FinTech Monthly Bulletin: June 2020

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1. General

1.1. This month further government measures and aid packages were introduced and expanded across the globe in response to the coronavirus (COVID-19) pandemic. You can find a summary of these developments on the dedicated COVID-19 pages of our website. Many of the recent measures announced by regulators and governments focus on plans to support the economy in the longer term by embracing the shift towards digitalisation and innovation.

1.2. The European Commission (Commission) has published its Research and Innovation Performance report: Enabling Europe to lead the green and digital transition. The report highlights the growing importance of the FinTech sector in the European Union's ambitions to achieve a more environmentally sustainable economy. (27 May 2020)

1.3. The Commission has unveiled its adjusted 2020 Work Programme. The programme includes the following proposed FinTech-related activities:

• adoption of the Commission's revised FinTech Action Plan including a Strategy on an Integrated EU Payments Market in Q3 2020;

• adoption of the proposed EU regulatory frame for crypto assets in Q3 2020; and

• report on consultation on cross-sectoral financial services act on operational and cyber resilience in Q3 2020. (27 May 2020)

1.4. Sun Pishu (chairman and CEO of Inspur Group, one of China's largest server manufacturers, and deputy to the National People's Congress of China) has discussed building a financial service platform, powered by big data technologies to assist small and medium-sized businesses (SMEs) in accessing funds from financial institutions to aid in their recovery during the pandemic. Sun also called for more measures to help companies digitalise in response to the crisis by development of an industrial internet. (21 May 2020)

1.5. The Hong Kong Institute for Monetary and Financial Research (HKIMR) has issued a report that assesses the current status of FinTech adoption in the banking industry and banks' views on the prospect of FinTech development in the next ten years. (20 May 2020)

1.6. The French Competition Authority has launched a public consultation on the FinTech sector in order to assess the competitiveness of new technologies applied to payment and financial services in France. For more information, please refer to our published article discussing the consultation here. (20 May 2020)

1.7. The UK government has launched the £500 million Future Fund. UK-based companies can now apply for a convertible loan of between £125,000 and £5 million from the UK government, to support continued growth and innovation in sectors as diverse as technology, life sciences and the creative industries. For more information, please refer to our published article here. (20 May 2020)

1.8. The UK Centre of Data Ethics and Innovation (CDEI) has published a blog discussing the measures taken by the CDEI Artificial Intelligence Monitoring (AIM) team to keep up with an increasingly novel technological landscape developing with COVID-19. Three workstreams have been developed to support innovation within the public and private sectors:

• The COVID-19 repository (please see paragraph 2.2), which highlights innovations that are yet to be fully explored;

• The COVID-19 introductory blogs, which introduces fundamental examples of how AI and data are used to mitigate the impact of the pandemic;

• The COVID-19 forums, which will explore how governance models need to evolve to maximise the benefit of emerging use cases. (18 May 2020)

1.9. The UK government has continued in its efforts to support the UK economy with additional measures likely to be of interest to some FinTech companies.

• Firstly, the government has launched the Bounce Back Loan Scheme (BBLS). This provides small businesses with a quick and easy option to apply for an 100% government-backed loan of up to £50,000. (4 May 2020)

• Secondly, the government has extended the Coronavirus Job Retention Scheme until October 2020. Furloughed workers across UK will continue to receive 80% of their current salary, and up to £2,500. For more information, please refer to our published article here. (12 May 2020)

• Thirdly, the government has increased the maximum loan size available through the Coronavirus Large Business Interruption Loan Scheme (CLBILS) from £50 million to £200 million . (19 May 2020)

1.10. The Commission has adopted the Temporary Framework (as well as two subsequent amendments) which enables Member States to use the more flexible, temporary State aid rules to support their economy and help overcome the difficulties caused by COVID-19. Available State aid measures include direct grants, tax advantages, advance payments, subsidised public loans, State guarantees for loans, aid for research and development and equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the COVID-19 outbreak. Please refer to our recent Insights articles (here, here and here) for more information. The Commission has adopted numerous decisions in the context of the COVID-19 crisis - often within only a couple of days after notification - mainly (but not exclusively) in application of the Temporary Framework. The EFTA Surveillance Authority has also implemented decisions under the Temporary Framework. (8 May 2020)

1.11. The Supervisory Board of the European Central Bank (ECB) has issued a blog discussing how the trend towards digital has been magnified by the current crisis. The board notes that incumbent banks must scale up their digital solutions to face competition of newly licensed and digitally-savvy providers while remaining vigilant to heightened operational and cyber risks. (8 May 2020)

1.12. The Financial Conduct Authority (FCA) has launched a regulatory grid to help financial firms prepare for upcoming regulatory work. Upcoming regulatory work that may be relevant to the FinTech sector includes:

• the Fintech sector review;

• open finance assessment (calls for input close 1 October 2020);

• crypto assets and the extension of financial promotions regulation;

• digital regulatory reporting (exploring the viability of testing machine readable and executable regulatory reporting);

• large scale consultation exercise on data collection changes engaging a large range of firms, including Regtech (launched January 2020);

