FinTech Monthly Bulletin: April 2020

If you have any queries or would like to subscribe to the FinTech Monthly Bulletin, please contact Angus Allen

1. General

1.1 In this period of uncertainty as many parts of the world face the human, economic and political challenges posed by the COVID-19 pandemic, we have created a webpage with regular updates and guidance relevant to the FinTech sector and organised by theme:

• workforce and employment issues;
• managing your business;
• transactional issues;
• government and regulatory issues;
• managing risks; and
• economic impact. (31 March 2020)

1.2 The UK’s Financial Conduct Authority (FCA) has created a webpage with up to date information for firms in relation to the COVID-19 pandemic. Among other things, the FCA has made statements in relation to payment and retail banking firms, the Senior Managers Regime, regulatory change, impact on consumers, insurance products, mortgages, unsecured debt products, access to cash, operational resilience, market trading and reporting and the delay of various consultation papers and Calls for Input (CFI) until 31 October 2020. (last updated on 31 March 2020)

1.3 The FCA, Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) have published a joint statement in response to the COVID-19 pandemic. The statement announces a series of actions to ensure information continues to flow to investors and support the continued functioning of the UK’s capital markets. These actions relate to, among other things, the publication of audited financial reports by listed companies, the preparation of financial statements more generally and guidance for audit firms. Noting actions taken by other bodies to support the functioning of markets, the FCA, FRC and PRA strongly encourage lenders and other parties to take into account the current unique circumstances in responding to potential breaches of covenants. For more information, please refer to our article published here. (27 March 2020)

1.4 The UK’s House of Lords EU Financial Affairs Committee announced that it has written to the Chancellor of the Exchequer requesting that the Government establish a structured dialogue between the UK and the EU to support cross-border financial services and manage any future divergence. Among other recommendations, there is a request that the UK take a leadership role to develop common global standards in areas such FinTech. (27 March 2020)

1.5 The European Banking Authority (EBA) has published a statement on the application of the prudential framework in light of COVID-19 measures. Specifically, the EBA has requested flexibility and pragmatism in the application of the prudential framework and clarifies that, in case of debt moratoria, there is no automatic classification in default, forborne, or IFRS9 status. The EBA, nonetheless, insists on the importance of adequate risk measurement and expects institutions to prioritise individual assessments of obligors’ likeliness to pay when possible. Consumer protection remains a priority for the EBA and financial institutions should ensure full disclosure and act in the interest of customers, with no hidden charges or automatic impact on credit ratings. The EBA also states that well-functioning payment services are vital at this time and contactless payments should be stepped up to the threshold allowed under EU law. (25 March 2020)

1.6 The European Commission (Commission) and the High Representative of the Union for Foreign Affairs and Security Policy have published a proposal for the long-term policy objectives of the Eastern Partnership beyond 2020. These objectives are aimed at increasing trade, strengthening connectivity and deepening economic integration with Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine. The objectives are also focused on strengthening democratic institutions, the rule of law, environmental and climate resilience, supporting the digital transformation, and promoting fair and inclusive societies. (18 March 2020)

1.7 The Commission issued a press release setting out the EU’s coordinated response to counter the economic impact of COVID-19. Specifically, the Commission states that it will use all the instruments at its disposal to mitigate the consequences of the pandemic by:

• ensuring the necessary supplies to health systems by preserving the integrity of the Single Market and of production and distribution of value chains;
• supporting people so that income and jobs are not affected disproportionately and to avoid permanent effect of this crisis;
• supporting firms and ensure that the liquidity of the EU’s financial sector can continue to support the economy; and
• allowing Member States to act decisively in a coordinated way, through using the full flexibility of the EU’s State Aid and Stability and Growth Pact Frameworks. (13 March 2020)

