FinTech Monthly Bulletin: May 2020

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1. General

1.1 This month there have been a large number of legal and regulatory announcements made by governments, policymakers, regulators and other bodies in response to the coronavirus (COVID-19) pandemic. These developments affect a large number of individuals and organisations across the world’s societies and economies. For a summary of these developments you are referred to our dedicated website on the subject. If you have any specific queries, please get in touch with your usual contact at the firm. This edition of the FinTech Monthly Bulletin limits itself to those coronavirus (COVID-19) related developments likely to be of particular interest to the FinTech community.

1.2 The UK’s Financial Conduct Authority (FCA) has created a webpage with up-to-date information for firms in relation to COVID-19. Among other things, the FCA has made statements in relation to: payment and retail banking firms; the government loan schemes; the Senior Managers Regime; regulatory change; impact on consumers; insurance products; mortgages; unsecured debt products; access to cash; operational resilience; market trading and reporting; the delay of various consultation papers; and Calls for Input (CFI) until 1 October 2020. (last updated on 4 May 2020)

1.3 The CityUK and economiesuisse have published a joint report entitled “Future-proofing the UK-Swiss financial and related professional services relationship” in which they set out requests for a future bespoke UK-Switzerland agreement. The paper highlights specific areas that the UK and Swiss governments should address during bilateral discussions, and demonstrates how major financial centres, like the UK and Switzerland, can work together to achieve frictionless industry engagement with major benefit to both markets. (28 April 2020)

1.4 The European Commission (Commission) has announced a banking package to help facilitate bank lending to households and businesses throughout the EU. The aim of this package is to ensure that banks can continue to lend money to support the economy and help mitigate the significant economic impact of the coronavirus. It includes an Interpretative Communication on the EU's accounting and prudential frameworks, as well as targeted “quick fix” amendments to EU banking rules. (28 April 2020)

1.5 The People’s Bank of China (PBC) has expanded its pilot program of FinTech innovation regulation to Shanghai and five other cities. This program involves guiding licensed financial institutions and technology companies to apply for an innovation test. The PBC will explore modern information technologies to empower finance for the benefit of public and enterprises, help solve the problems of micro and small enterprises and private enterprises, support pandemic containment and resumption of work and production, and improve the quality of financial services for the real economy. (28 April 2020)

1.6 The UK government has continued its efforts to support the economy with two additional programmes likely to be of interest to some FinTech companies.

First, the government announced a new £1.25 billion package to protect firms driving innovation in UK. The package includes a £500 million investment fund for high-growth companies impacted by the crisis, made up of funding from government and the private sector. Meanwhile, SMEs focusing on research and development will also benefit from £750 million of grants and loans. For more information, please refer to our summary published here or contact us to view a recent webinar on the subject. (20 April 2020)

Second, the government announced that small businesses will benefit from a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders. This Bounce Back Loans scheme, which will provide loans of up to £50,000, is designed to help bolster the existing package of support available to the smallest businesses affected by the coronavirus pandemic. (27 April 2020)

1.7 The Monetary Authority of Singapore (MAS) has issued a statement promoting the use of digital finance and e-payments to support COVID-19 social distancing measures. It has outlined that it expects financial institutions to be able to provide as many basic financial services through digital channels as possible, minimising the time spent by customers in physical premises. MAS will also be supporting the Association of Banks in Singapore (ABS) in a campaign to promote adoption of e-payment solutions. (9 April 2020)

1.8 The Prudential Regulation Authority (PRA) has released its business plan. The PRA intends to play a key role in the work of the Bank of England on FinTech, including work on digital currencies and RegTech. The PRA also aims to investigate how the application of artificial intelligence (AI) and machine learning is evolving and what risks it may pose, including in relation to cybersecurity threats. (9 April 2020)

1.9 In response to the COVID-19 pandemic, the Monetary Authority of Singapore (MAS) has announced a $125 million support package to sustain and strengthen capabilities in the financial services and FinTech sector. The package is funded by the Financial Sector Development Fund and is designed to support workforce training and manpower costs, strengthen digitalisation and operational resilience and enhance FinTech firms’ access to digital platforms and tools. (8 April 2020)

