FinTech Monthly Bulletin: July 2020

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1. General

1.1. This month, further government measures and aid packages were introduced in response to the coronavirus (COVID-19) pandemic. As retail venues and schools reopen with social distancing measures still firmly intact, we emerge from our homes as a new sort of consumer. The pandemic has accelerated our transition to a more digital, flexible and contactless economy and what better to address the financial needs of these new consumers than a growing FinTech sector?

1.2. The Bank for International Settlements (BIS) Innovation hub has announced global extension in collaboration with central banks all around the world. This expansion will allow the Innovation Hub to spur central bank work across multiple FinTech pillars. (30 June 2020)

1.3. The European Banking Authority (EBA) has published its response to the European Commission's consultation on a new Digital Finance Strategy for Europe which was issued in April 2020 and built on the Commission's 2018 FinTech Action plan. The EBA supports the Commissions' proposed objectives and identifies additional actions to:

• promote consumer financial education and digital and financial literacy;

• develop a high-level Artificial Intelligence (AI) principle-based framework to serve as an appropriate foundation for the wider use of AI in the financial services;

• support the scaling of RegTech and SupTech initiatives and facilitate 'machine readability' and the standardisation of concepts, definitions and reporting obligations across EU financial services legislation; and

• further harmonise customer due diligence (CDD) processes where possible and investigate potential models (including public and private sector and hybrid models) for efficient, robust and trusted digital identity verification. (29 June 2020)

1.4. The European Securities and Markets Authority (ESMA) has also published its responses to the consultation mentioned in paragraph 1.3 above. At a general level the response identifies risks and benefits of digitalisation of the financial sector. On more specific points, ESMA has highlighted three themes that underlie the basis of its responses: the need to ensure a technology-neutral EU financial services framework that supports innovation, the removal of fragmentation in the single market for digital financial services through co-operation at EU level and development of digital financial identities and the promotion of a well-regulated data driven financial sector. (29 June 2020)

1.5. The European Commission has adopted a third amendment to extend the scope of the State aid Temporary Framework adopted on March 2020 in response to the COVID-19 outbreak to further support micro, small and start-up companies. The proposal is that public support will be provided to micro and small companies, even if they were already in financial difficulty on 31 December 2019. (29 June 2020)

1.6. The State Council of China has announced that there will be more targeted measures to facilitate fund-raising for small business such as FinTechs to boost the recovery following the COVID-19 outbreak. Financial institutions are providing 1.5 trillion-yuan worth of benefits with reduced interest rates while the government has adopted policies such as differentiated supervision, increasing credit availability and mitigating loan risks. (19 June 2020)

1.7. The Bank of England (BoE) has issued its annual report in which it sets out its strategic goals, one of which is embracing FinTech to deliver its mission by:

• enhancing the payments system for the digital age;

• developing an open platform for SMEs finance;

• enhancing operational resilience; and

• developing a world-class RegTech and data strategy. (18 June 2020)

1.8. The Financial Conduct Authority (FCA) has released a speech by the Chair of the FCA, on how the financial system will support the recovery from the COVID-19 outbreak. He highlights the need for a robust framework for dealing with the government backed loans that many small businesses, including FinTechs, will have entered into which turn out to be unaffordable. (16 June 2020)

1.9. The European Council has adopted conclusions on shaping Europe's digital future. The areas covered by these conclusions include the data economy, cybersecurity capacity, the European Commission's white paper on AI and digital platforms. (9 June 2020)

1.10. The UK Government has announced a range of measures to help establish the UK tech industry as a global player. The announcement notes how COVID-19 has bolstered several digital sub-sectors including FinTech and cybersecurity, leading to more export opportunities. The new measures will seek to increase tech exports to fast-growing international markets. (9 June 2020)

1.11. The Monetary Authority of Singapore (MAS) has launched a S$1.75 million FinTech Innovation Challenge for a COVID-19 resilient and greener financial sector. This aims to promote FinTech solutions that will help financial institutions adapt effectively to the new operating environment precipitated by the COVID-19 pandemic and spur the development of green finance in Asia and globally. (8 June 2020)

1.12. The European Parliament Committee on Economic and Monetary Affairs, has published a draft report with recommendations to the Commission on "Digital Finance: emerging risks in crypto-assets - regulatory and supervisory challenges in the area of financial services, institutions and markets". The report, amongst other things:

