SEC Staff Compliance Guidance For Robo Advisors

On February 23, 2017 the Staff of the SEC’s Division of Investment Management released “suggestions” on how robo-advisers meet their obligations under the Investment Advisers Act of 1940 (“Advisers Act”).   The Staff noted that their guidance was intended for robo-advisers that “provide services directly to clients over the internet” but noted that the guidance could be useful to other types of robo-advisers.

The Staff categorized its guidance into the following three areas:

  • Disclosures to clients;
  • Information required to provide suitable advice;
  • Effective compliance program designed to address automated advice.

Click here to read the full post on our sister blog, Derivatives and Repo Report.

Fintech Week in Review – February 10, 2017

Below is a list 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.

U.S. Developments

  • Arizona Bill Seeks to Recognize Validity of Smart Contracts and Blockchain Records
  • Virtual Currency Provisions Proposed under Vermont’s Money Transmitter Laws
  • SEC Seeking Comments to Proposed Listing of Bitcoin Investment Trust on NYSE Arca

International Developments

  • Philippines Adopt Virtual Currency Regulations
  • People’s Bank of China Issues Warning to Digital Currency Exchanges
  • Reserve Bank of India Warns Consumers Against Digital Currencies
  • New Questions Emerge on the Legality of Virtual Currency in the United Arab Emirates

For more information on the listed actions, visit our Virtual Currency Report blog. For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.

Fintech Week in Review – February 17, 2017

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.

U.S. Developments

California and New York Take Divergent Approaches to Regulating Fintech

After the OCC began developing bank charters for fintech firms, California’s financial regulator sent a letter to 13 fintech companies seeking a “frank, constructive dialogue” on ways to improve on “the lack of consistency and certainty in the current state regulatory regime.” Jan Owen, commissioner of California’s Department of Business oversight, further stated she is “interested in finding ways to improve the interstate regulatory structure so fintech companies can operate across jurisdictional lines with less cost, regulatory burden, and compliance risk.”

In contrast, by virtue of a proposed FY 2018 budget from Governor Andrew Cuomo, the New York State Department of Financial Services (“NYDFS”) may see significantly expanded oversight and authority over certain fintech companies offering services to residents of New York. If passed, certain measures would increase NYDFS’ authority over and/or impose new licensing requirements on businesses engaged in various insurance, mortgage, or lending activities. At least one measure specifically targets online lending businesses.

These actions illustrate the concerns financial regulators face as they attempt to balance an interest in seeing web-based financial services offered seamlessly throughout the U.S. with an interest in imposing consumer protection measures on financial services companies.

CFPB Lives to Fight Another Day

By order dated February 16, the D.C. Court of Appeals granted the Consumer Financial Protection Bureau’s (“CFPB”) petition for a rehearing on the Court’s October 2016 decision in PHH Corp. v. CFPB. CFPB had ordered PHH to pay an unprecedented $109 million penalty for captive mortgage re-insurance arrangements that CFPB’s director held were impermissible under the Real Estate Settlement Procedures Act (“RESPA”). Following PHH’s appeal to the D.C. Court of Appeals, the October 2016 decision held in PHH’s favor, finding, among other things, that:

  1. Since CFPB has a single director, removable only for cause, CFPB lacks adequate “checks” on its power in violation of Article II of the U.S. Constitution; and
  2. CFPB erroneously interpreted the relevant RESPA provisions at issue, or alternatively, CFPB retroactively applied a new interpretation of RESPA, in violation of PHH’s due process rights.

The Court will hear oral argument on these issues on May 24, 2017.

All this comes on the heels of a February 3 Executive Order in which President Trump directed his Treasury Secretary to prepare a report within 120 days identifying laws and regulations that conflict with his financial policy principles. The President made it clear that this Executive Order is aimed at scaling back the Dodd-Frank Act, which created the CFPB.

A New AML Paradigm is Proposed

In a Clearing House Report published February 16, a consortium of stakeholders from both the financial service and law enforcement sectors propose an overhaul in the way financial firms are expected to assist in preventing and reporting criminal activity, including terrorist financing. The Report proposes shifting to a system where law enforcement and investigators relay their priorities, and financial firms report on those priorities rather than reporting every potentially suspicious transaction, as is the current practice. The recommendations are designed to both cut down on the extensive use of resources and reports which yield very limited benefit to law enforcement, and to simultaneously shift those resources to where they can most effectively prevent criminal activity.

Hawaii Legislature May Establish a Blockchain Working Group… In 21 Years.

