Below is a summary of some 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.
FINRA Announces Its Innovation Outreach Initiative
The Financial Industry Regulatory Authority (FINRA) announced its plans this week to establish the Innovation Outreach Initiative to properly assess the Fintech Industry’s impact and to embrace a collaborative effort to track Fintech developments. The announcement comes on the heels of FINRA launching its Fintech Webpage, which is dedicated to emerging topics in the Fintech field. FINRA will host the 2017 Blockchain Symposium in New York next month to kick of this new initiative, where they plan to discuss blockchain use cases with regulators and other heads of the industry. June 13, 2017 FINRA Press Release Re: Innovation Outreach Initiative;
OCC Supplements Guidance Related to Third-Party Relationships between Banks and Fintech Companies
The Office of the Comptroller of the Currency (OCC) issued guidance to supplement its 2013 Bulletin, “Third-Party Relationships: Risk Management Guidance.” In this supplement, the OCC notes that if a “fintech company performs services or delivers products on behalf of a bank or banks, the relationship meets the definition of a third-party relationship and the OCC would expect bank management to include the fintech company in the bank’s third-party risk management process.” The guidance also provides that a bank’s relationship with a fintech company may or may not involve critical bank activities (which require a bank to have more comprehensive and rigorous management of the third-party relationship), depending on a number of factors, such as whether the activities: (1) could cause the bank significant risk if the third party fails to meet expectations, (2) could have significant bank customer impact, (3) could have major impact on bank operations, and more. Finally, the guidance explains that banks can engage with a start-up Fintech company with limited financial information as long as the bank assess the company’s access to funds, its funding sources, earnings, net cash flow, expected growth, and other such factors. The FAQ also addresses whether a bank can offer products or services to underserved populations through Fintechs and what a bank should consider when entering marketplace lending with nonbank entities. The entire FAQ provided by the OCC is available at: OCC Bulletin 2013-29 (06/09/2017).
Illinois Regulators Determine that Digital Currencies Are Not Considered Money
In new guidance provided and finalized by the Illinois Department of Financial and Professional Regulation (IDFPR), the agency has taken the stance that decentralized digital currencies are not money because they are not “authorized or adopted by a domestic or foreign government as a part of its currency” and as such, businesses involving decentralized digital currencies generally do not need to obtain a license under the Illinois Transmitters of Money Act (TOMA). IDFPR Digital Currency Guidance
Delaware Legislature Considers “Distributed Ledger Shares” Bill
The Delaware Senate passed SB 69 last week, a bill designed to enable corporations to use distributed ledgers for the creation and maintenance of corporate records, including the corporation’s stock ledger. SB 69 Text
Connecticut Senate Passes Bill Concerning Money Transmitters Dealing in Virtual Currency
The bill requires each “licensee that engages in the business of money transmission in this state by receiving, transmitting, storing or maintaining custody or control of virtual currency on behalf of another person shall at all times hold virtual currency of the same type and amount owed or obligated to such other person.” The bill will now go to Governor Malloy for his approval before the bill will be adopted. CT HB 07141; CT HB07141 Summary
New Hampshire Governor Signs State Money Transmitter Exemption into Law
Earlier this month, New Hampshire Governor Sununu signed HB 436 into law, which adopts a definition of “virtual currency” and exempts companies that deal solely in convertible virtual currency from registering as money transmitters in the state. HB 436 Summary; Virtual Currency Report (4/28/2017)
Upcoming Meeting of the Drafting Committee on Uniform Regulation of Virtual Currency Businesses Act
The Drafting Committee on Uniform Regulation of Virtual Currency Businesses Act will meet on Friday, July 14, 2017 at 12:00 pm in Grant B on the lower level of the U.S. Grant, in preparation for the afternoon reading of the most recent draft. 2017 Annual Meeting Issues Memo
The U.S. House of Representative Subcommittee Holds Hearing Addressing Virtual Currency
Last week, Congressman Steve Pearce (R-NM) lead a House Financial Services Subcommittee hearing on Terrorism and Illicit Finance. The hearing was entitled: “Virtual Currency: Financial Innovation and National Security Implications.” Subcommittee Hearing on Virtual Currency (06/08/2017); Committee Memo
The U.S. Senate Considers Bill Requiring Digital Currency Holdings to be Declared at US Borders and Customs
A new bill, S.1241, proposes adding the terms “digital currency” and “prepaid access devices” to the existing list of financial items subject to AML procedures.
Hong Kong and Australia Sign Fintech Cooperation Agreement
This week, the Hong Kong Securities and Futures Commission (SFC) and Australian Securities and Investments Commission (ASIC) agreed to share information about Fintech developments and to assist Fintech firms to operate in the others’ jurisdictions. Read the full “Hong Kong, Australia Regulators Sign Fintech Cooperation Agreement” Reuters article.
Court Rules: Israeli Banks May Deny Services to Bitcoin Firms
A district court in Tel Aviv ruled last week that Israeli banks can deny services to bitcoin firms. The bitcoin exchange, Bits of Gold, filed suit against its bank, Bank Leumi after the bank stopped servicing Bits of Gold. Read the full “Israeli Banks Can Deny Service to Bitcoin Firms, Court Finds” CryptoCoins News article.