1.8 In a move seen by many commentators as an attempt to position the UK’s leading FinTech industry for success beyond the EU, the Chancellor of the Exchequer announced a major review of the sector in his maiden budget on 11 March 2020. This review will be led by Ron Kalifa, chairman of payments firm Network International and a non-executive director at the Bank of England and Transport for London, who will advise the Government how best to support the growth and competitiveness of FinTech start-ups in the UK. Elsewhere, the Government announced it will review the regulation of cryptoassets with a view to supporting innovation and looks forward to the Bank of England’s discussion paper on a possible UK central bank digital currency. (11 March 2020)

1.9 The UK government has introduced a new 2% tax on the revenues of search engines, social media services and online marketplaces which derive value from individuals based in the UK. The Digital Services Tax applies to revenue earned from 1 April 2020. (11 March 2020)

1.10 José Manuel Campa, Chairperson of the EBA, has delivered a speech at the 4th Annual Conference on ‘FinTech and Digital Innovation: Delivering for the Future’. The speech focussed on progress made towards removing obstacles to the application of innovative technologies in the banking and payments sectors, particularly by working to achieve technology neutrality in the EBA’s regulatory and supervisory approaches. The speech also made clear the EBA’s intention to place additional focus on Regtech, SupTech, ‘platformisation’ and operational resilience in year ahead. (3 March 2020)

1.11 Mitchell Silk, Acting Assistant Secretary for International Markets, US Department of the Treasury, has delivered a speech on the growing importance of increasing the rate of innovation within the financial services industry. In his speech, Silk stressed that the regulatory challenges associated with financial services innovation will not be easy and that international collaboration was essential to ensuring healthy growth in the FinTech sector. (3 March 2020)

1.12 Steven Maijoor, Chairperson of ESMA, has delivered the keynote address at the 4th Annual Brussels FinTech Conference. In his speech, Maijoor focused on: the risks and benefits of large technology companies moving into financial services; distributed ledger technology (DLT); global stablecoins; and the need for a coordinated approach amongst regulators. (3 March 2020)

2. Artificial Intelligence and Automation

2.1 Scotland’s Artificial Intelligence (AI) Steering Committee has postponed the deadline of its call for input on the consultation paper on developing Scotland’s AI strategy. This consultation will now close on Friday 8 May 2020. (25 March 2020)

2.2 See also paragraph 4.3.

3. Cryptoassets

3.1 The Financial Action Task Force (FATF) has published its private sector bulletin providing an update on the key outcomes of the FATF Plenary in February 2020. Among other strategic initiatives, the FATF has been closely monitoring the implementation and impact of its new standards to address the potential money laundering and terrorist financing risks of virtual assets. The FATF plans to report to the G20 in July 2020 on its analysis of these risks in relation to stablecoins. (24 March 2020)

3.2 The International Organisation of Securities Commissions (IOSCO) has published a report examining how existing regulatory frameworks could apply to the use of global stablecoins. The report finds that, depending on its structure, a global stablecoin may fall within securities market regulatory frameworks. Whether IOSCO Principles and Standards are relevant to stablecoins depends on the specific design of each initiative and its legal and regulatory characteristics and features. (23 March 2020)

3.3 Tao Zhang, Deputy Managing Director of the International Monetary Fund (IMF), has delivered a keynote address at the London School of Economics on Central Bank Digital Currency (CBDC). The speech outlined the benefits and challenges of CBDC adoption. (19 March 2020)

3.4 The Joint Money Laundering Steering Group (JMLSG) has published, for consultation, the proposed text of a new chapter to be added to Part II of its anti-money laundering (AML) and counter-terrorist financing (CTF) guidance for the financial services sector. The consultation is open until 18 May 2020. (17 March 2020)

3.5 The Financial Markets Law Committee (FMLC) has drafted a response to the European Commission consultation on an EU framework for markets in cryptoassets. The FMLC’s response comprises two complementary reports. Part I comprises comments drafted for the FMLC in-house, by the Secretariat, on the classification of cryptoassets. Part II comprises comments—gathered with the advice of members of the FinTech Scoping Forum—in response to the section of the consultation dealing with cryptoassets which fall within the EU regulatory perimeter. (17 March 2020)