• AI public/private forum with industry to look at the impact of AI on financial services;

•  Cryptoasset Task Force response to stablecoins; and

• prohibiting investment products referencing certain crypto assets. (7 May 2020)

1.13. HM Treasury has published a letter by Rishi Sunak MP (Chancellor of the Exchequer) outlining key regulatory changes required to support the BBLS. These include:

• an interest rate of 2.5%;

• the ability for Banks to exclude loans under the BBLS from the leverage ratio exposure measure. The Prudential Regulatory Authority has released a statement confirming this;

• amending the Regulated Activities Order (RAO) so that providing regulated small business loans of £25,000 or less to sole traders, unincorporated associations and partnerships fewer than four people under the Consumer Credit Act 1974 (CCA), will not be a regulated activity for the purposes of the BBLS;

• steps taken to disapply the CCA, with retrospective effect so that it applies from the date the scheme was launched; and

• clarifying the distinction between the BBLS and the Corona Business Interruption Loan Scheme (CBILS). The FCA has published a separate statement on its approach to its regulation of firms in relation to both schemes. (4 May 2020)

1.14. The FCA has piloted a "digital sandbox", which will provide enhanced regulatory support to innovative firms tackling challenges caused by COVID-19. The features of the digital sandbox include access to high-quality data assets, a collaboration platform and access to regulatory support. At this stage, initial expressions of interest are welcome with a plan for applications to open later in the summer. (4 May 2020)

1.15. The Monetary Authority of Singapore (MAS), Singapore's central bank and financial services regulator, has announced its second package of support measures to ease the financial strain on SMEs caused by the COVID-19 pandemic. For more information, please refer to our published article here. (May 2020)

2. Artificial Intelligence and Automation

2.1. MAS has announced the first phase of its Veritas initiative. Veritas outlines a framework for responsible adoption of AI and data analytics by financial institutions. MAS will commence with the development of metrics to measure the fairness of deployment of this technology. MAS has identified credit risk scoring and customer marketing as the first two workstreams where it would like to introduce the metric. (28 May 2020)

2.2. AIM has released the first COVID-19 repository for novel use-cases of AI and data specifically being used to counter and mitigate the effects of COVID-19 . There are developments of particular note to the FinTech sector such as the collection and sharing of data through open banking models, allowing users to disclose their income to HMRC in order to receive new welfare entitlements. (21 May 2020)

2.3. The UK Information Commissioner's Office (ICO) has published guidance, co-authored with the Alan Turing Institute, on how firms can explain decisions made with AI. The guidance offers practical advice on how to explain, to affected individuals, the processes and decisions delivered or assisted by AI. (21 May 2020)

2.4. An official from the Chinese Ministry of Science and Technology (MOST) has announced the initiation of two key projects on new generation AI technologies, with the investment of 1 billion yuan. MOST has arranged AI open innovation platforms and pilot zones to cultivate the environment of tech-development. (19 May 2020)

2.5. The European Parliament Policy Department has released a report, prepared for the Committee on Internal Market and Consumer Protection (IMCP), on digital services and AI. The report concludes, amongst other things, that:

• guidance should be given concerning cases in which consumers have a right to contest a decision that undermines their interests; and

• the development of consumer-friendly AI-technologies should be encouraged and supported. Service providers should be prevented from blocking legitimate tools for the exercise of consumer rights. (May 2020)

2.6. The European Parliament's Committee on the Internal Market and Consumer Protection has issued a draft opinion on a civil liability regime for AI. The opinion calls on the Committee on Legal affairs to update the substance and certain definitions contained in the current Product Liability Directive, to take account of specific characteristics of AI applications. (May 2020)

2.7. See also paragraphs 1.8, 1.12 and 5.3.

3. Cryptoassets

3.1. The Louisiana state House of Representatives has approved a cryptoasset business licensing bill. This will be considered by the Louisiana State Senate and, if passed, would require cryptoasset businesses to apply for licenses before being able to commence operations. (22 May 2020)

3.2. The Iranian parliament has published a bill which requires crypto exchanges to register in the country, placing them under the restrictions of the Iranian strict foreign exchange and currency smuggling regulations. (21 May 2020)

3.3. The Chinese government has proposed a regional stablecoin backed by the Japanese yen, Korean won, Hong Kong dollar and the Chinese yuan. The proposed stablecoin would facilitate trade between four of Asia's biggest economies. (21 May 2020)

3.4. The European Parliament has published a report on key developments, regulatory concerns and responses in relation to cryptoassets. The report concludes that it is as yet unclear as to whether Central Bank Digital Currencies (CBDCs) will become game changers for payments. It also suggests that adoption of CBDCs could, theoretically, mark the end of money laundering activity. (1 May 2020)

3.5. See also paragraphs  1.3 and  1.12.

4. Cybersecurity

4.1. A member of National Committee of the Chinese People's Political Consultative has announced that more efforts are needed in the cybersecurity sector to expand cooperation with the 5G sector, the industrial internet and innovation information technology applications. (22 May 2020)