On January 25, 2017, Representatives Mark Nakashima and Chris Lee introduced HB1481 in the House of Hawaii’s State Legislature. For more information, please visit our sister blog Virtual Currency Report

North Dakota Legislature Hits Roadblock in Attempt to Study Virtual Currency

After unanimously passing in the Senate, North Dakota’s Senate Bill No. 2100 received a unanimous “do not pass” recommendation from the House committee for Industry, Business and Labor on February 14. For more information, please visit our sister blog Virtual Currency Report.

International Developments

BTCChina Halts Bitcoin and Litecoin Withdrawals

Citing the need to upgrade inspection and verification systems to “aggressively guard against money laundering, illegal money exchange, pyramid schemes, and other illegal activity,” BTCChina announced suspension of bitcoin and litecoin withdrawals until March 15. For more information, please visit our sister blog Virtual Currency Report

Welcome to The Fintech Report

Welcome to The Fintech Report, a blog from Perkins Coie filled with insightful legal analysis of the impact of innovative technologies and processes on the financial industry. You can expect to read about the latest developments on regulatory changes, transactional issues and industry innovations. We’ll be covering topics across a wide spectrum of the fintech industry, including:

  • Online and mobile payments
  • Electronic financial services
  • Cybersecurity and privacy
  • Robo advising
  • Online lending
  • Artificial intelligence “AI” and machine learning

Please sign up to receive our postings. We welcome your feedback, comments and questions, and look forward to our conversations. Thank you for visiting!

-The Fintech Report team

NYDFS Issues Revised Proposed Cybersecurity Regulation

On December 28, 2016, the New York State Department of Financial Services (NYDFS) issued a revised proposed cybersecurity regulation, Cybersecurity Requirements for Financial Services Companies.  The revised proposed regulation reflects several substantive changes made in response to over 150 public comments received by NYDFS in response to the original proposed regulation published this past September.  These regulations represent the culmination of NYDFS’s multiyear inquiry into the efforts of banking institutions and insurance companies to prevent cybercrime, which included an extensive assessment and review of NYDFS-regulated banks, NYDFS-regulated insurance companies, and third-party vendors.  NYDFS is accepting further comments to the proposed regulation through January 27, 2017.

Much like the version proposed in September, the revised regulation is designed to set certain minimum cybersecurity standards and processes to be followed by regulated institutions.  We have summarized below the key obligations that the regulations would impose, along with their effective dates, if they are implemented in their current form.

Continue Reading

Pitchbook Report: What 2017 Has in Store for Fintech

What 2017 Has in Store for Fintech
Pitchbook Report

Fintech saw a much more interesting 2016 after a 2015 when the subsector looked ripe for ascendency. Tumult in the high-yield credit market rocked the calculus of alternative finance, and digital currencies faced both scandal and huge rallies. Huge name brands both entered, exited and doubled down on the fintech arena including Amazon, Goldman Sachs and SoftBank. As we look ahead to 2017, this analyst note highlights some of the largest recent transactions as well as the most exciting business models and market opportunities in the New Year and beyond.


OCC Moves Forward with Plans to Develop Bank Charters for Fintech Firms

On December 2, 2016, the Office of the Comptroller of the Currency (“OCC”) announced its intention to move forward with considering applications from financial technology (“FinTech”) companies to become special purpose national banks. In his prepared remarks at the Georgetown University Law Center announcing the release of a new white paper entitled, “Exploring Special Purpose National Charters for FinTech Companies” and the opening of a 45-day comment period, Comptroller Curry signaled an openness to the FinTech industry and said, “It is clear that FinTech companies hold great potential to expand financial inclusion, empower consumers, and help families and businesses take more control of their financial matters.” Companies seeking such a charter will be evaluated by the OCC to ensure that they have a reasonable chance of success, appropriate risk management, effective consumer protection, and strong capital and liquidity. The OCC’s newly released white paper details the issues and conditions that it will consider in evaluating any entity seeking a special purpose national bank charter. As the OCC evaluates the process to be put in place for granting such charters, it seeks feedback on all elements of the white paper and 13 additional questions concerning the public policy benefit of such a charter, elements to be considered in evaluating capital and liquidity, financial inclusion, consumer protection, safety and soundness, and overall approach to regulating FinTech companies. All comments must be submitted by January 15, 2017. Continue Reading

SEC Hosts First Ever FinTech Forum

On November 14, 2016, the SEC convened four panels of individuals at the forefront of the FinTech industry to address the rapid growth of recent innovations in FinTech. Panelists addressed how these innovations impact four main areas: investment advisory services; trading, settlement, and clearance activities; capital formation; and investor protection. The over-arching theme of the forum was the overlay of financial regulation in the rapidly-changing securities industry and how regulation needs revision to better address emerging technologies. Below we have summarized the four panels and the key take-aways. Continue Reading