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.
The GAO Issues Second Report to Congress Addressing Fintech
This week, the U.S. Government Accountability Office (“GAO”) published its second report addressing Fintech. In the report titled Financial Technology: Information on Subsectors and Regulatory Oversight the GAO report divides Fintech into four different sectors: (1) marketplace lenders, (2) mobile payments, (3) digital wealth management platforms, and (4) distributed ledger technology. The new report articulates what the GAO has identified as certain benefits and risks with Fintech, including increased access to financial services, lower costs, speed, convenience, data security and privacy risks, use of alternative data in credit decisions, human error and confusion, insufficient or incomplete information for customers. The report also identifies emerging trends in the Fintech landscape. Finally, the report explains the current regulatory landscape for Fintech companies. This report is one in a series of reports being drafted by the GAO at the request of Congress to study and inform the legislature of developments in this emerging technology. GAO Report (Sept. 12, 2017); Press Release (Sept. 12, 2017); Fintech Week in Review (04.28.17).
OCC Publicly Pulls Back on its Readiness to Issue Special Purpose Charters to Fintech Firms
The U.S. banking regulator, the Acting Comptroller of the Currency Keith Noreika, made comments to a news source Wednesday suggesting that the Office of the Comptroller of the Currency (“OCC”) is not yet ready to accept applications from financial technology companies seeking a special purpose federal charter (“SPC”). These comments come less than a month after the OCC moved to dismiss complaints filed by both the New York State Department of Financial Services (“NYDFS”) and Conference of State Banking Supervisors challenging the OCC’s authority under the National Banking Act to issue SPCs to institutions that do not take deposits. In support of its motion the OCC argues that the NYDFS action is premature as the OCC has not actually processed any applications and therefore New York has not suffered any injury. Source: U.S. News / Reuters; https://www.scribd.com/document/356940588/OCC-v-NYDFS-OCC-Motion-to-Dismiss-Memo-of-Law.
CFPB Announces Its First No-Action Letter for a Fintech Company
This week, the Consumer Financial Protection Bureau (“CFPB”) announced its issuance of a no-action letter to the Upstart Network, Inc. (“Upstart” or the “Company”). Upstart is a California-based company that uses alternative data in making credit and pricing decisions. Upstart provides an online lending platform for consumers to apply for personal loans, including credit card financing, student loans, and debt consolidation. The CFPB’s no-action letter signifies that the CFPB has no present intent to initiate supervisory or enforcement action against Upstart under the Equal Credit Opportunity Act. Under the terms of the letter, Upstart will share certain information with the CFPB regarding the loan applications it receives, how it decides which loans to approve, the Company’s growth, and how it will mitigate consumer risk. This letter signifies the CFPB’s intent to “facilitate consumer-friendly innovations where regulatory uncertainty may exist for certain emerging products or services.” CFPB Press Release (Sept. 14, 2017); Upstart No-Action Letter (Sept. 14, 2017).
Congressional Bill Introduced to Modify Taxation of Small Cryptocurrency Purchases
Last week, Rep. Jared Polis (D – Colo.) and Rep. David Schweikert (R – Ariz.) introduced the Cryptocurrency Tax Fairness Act of 2017 (the “Bill”). The Bill’s primary goal is to ease the burden on those who make purchases with cryptocurrency by establishing a threshold under which they would not be required to report profits and losses – thus making it easier to keep track of tax obligations. 115 H.R. 3708 (Sept. 7, 2017); Polis Press Release (Sept. 7, 2017).
Hong Kong Regulator Cautions of Securities Risks for some ICO Tokens
Last week, Hong Kong’s financial regulator, the Securities and Futures Commission (“SFC”), issued a statement warning that Tokens issued in ICOs may be classified as securities, depending on the facts and circumstances of the ICO. The Commission’s executive director of intermediaries, Julia Leung, states that entities involved with ICOs must “be aware that some ICO structures may be subject to Hong Kong securities laws.” The statement advises all parties engaging in ICO activities to seek legal or professional advice if they are in doubt about the applicable legal and regulatory requirements. SFC Statement (Sept. 5, 2017).
Japanese Authorities Announce Plans to Begin Regulating Cryptocurrency Exchanges
Japan’s Financial Services Agency (“JFSA”) announced plans this week to introduce oversight on virtual currency exchanges next month. It is anticipated that virtual currency exchanges will face formal requirements that include: KYC protocols, maintaining a minimum capital stock of 10 million yen, annual reporting requirements, and keeping liabilities from exceeding assets. Nikkei Asian Review; ETHNews.
Namibian Central Bank Announces Bitcoin Purchases Are Illegal Under Current Law
This month, the Namibian Central Bank issued an announcement and opinion that under current Namibian law, cryptocurrency exchanges are not allowed and no merchants in the country may accept crypto as payment for goods and services. In the report, the Bank explicitly states that it does not recognize virtual currencies as legal tender in Namibia. Bank of Namibia Position Paper (Sept. 2017); Bank of Namibia Press Release.
For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.