FinTech Monthly Bulletin: August 2019

1. General

1.1 The European Banking Authority (EBA) has published a report setting out the findings of its analysis of the regulatory framework for FinTech firms accessing the market. The report illustrates the developments on the regulatory perimeter across the EU, the regulatory status of FinTech firms and the approaches followed by competent authorities when granting authorisation for banking and payment services. Amongst the reports findings are that there is little national legislative activity affecting the regulatory perimeter of National Competent Authorities (NCAs) under the EBA’s remit and that there has been a shift from non-regulated to regulated activities by FinTech firms, notably payment initiation services and account information services now subject to the revised Payment Services Directive (PSD2). The EBA’s findings show few national legislative developments that could potentially create an unlevel playing field in the EU. (19 July 2019)

1.2 The UK and Indian governments held a business and investment summit in London this month and announced plans to strengthen UK-Indian trade relations with an emphasis on financial services, trade and technology. The summit focussed in particular on how UK and Indian financial markets can support India’s transition to a more services-led economy. (16 July 2019)

1.3 The European Securities and Markets Authority (ESMA) has published a report on the status of licencing regimes of FinTech firms across the EU. The report is based on two surveys conducted by ESMA since January 2018. The first survey sought to identify potential gaps and issues in the existing EU regulatory framework and assess how existing national regimes diverge. The second survey, launched in January 2019, attempted to identify the ways in which NCAs employed the concepts of ‘proportionality’ and ‘flexibility’ when licensing FinTech firms. The surveys confirmed that NCAs do not typically distinguish between traditional business models in their authorisation and licensing activities because they authorise a financial activity and not a technology. (12 July 2019)

1.4 The UK government has published draft legislation for the next Finance Bill aiming to deliver on the 2018 Budget commitments including ensuring a competitive and fair tax system. Amongst other proposals is the introduction of the new Digital Services Tax which is likely to affect large multi-national enterprises with revenue derived from the provision of a social media platform, a search engine or an online marketplace to UK users. (11 July 2019)

1.5 The Hong Kong Monetary Authority and French Prudential Supervision Resolution Authority have entered into a Memorandum of Understanding to enhance collaboration in supporting FinTech innovation. Both authorities recognise that closer collaboration will help create an environment conducive to financial innovation in their markets. (5 July 2019)

1.6 The Dubai Financial Services Authority (DFSA) has accepted four FinTech firms into its 2019 Summer Innovation Testing Licence (ITL) Cohort. The four firms can now apply for an ITL and the first batch of licences are expected to be granted by the DFSA in October 2019. (02 July 2019)

1.7 Christopher Woolard, Executive Director of Strategy and Competition at the UK’s FCA, has delivered a speech on regulating financial innovation. Amongst other things, Mr Woolard addressed the prospect of the launch of Libra, a so called ‘stablecoin���, which he said the FCA considered not to be a distinct category of cryptoassets and “could sit within or outside of our regulatory perimeter”. Mr Woolard also discussed the value of early engagement with innovative firms for policy, monitoring and supervisory purposes. (02 July 2019)

1.8 The Bank for International Settlements (BIS) has announced its intention to establish an innovation hub to foster international collaboration between central banks on meeting the regulatory and systemic challenges posed by the growth in FinTech. The purpose of the hub will be to identify and develop in-depth insights into critical trends and to assist with the development of public goods in the technology space for improving the functioning of the global financial system. (01 July 2019)

2. AI and Automation

Christopher Woolard, Executive Director of Strategy and Competition at the UK’s FCA, has delivered a speech on AI in financial services. In this speech it was noted that the risks of AI vary depending on the context of its use, public trust is key and collaboration is required between the various stakeholders to maximise the potential of AI and answer the questions it poses. (16 July 2019)

3. Cloud Computing

The European Insurance and Occupational Pension Authority (EIOPA) has published a consultation paper on guidelines on outsourcing to cloud service providers with reference to the application of the outsourcing provisions in the Solvency II Directive, the Commission Delegated Regulation (EU) 2015/35 and EIOPA’s Guidelines on System of Governance. The consultation period ends on 30 September 2019. (01 July 2019)

4. Cryptoassets

4.1 The European Central Bank (ECB) has published a letter to the European Parliament outlining its work on stablecoin initiatives. In the letter, the ECB explains that the European System of Central Banks (ESCB) is closely monitoring innovation in the financial sector, including stablecoin projects such as Libra. The ECB notes that as large technology or financial firms could leverage large existing customer bases to rapidly achieve a global footprint, it is imperative that authorities are vigilant in assessing risks and implications for the global financial system. The ECB explains that in order to ensure a level playing field it intends to pursue an internationally consistent approach together with the global central bank community and standard-setting bodies. (26 July 2019)