3.6 The Bank of England (BoE) has published a discussion paper on CBDC. The BoE is optimistic about the possibility of a future CBDC and has issued a request for responses in a consultation that will close 12 June 2020. The BoE sees the main possible benefits of a CBDC as: faster, more efficient and reliable payments; increased innovation in the payments sector; and a possible solution to the decline in the use of physical cash. (12 March 2020)

3.7 There are reports that South Korea has accelerated its intentions to regulate the cryptocurrency industry. The National Assembly has passed a revision to the Reporting and Using Specified Financial Transaction Information Act. The revision places the activities of cryptocurrency exchanges under government regulation. This development paves the way for taxation of cryptoassets. The Government has stated that further details will follow in July 2020. (10 March 2020)

3.8 Therese Chambers, Director of Retail and Regulatory Investigations at the FCA, has delivered a speech on the financial crime risks associated with cryptoassets. In particular, she highlighted the increased dangers of money laundering and the need for a robust international AML framework. (6 March 2020)

3.9 The Supreme Court of India has overturned a 2018 directive from the Reverse Bank of India, the country’s central bank, that banned banks and other financial institutions from dealing with any entities involved in cryptoassets. In its decision, the court suggested that the 2018 directive had been excessive. (4 March 2020)

3.10 See also paragraphs 1.8 and 1.12.

4. Cybersecurity

4.1 The UK Government’s Department for Digital, Culture, Media & Sport has published its 2020 Cyber Security Breaches Survey. The survey reveals that cyberattacks have evolved and are becoming more frequent. However, it also reports that there has been an increase in cybersecurity awareness which has led to organisations becoming more resilient to cyberattacks. (26 March 2020)

4.2 The EU Agency for Cybersecurity (ENISA) has shared tips for cybersecurity when working from home. In light of the increase in remote working due to the COVID-19 epidemic, ENISA has issued guidance on how to ensure that cybersecurity does not become compromised. The National Cyber Security Centre (NCSC) has issued similar guidance on this topic. (24 March2020)

4.3 ENISA has issued a call for experts in AI within cybersecurity. ENISA seeks to form an ad hoc expert working group that will advise the agency on the challenges and solutions associated with AI within cybersecurity. Applications must be submitted by 15 April 2020. (17 and 24 March 2020)

4.4 ENISA has published a new report that sets out security requirements for operators of essential services and digital service providers based on the General Data Protection Regulation (GDPR) and the Network and Information Security Directive. (19 March 2020)

4.5 In response to a Commission request concerning a cybersecurity certification scheme for cloud services, ENISA has now established an ad hoc working group. The group’s draft candidate cybersecurity certification is expected to be finalised in late 2020. (6 March 2020)

5. Data

5.1 The European Data Protection Board (EDPB) has released a statement on the processing of personal data in the context of the COVID-19 outbreak. The statement reinforces the need, even in the exceptional circumstances society currently finds itself, for data controllers and processors to ensure the protection of personal data. (20 March 2020)

5.2 The European Data Protection Supervisor (EDPS) has published its 2019 annual report. The report covers the first full year of implementation of the GDPR and highlights the need for the EU to continue to develop effective responses to the challenges of the digital era. (18 March 2020)

5.3 The Information Commissioner’s Office (ICO) has issued a statement on data protection and the COVID-19 pandemic. In the statement, the ICO states that it is a reasonable and pragmatic regulator and that regarding compliance with data protection, it will take into account the compelling public interest in the current health emergency. (12 March 2020)

5.4 The ICO has issued an update on its ICO Sandbox initiative. It reports that the following key issues have begun to emerge: public sector data benefits; consent questions; the challenges of new technologies; and compliance in data analytics. It will issue a further update in six months’ time. (9 March 2020)