4.2. The National Cyber Security Centre (NCSC) has published advice and guidance to SMEs to assist with working online during the pandemic. SMEs are encouraged to consider six key security questions as cyber experts roll out a support package to keep the public and organisations safe online. (20 May 2020)

4.3. The European Council has adopted a decision extending the restrictive measures framework against cyber-attacks for another year until 18 May 2021. The European Union will keep its ability to impose targeted restrictive measures on persons and entities involved in cyber-attacks that cause an external threat to the EU or its member states. (14 May 2020)

4.4. The European Systemic Risk Board (ESRB) has published a report on the cyber security vulnerabilities in the financial services sector. The report models a scenario where a systemic failure of financial markets could occur as the result of a cybersecurity incident. It notes that such an event is conceivable and suggests that future work should take place to develop strategies to mitigate impact. (4 May 2020)

4.5. See also paragraphs  1.3 and 1.11.

5. Data

5.1. The CDEI has published a briefing paper on the implications of facial recognition deployment. The paper highlights the power of facial recognition technology (FRT) as a means of providing extra security for devices. However, it cautions on the use of FRT by police forces and private companies as a means of identifying individuals. It intends to carry on its examination of the impact of FRT on society. (28 May 2020)

5.2. The ICO has issued guidance on workplace testing for COVID-19. The guidance outlines steps employers can take to ensure that their testing strategies remain compliant with the data protection regulatory regime. For more information, please refer to our published article here. (11 May 2020)

5.3. The UK Information Commissioner, Elizabeth Denham, has outlined her office's priorities for the COVID-19 pandemic and beyond. In her post, Denham suggested that her office would focus in particular on:

• protecting vulnerable citizens;

• supporting economic growth and digitalisation, including for small businesses;

• shaping proportionate surveillance;

• enabling good practice in AI;

• enabling transparency; and

• maintaining business continuity: developing new ways of working in readiness for recovery. (5 May 2020)

5.4. The UK's Behavioural Insights Team has published a report produced for the CDEI on the perception of fairness of algorithms used in financial services. The report found that, on average, people have a negative perception of algorithmic decision making in applications for loans. It also highlighted that those who are greatest at being discriminated against as a result of proxy information (gender, ethnicity, social media usage), feel the most strongly about algorithmic decisions being unfair. Indeed, the report found that 15% of individuals surveyed would punish a bank financially if informed the bank was using proxy information. (5 May 2020)

5.5. The European Data Protection Board (EDPB) has issued updated guidelines on consent under the General Data Protection Regulation (GDPR). The guidance contains updated directions on consent in relation to cookie walls (which require the user to accept cookies to view a site) and scrolling. The guidance concludes that neither of these actions provide necessary evidence of informed consent. (4 May 2020)

6. Distributed Ledger Technology, Blockchain and Smart Contracts

6.1. The World Economic Forum (WEF) has announced the launch of the Presidio Principles. These 16 user rights are designed to preserve and protect user rights in a decentralised future. The rights are grouped into four broad pillars: transparency & accessibility; privacy & security; agency & interoperability; and accountability & governance. The WEF hopes that these principles will build and maintain trust in blockchain technology. (22 May 2020)

6.2. The WEF has released a Blockchain Deployment Toolkit which provides insights from more than 100 experts and provides key guidelines on topics such as risk, consortia formations, security and ecosystem collaboration. (1 May 2020)

7. Payments and Open Banking

7.1. The FCA has launched a consultation on additional guidance for payments firms to strengthen the way in which they look after customers' money. The guidance will provide additional direction for firms to meet their safeguarding requirements and outlines the FCA's expectation of firms to put in robust plans for winding down operations. The consultation, which will apply to all payments firms, will last for two weeks and closes on 5 June 2020. If confirmed, the final guidance will be published at the end of June. (22 May 2020)

7.2. The Competition and Markets Authority (CMA) has published its approved roadmap for the final stages of Open Banking implementation. The roadmap outlines plans for completion of protocol implementation by the end of 2021. (14 May 2020)

8. Other

8.1. The International Organisation of Securities Commissions (IOSCO) has announced a consultation on outsourcing principles and operational resilience. The consultation forms part of the IOSCO's plans to issue guidance on the risks to operational resilience caused by outsourcing. The consultation will end on 1 October 2020. (28 May 2020)

8.2. The Joint Money Laundering Steering Group (JMLSG) has published, for consultation, proposed text for guidance on how firms should manage pooled client accounts (PCAs). The consultation closes on 10 June 2020. (14 May 2020)

8.3. The Financial Action Taskforce (FATF) has released a paper identifying challenges, good practices and policy responses to new money laundering and terrorist financing threats and vulnerabilities arising from the COVID-19 crisis. In the paper, the FATF recommends swift and effective implementation of:

• Domestic coordination to assess the impact of COVID-19 on AML/CFT risks and systems;

• Strengthened communication with the private sector;

• Encouragement of the full use of a risk-based approach to customer due diligence; and

• Support for electronic and digital payment options. (4 May 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.