4.2 The UK’s Financial Conduct Authority (FCA) has proposed a ban on the sale of crypto-derivatives to retail consumers. The FCA considers that these products are not suitable for retail consumers who cannot reliably assess the value and risks of derivatives or exchange traded notes (ETNs) that reference certain cryptoassets (crypto-derivatives). (03 July 2019)

4.3 The Financial Action Task Force (FATF) has published an updated version of its anti-money laundering and counter-terrorist financing standards which include an interpretive note in which the FATF explains how its standards apply to virtual asset activities and virtual asset service providers. The FATF plans to monitor countries' implementation of its virtual asset standards by carrying out a review in June 2020. (03 July 2019)

4.4 See also paragraph 1.7 above.

5. Cybersecurity

5.1 The UK’s National Cyber Security Centre (NCSC) and the SANS institute have announced that the second CyberThreat summit will return to London in November of this year. CyberThreat 2019 will be a two-day technical conference for cybersecurity professionals which aims to develop the skills and understanding of those who help to maintain online safety in the UK. The event, on 25 and 26 November at the Riverbank Park Plaza Hotel in London, will unite technical experts from the cyber security community in the UK and further afield to share experiences and best practice in cybersecurity. (22 July 2019)

5.2 The NCSC has published an Active Cyber Defence report for 2019 as part of its strategy to reduce cyber-attacks in the UK. The report measures the impact made in 2018 by the NCSC, which is part of the Government Communications Headquarters (GCHQ). The report states that 140,000 phishing attacks have been stopped and 190,000 fraudulent websites have been taken down. (16 July 2019)

5.3 The Financial Stability Board (FSB) is developing a toolkit of effective practices relating to a financial institution’s response to, and recovery from, a cyber incident. The purpose of the toolkit is to establish a set of effective practices which will informed through responses to an industry survey. The survey is a key element of the FSB’s outreach strategy with external stakeholders. Responses are sought by 28 August. (11 July 2019)

5.4 The EU Agency for Cybersecurity (ENISA) has published a consultation paper entitled ‘EU ICT Industrial Policy: Breaking the Cycle of Failure’, which explores a number of issues including digital sovereignty and the supply chain of cybersecurity products in Europe, as well as providing an overview of the relationship between the global ICT market and the cybersecurity market. ENISA has invited comments from interested parties by way of response to a survey by 31 August 2019. (10 July 2019)

6. Data

6.1 The UK’s Information Commissioners Office (ICO) has selected its first participants to take part in the ICO Sandbox, a new ICO service which will support organisations which are developing innovative products and services using personal data with a clear public benefit. Participants will be able to draw on the ICO’s expertise and advice on data protection by design. In all, 10 projects have been selected from the 64 applications the ICO received for the initial beta phase of the sandbox. (29 July 2019)

6.2 The UK’s ICO has launched a consultation on its updated Data sharing code of practice which was a requirement of the Data Protection Act 2018. The updated draft code will explain and advise on changes to data protection legislation where these changes are relevant to data sharing. The consultation period ends on 09 September 2019. (16 July 2019)

7. InsurTech

The UK Department for International Trade has launched its first ‘InsurTech for Development’ conference in Nairobi. The theme of the event was ‘Sealing the insurance gap – Africa 3.0’ with the aim of exploring how governments and regulators can enable insurance innovation across Africa to increase the use and application of insurance products. (22 July 2019)

8. Payments and Open Banking

8.1 The EBA has published clarifications in response to a fourth set of issues raised by a working group on APIs under PSD2. The clarifications address issues raised on the confirmation of payment execution, biometrics and authentication on mobile apps, access to non-payment account information, stress testing, qualified eIDAS certificates for Account Servicing Payment Service Providers, the four times per day access by Account Initiation Service Providers and the sharing of payment account numbers with Payment Initiation Service Providers. (26 July 2019)

8.2 The EBA has published a thematic report on the impact of FinTech on the business models of payment institutions (PIs) and electronic money institutions (EMIs). The report highlights the EBA’s key observations on PIs’ and EMIs’ strategies and business model changes, in particular focusing on current trends and drivers, different approaches to FinTech (including their interaction with BigTech firms) and the level of implementation of innovative technologies. (08 July 2019)

9. Peer to Peer Lending and Crowdfunding

The UK’s HM Treasury has written letters to the chairmen of both the European Scrutiny Committee and the European Union Committee regarding the proposals for an EU Regulation on European Crowdfunding Service Providers (ECSP) for business. The letters state there is no appetite among EU member states for the inclusion of an equivalence mechanism in the proposal and EU member states will retain flexibility in many areas. (11 July 2019)

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The FinTech Monthly Bulletin is prepared by the FinTech team of Simmons & Simmons.

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