1.10 The Commission is launching ESCALAR, a new investment approach, developed together with the European Investment Fund (EIF), that will support venture capital and growth financing for promising companies, enabling them to scale up in Europe and help reinforce the EU's economic and technological sovereignty. It will provide up to €300 million aiming to increase the investment capacity of venture capital and private equity funds, triggering investments of up to €1.2 billion, or four times the original investment, to support promising companies. (8 April 2020)

1.11 The Commission has adopted an amendment extending the Temporary Framework adopted on 19 March 2020 to enable Member States to accelerate the research, testing and production of coronavirus relevant products, to protect jobs and to further support the economy in the context of the coronavirus outbreak. The amended Temporary Framework complements other measures available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. (3 April 2020)

1.12 The FCA has published its business plan for 2020/21. Of particular relevance to FinTech firms are the FCA’s efforts to:

• ensure payment firms meet their regulatory responsibilities while competing on quality and value;
• ensure open banking fosters competition;
• invest in new technologies and skills so that it can make better use of data in order to regulate efficiently;
• deepen engagement on AI, specifically machine learning, and focus on how to enable safe, appropriate and ethical use of new technology;
• work with domestic and international stakeholders to support a joined-up approach to cryptoassets;
• use technology to reduce the burden of regulatory reporting on firms through Digital Regulatory Reporting (DRR);
• maintain its international collaboration through the Global Financial Innovation Network (GFIN); and
• explore whether and how best to expand its sandbox services to foster wider adoption of technology, particularly Regtech.

For more information, please refer to our summary published here. (7 April 2020)

1.13 The Commission has published a consultation document on a new Digital Finance Strategy. The consultation is designed to ensure that the EU takes full advantage of the potential of digital technologies across the economy, including in the financial sector. As set out in the Commission’s work programme, given the broad and fundamental nature of the challenges ahead for the financial sector, the Commission will propose in Q3 2020 a new digital finance strategy and FinTech action plan that sets out a number of areas that public policy should focus on in the coming five years. This new strategy will build on the work carried out during the previous mandate, in particular in the context of the FinTech action plan. It will take into consideration all the recent market and technological developments that are likely to impact the financial sector in the near future.

The Commission has identified four priority areas to further the development of digital finance in the EU:

• ensuring that the EU financial services’ regulatory framework is fit for the digital age;
• enabling consumers and firms to benefit from the opportunities offered by the EU-wide single market for digital financial services;
• promoting a data-driven financial sector for the benefit of EU consumers and firms; and
• enhancing the digital operational resilience of the EU financial system.

The consultation closes on 26 June 2020. (3 April 2020)

1.14 The French Government launched a €4 billion fund to support start-ups during the COVID-19 crisis. In response to concerns that during the predicted periodic of economic uncertainty many start-ups would fail from lack of investment, the French Ministry of Economy and Finance has announced a number of measures:

• a €80 million package to bridge the gap between fund-raising rounds that have been delayed or cancelled as a result of the crisis;
• state-guaranteed treasury loans worth around €2 billion based on up to twice a start up’s French wage bill, or, if higher, 25% of a start up’s 2019 revenue;
• acceleration of the refund of applicable tax credits; and
• early payment of allocated Programme d’Investissements d’Avenir (PIA) grants for innovative projects. (April 2020)

1.15 The German Federal Ministry of Finance announced a €2 billion support package for the country’s start-up sector. The measures have been designed to tackle the disruption to start-up funding rounds, as a result of the COVID-19 pandemic. The measures, which will be implemented in stages, include:

• additional public funding to be made available to public venture capital investors. This will be used to co-invest in start ups in partnership with private investors;
• further funding to public funds of funds, KfW Capital and the European Investment Fund (EIF), to ensure they can take over stakes of funds that withdraw their investments; and
• the facilitation of venture capital financing and equity replacement financing for small business and new start ups that do not have venture capitalist shareholders.