5.5 The FCA has begun a review into the use of data and advanced analytics in wholesale financial markets. The FCA is using its CFI to better understand the current situation and to determine what action, if any, is required on its part. The CFI was originally open until 1 May 2020 but has been extended to 1 October 2020 in light of the COVID-19 outbreak. (9 March 2020)

5.6 The findings of a special Eurobarometer survey have been released. The results of the survey indicate strong support amongst EU nationals for data sharing to: support medical research and care; improve the response to crisis; improve public transport; and reduce air pollution. The findings also indicate a strong desire for digital devices to become sustainable. (5 March 2020)

5.7 The ICO has signed a memorandum of understanding with the Australian Information Commissioner. It sets out an intention for the organisations to work together to protect personal data through:

• sharing experience, expertise and ways of working;
• cooperating on specific projects and investigations; and
• sharing information and intelligence. (5 March 2020)

6. Initiatives

6.1 The UK Government has introduced various initiatives in response to the COVID-19 pandemic that could be relevant to FinTech businesses. These include, among others:

• the Coronavirus Job Retention Scheme which is designed to assist employers whose operations have been severely affected by the pandemic (for more information, please refer to our article published here);
• the Coronavirus Business Interruption Loan Scheme to support the continued provision of finance to UK businesses during the COVID-19 outbreak. Eligible borrowers must, among other things, be UK-based with a turnover of no more than £45 million per annum (for more information, please refer to our article published here); and
• the COVID corporate financing facility, a scheme to provide financial support to UK businesses by purchasing commercial paper with maturity of up to one year. The stated intention is to help businesses who are facing cashflow disruption to pay wages and suppliers (for more information, please refer to our article published here). (March 2020)

6.2 The European Parliament has approved various EU support measures to help tackle the COVID-19 crisis. The approved proposals include the Corona Response Investment Initiative, which is designed to channel €37 billion from available EU funds to citizens, regions and countries hit the hardest. (26 March 2020)

6.3 The UK Government has announced the formation of a new Digital Markets Taskforce. The Taskforce’s primary remit is to provide advice to inform the Government’s decisions on how to promote competition in digital platform markets. It will publish a final report in September 2020. (11 March 2020)

6.4 See also paragraphs 5.4 and 5.7.

7. Payments and Open Banking

The BoE has issued a paper setting out proposals in relation to open data for SME finance. The paper explains the proposal in more detail and provides an update on what the BoE has learnt to date. It will guide the BoE’s ongoing engagement with public authorities, including as an input to the UK Government’s Smart Data Review and Digital Markets Taskforce, as well as the FCA’s Open Finance initiative. In particular, the paper will form part of the BoE’s input to the UK Government summit announced in the March 2020 Budget, looking at what further data needs to be made accessible to make it faster and easier for SMEs to shop around for credit. (12 March 2020)

About Simmons & Simmons’ FinTech team

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

Since its emergence into the mainstream, the FinTech sector has captured the interest and imagination of entrepreneurs, investors, governments and regulators, not to mention financial institutions and asset managers. We understand the opportunities and challenges that lie at the heart of the FinTech revolution and advise clients navigating the novel legal and regulatory issues that frequently arise.

Our market leading FinTech team combines specialist expertise across practices and offices with insights resulting from a focus on the TMT, Financial Institutions, and Asset Management and Investment Funds sectors.

Our clients range from early stage start-ups to some of the world’s largest financial institutions and technology providers. We also advise clients partnering with or investing in FinTech firms as well as financial institutions and asset managers developing their own FinTech solutions.

We support clients across a broad range of FinTech matters including crowdfunding, payments, cryptoassets, distributed ledger technology, InsurTech and RegTech, and we are interested in all areas of financial technology innovation.

If you would like to find out more about our FinTech team or require advice on a FinTech matter, please contact one of our lawyers at this link or your usual Simmons & Simmons contact.