click here for the press release.
The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Week of September 3 – September 7, 2018 from our sister blog, VirtualCurrencyReport.
The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.
U.S. Chamber of Commerce Announces FinTech Innovation Initiative
The U.S. Chamber of Commerce released “FinTech Innovation Initiative: Bridging the Gap Between Tech and D.C.” The document includes a number of guiding principles for the FinTech industry, which include, among other things, promoting “new and innovative ways to access capital, such as initial coin offerings (ICOs), while advocating for tailored oversight and strong consumer and investor protections.” The document urges the CFTC and SEC to provide additional guidance on the regulatory treatment of token sales and “broadly consider and issue expedited no-action letters.”
The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Week of August 20 – 24, 2018 from our sister blog, VirtualCurrencyReport.
The following is a summary of Fintech specific related topics, for the Blockchain Week in Review, please visit our sister blog post at the Virtual Currency Report.
OCC Begins Accepting National Bank Charter Applications from Financial Technology Companies
On July 31, the Office of The Comptroller of the Currency (“OCC”) announced that it will begin accepting applications for special-purpose national bank charters from fintech companies engaged in banking. A special-purpose national bank is a national bank that engages in a limited range of banking or fiduciary activities, targets a limited customer base, incorporates nontraditional elements or has a narrowly targeted business plan. The OCC’s decision to open charter applications to fintech companies comes after over two years of extensive outreach with market participants and numerous reports from the OCC staff. The application process for fintech companies would be substantially similar to traditional national banks, with the OCC supervising capital, liquidity and financial inclusion commitments. The OCC would also subject new fintech companies that become special-purpose national banks to heightened OCC supervision consistent with other newly chartered national banks. The OCC stated in its announcement that fintech companies receiving such a charter “should not be permitted to accept FDIC-insured deposits, to reduce risks to taxpayers” and that the Federal Reserve should decide whether those firms should have access to the payments system.
The new OCC charter application process provides an alternative method for fintech companies wishing to engage in certain regulated money transmission activities in lieu of the patchwork registration process with state financial regulators. Also in its announcement, the OCC recognized the role state regulators play in managing the licensing requirements across the states. The OCC also encouraged state regulators to work together to propose a more unified system for managing lending and money transmission activities.
Please click here for the press release.
New York Department of Financial Services Voices Opposition to Regulatory “Sandboxes” and OCC Charters for Fintech Companies
On August 2, the New York State Department of Financial Services (“DFS”) Superintendent, Maria T. Vullo, issued a statement in opposition of the Department of Treasury’s endorsement of regulatory “sandboxes” for fintech companies. In the statement, the Superintendent equated companies operating in regulatory “sandboxes” with toddlers: “Toddlers play in sandboxes. Adults play by the rules. Companies that truly want to create change and thrive over the long term appreciate the importance of developing their ideas and protecting their customers within a strong state regulatory framework.”
The DFS Superintendent also rebuked the Office of the Comptroller of the Currency (“OCC”) for its decision to begin accepting applications for national bank charters for fintech companies. The DFS opposition to the OCC’s decision was also predicated on the adequacy of state regulatory rules to address the needs of fintech companies. The DFS Superintendent stated that “[A] national fintech charter will impose an entirely unjustified federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape.”
Please click here for the DFS statement.
The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Week of July 30 – August 3, 2018 from our sister blog, VirtualCurrencyReport.
FINRA Issues a Regulatory Notice for Firms to Let FINRA Know About Digital Asset Activities
On July 6, the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization that primarily oversees the regulation of broker-dealers, issued a new Regulatory Notice to encourage firms to notify FINRA if they engage in activities related to digital assets.
For FINRA, the Regulatory Notice is part of a greater effort to determine the extent of FINRA member involvement relating to digital assets. To achieve its fact-finding mission, the Regulatory Notice asks that firms subjected to FINRA’s jurisdiction to notify FINRA if they or their affiliates are currently, or intent in the future to engage in any activities related to digital assets. The Regulatory Notice provides a comprehensive list of the types of activities that might qualify as “related to digital assets,” including the purchases, sales or executions of transactions in digital assets or derivatives tied to digital assets, and the custody of digital assets. FINRA’s request for information through the Regulatory Notice extends until July 31, 2019. Finally, to the extent that FINRA has already been in contact with a firm about its digital asset activities, the Regulatory Notice requests that the firm notify FINRA of any changes to the firms’ activities.
Please click here to find the Regulatory Notice.
The above is a summary of one of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest. These are the Fintech updates that ties to the post Blockchain in Review – Week of July 9, 2018 from our sister blog, VirtualCurrencyReport.
Summary of SDNY order holding that CFPB is unconstitutional
CFPB v. RD Legal Funding, LLC, 17-cv-890 (June 21, 2018, S.D.N.Y.)
Last week, a federal court in New York ruled that the entire Consumer Financial Protection Bureau (“CFPB”) is unconstitutional. The CFPB was established by Congress in response to the 2007-2008 financial crisis to regulate financial institutions and protect consumers, especially with respect to mortgages, credit cards, and student loans. Although the CFPB has refrained from regulating virtual currencies and other distributed ledger technologies, that could change as these technologies are applied to mortgages, loans, and other areas of consumer finance.
The court’s ruling is notable for its lack of analysis. Although it exceeds 100 pages, the court devotes fewer than 2 pages to the constitutionality of the CFPB. The analysis begins by rejecting, without explanation, a recent federal court of appeals decision in PHH Corp. v. CFPB, which held that the CFPB is, in fact, constitutional.
Instead, the ruling combines different parts of two dissenting opinions in PHH Corp. It adopts the legal reasoning of the first dissent but rejects its remedy. Its preferred remedy—striking down the entire CFPB—comes from the second dissent, which was supported by only 1 of 10 judges who decided PHH Corp. In other words, the analysis consists of opinions already rejected by the court of appeals.
Typically, this ruling would have few practical consequences. It is not precedent for other courts and, given its contradiction of the court of appeals, will likely be overturned. The Trump administration, however, is critical of the CFPB and may choose to accept the ruling. Doing so might encourage more lawsuits against the CFPB, embolden the agency’s critics, and make it easier for other courts to find the CFPB unconstitutional.
These outcomes, if they occur, could affect how companies offer consumer financial services in the future, including those based on distributed ledger technology. We will report on these developments as they occur. For now, though, the CFPB will continue to operate as it has.
Continue to check our blog for updates on this issue.