The German government also confirmed the continued development of a “future fund” initiative to help start-ups emerge from the crisis successfully. (April 2020)

2. Artificial Intelligence and Automation

2.1 A group of researchers from companies and organisations including Open AI, the University of Oxford, Stanford University, Google Brain, the University of Cambridge and the Alan Turing Institute have published a paper entitled “Toward Trustworthy AI Development: Mechanisms for Supporting Verifiable Claims”. This paper focusses on issues of privacy protection, accountability of autonomous vehicles, transparency of development processes and discriminatory impacts associated with large-scale AI systems. (20 April 2020)

2.2 The International Organisation of Securities Commissions (IOSCO) has announced a delay on work concerning the use of AI and machine learning by market intermediaries and asset managers as a result of the outbreak of COVID-19. (8 April 2020)

2.3 See also paragraphs 1.8, 1.12 and 9.2.

3. Cryptoassets

3.1 The Financial Stability Board (FSB) has published, for consultation, ten recommendations on regulatory, supervisory and oversight for global stablecoin arrangements. The FSB’s proposal calls for any measures to be proportionate to the risks involved with global stablecoins. It highlights the need for flexible, efficient, inclusive, and multi-sectoral cross-border cooperation, coordination and information-sharing arrangements that take into account the evolution of global stablecoin arrangements and the risks they may pose over time. (14 April 2020)

3.2 The High Court of New Zealand has issued a ruling that suggests that cryptocurrencies can be recognised as property. The court also considered other issues, including how any recovered stolen digital assets should be dealt with. (8 April 2020)

3.3 The Centre for the Study of Financial Innovation (CSFI) has published a report by David Birch entitled “The Digital Currency Revolution”. The report explores the origins of digital currency and discusses the issues associated with widespread adoption. Libra, the Facebook-backed digital currency, is analysed in depth. The report concludes with discussion on the “Cashless Cold War”, described as a potential proxy conflict focused on digital currencies. (April 2020)

3.4 See also paragraphs 1.12 and 7.2.

4. Cybersecurity

4.1 The FSB has published a consultative document on effective practices for Cyber Incident Reponses and Recovery. The purpose of this consultation is to produce a toolkit of effective practices to assist financial institutions in their cyber incident response and recovery. (20 April 2020)

4.2 The UK’s National Cyber Security Centre (NCSC), the US Department of Homeland Security (DHS) and the Cybersecurity and Infrastructure Agency (CISA) have published a joint advisory warning of the malicious cyber activities related to COVID-19. This includes a non-exhaustive list of indicators of compromise (IOCs) for detection and mitigation advice. (8 April 2020)

4.3 The International Association of Mechanical Engineers (IASME) Consortium has undertaken delivery of the NCSC Cyber Essentials scheme which teaches businesses how to protect themselves from common cyber threats. Changes to the scheme include a newly simplified operating model, introduction of a minimum criteria for Certification Bodies and Cyber Essentials assessors and the introduction of an expiry date on certificates. (1 April 2020)

4.4 See also paragraph 1.8

5. Distributed Ledger Technology, Blockchain and Smart Contracts

The Chinese government has announced the launch of a new National Blockchain, and Distributed Accounting Technology Standardisation Technical Committee. Members of this committee include researchers, academics, local government, think tanks and companies such as Huawei, Tencent Holdings, Ant Financial and Baidu. The initiative hopes to offer financial guidance and advice to around 30 blockchain-based companies in China. (30 April 2020)

6. InsurTech

The European Insurance and Occupational Pensions Authority (EIOPA) has released an interview with its Chairman, Gabriel Bernadino, on its approach to COVID-19. Mr Bernardino predicts that this crisis will change the insurance and pensions sector by making digital technology more important, available and normal. He notes that EIOPA continues to explore growth of digitalisation through its InsurTech Task Force and Expert Group on Digital Ethics. (27 April 2020)

7. Payments and Open Banking

7.1 The Committee on Payments and Market Infrastructures (CPMI) and the World Bank Ground have published a second report, following the first published in 2016, on the payments aspects of financial inclusion (PAFI) and the vital role FinTech has in facilitating this. The report discusses developments in FinTech, the potential for FinTech to increase access to and the use of transaction accounts and the guiding principles on how to achieve PAFI objectives. (14 April 2020)

7.2 The FSB has published a report as part of its project to develop a roadmap to enhance cross-border payments. The report notes that financial innovation is creating opportunities and risks to the development of an efficient payment system. The FSB refers to stablecoins, which have highlighted the possibility of digital payments gaining scale globally but has also been reviewed for potential macroeconomic and monetary policy-related issues. The report states that the roadmap must also be wide enough to encompass different types of payment networks from traditional correspondent banking to innovations based on new financial technology. (9 April 2020)

7.3 MAS has announced that it will extend the assessment period for the award of digital bank licenses. The issuance of the new digital bank licenses is a significant initiative aimed at enabling non-bank players with strong value propositions and innovative digital business models to offer banking services. (9 April 2020)

7.4 The UK Competition and Markets Authority (CMA) has issued a response to the proposed Revised Roadmap to the implementation of Open Banking. The CMA has substantially approved all the proposals intended to improve performance, fill gaps in payment functionality and enable greater user adoption. The CMA has also approved COVID-19 related delays to implementation activities. (7 April 2020)

7.5 The Commission has published a consultation document on a Retail Payments Strategy for the EU. This is to be submitted alongside the Digital Finance Strategy (see paragraph 1.13 above) to create a coherent policy framework which is up to date with the fast-developing FinTech sector. The questionnaire focusses on four key objectives:

• creating convenient, safe, affordable and transparent payment instruments, with pan-European reach and “same as domestic” customer experience;
• developing an innovative, competitive, and contestable European retail payments market;
• creating access to safe, efficient and interoperable retail payments systems and other support infrastructures; and
• improving cross-border payments, including remittances, facilitating the international role of the euro. (3 April 2020)

7.6 The UK Payment Systems Regulator (PSR) has published its 2020/2021 annual plan. It outlines the PSR’s key projects for the coming year. In the plan, the PSR has committed to supporting Pay.UK’s development of the New Payments Architecture (NPA) and ensuring that it delivers a resilient medium for making digital payments. It has strengthened its commitment to ensuring that the market for card-acquiring services works well; highlighted the need for greater efforts to tackle authorised push payment (APP) scams; and committed to ensuring that payment systems and markets are more competitive. (1 April 2020)

7.7 See also paragraphs 1.7 and 1.12.

8. Peer to Peer Lending and Crowdfunding

The Council of the European Union has:

• published a final compromise text for the Regulation on European crowdfunding service providers (ECSPs) for business; and
• published a final compromise text for the Directive making amendments to the MiFID II Directive relating to crowdfunding.

The Council invites the Permanent Representatives Committee (COEPER) to approve the text before it adopts them as their first reading positions. (20 April 2020)

9. RegTech

9.1 The Saudi G20 presidency and the Bank for International Settlements (BIS) Innovation Hub launched the G20 TechSprint initiative to highlight the potential for new technologies to resolve regulatory compliance (RegTech) and supervision (SupTech) challenges. It is being implemented with the FSB, MAS, Saudi Arabian Monetary Authority, API Exchange and RegTech for Regulators Accelerator. (29 April 2020)

9.2 The Bank of England has published a speech by James Proudman, PRA Senior Advisor, in which he discusses the range of options for the future of regulatory data collection. He describes the three-stage approach that the PRA is exploring, which includes to what extent rules can become code-able, machine-executable and finally how best to introduce human-centred automation into a judgement-centred prudential regime. He states that the PRA is already seeing the application of AI, machine learning and other advanced analytic techniques in its supervision of authorised firms. (27 April 2020)

9.3 See also paragraphs 1.8 and 1.12.

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.