• recommends that the Commission consider how to harness the benefits of FinTech in driving forward capital market integration in the Union;

• highlights the importance of international collaboration on digital finance standards;

• calls on the Commission to deploy a proportionate, cross-sectorial and holistic approach to its work on FinTech;

• calls on the Commission to work to create a favorable environment for European FinTech hubs and firms to scale up;

• considers that a pan-European taxonomy for cryptosystems is desirable;

• calls on the Commission to propose legislative changes to address cyber resilience concerns in the financial sector;

• requests that the Commission ensure that digital finance entities can access data on an equitable basis;

• requests that the Commission considers a digital onboarding framework; and

• calls for oversight of big data analytics. (4 June 2020)

1.13. The office of the financial stability and development committee under the State Council of China has announced eleven financial reform measures focussed on supporting small and micro businesses hit by COVID-19. This includes a matrix for regulators to evaluate banking services for these businesses and a start-up board "ChiNext" to launch the registration-based initial public offering system, which will help channel more funds to the country's innovative start-ups. (4 June 2020)

1.14. The United Nations Secretary-General has released a new report entitled Roadmap for Digital Cooperation. The report lists eight primary action areas for getting digital technologies to advance towards a safer and more equitable digital world including supporting global cooperation AI and promoting trust and security in the digital environment. (June 2020)

2. Artificial Intelligence and Automation

2.1. The European Data Protection Supervisor (EDPS) has issued an opinion on the Commission's White Paper on "Artificial Intelligence: A European approach to excellence and trust". The Opinion presents EDPS's view on the paper as a whole and provides recommendations with the aim of developing the safeguards and controls to protect personal data. (29 June 2020)

2.2. The Centre for Data Ethics and Innovation (CDEI) has published its AI Barometer, a major analysis of the most pressing opportunities, risks, and governance challenges associated with AI and data use in the UK, initially across five sectors including financial services, health and social care and digital and social media. (18 June 2020)

2.3. The Board of the International Organisation of Securities Commissions (IOSCO) has released a consultation paper on the use of AI and machine learning. The paper proposes guidance to assist IOSCO members in providing appropriate regulatory frameworks to supervise market intermediaries and asset managers that utilise AI and machine learning. (June 2020)

2.4. See also paragraph 1.3, 1.9 and 1.14.

3. Cryptoassets

3.1. The Financial Action Task Force (FATF) has issued the agenda of its Virtual Plenary from the 24 June 2020. Included in its strategic initiatives was a discussion concerning mitigating the money laundering and terrorist financing risks of virtual assets and the FATF Report to the G20 on "Stable coins" which will be published in July. (24 June 2020)

3.2. The New York State Department of Financial Services (DFS) has announced its intention to allow start-ups to partner with existing crypto licensed entities to begin operations in the state. The expansion of its BitLicense programme is intended to help foster innovation in one of the world's key financial markets. (24 June 2020)

3.3. Valdis Dombrovskis, Executive Vice-President at the European Commission, has delivered a speech at the Digital Finance Outreach 2020 Closing conference. In the speech, Mr Dombrovskis confirms that the Commission intends to adopt legislative proposals for cryptoassets and digital operational resilience later in 2020. (23 June 2020)

3.4. The FCA has issued a reminder to cryptoasset businesses to register with the FCA by 30 June 2020. In order to comply with Anti-Money Laundering regulations, cryptoasset businesses should have submitted an application by the deadline. (22 June 2020)

3.5. The Bank of Thailand has announced the development of a prototype Central Bank Digital Currency (CBDC). The bank intends to develop a payment system for businesses using CBDC, which will build upon knowledge from Project Inthanon. The project scope will include conducting a feasibility study and developing a process to integrate CBDC with business systems. (18 June 2020)

3.6. The Dubai Financial Services Authority (DFSA) and Deloitte Middle East has published "A Market Overview of Custody for Digital Assets" that highlights the importance of digital asset custodians and the key role they play in the future of digital asset adoption. The paper aims to frame the current digital custody landscape, the market solutions currently available, and the challenges and uncertainties currently faced by the industry. (14 June 2020)

3.7. Christina Segal-Knowles, Executive Director at the Bank of England, has given a speech on "Payments after the COVID crisis - emerging issues and challenges". In her speech, amongst other things, she discusses the potential of CBDCs in an increasingly cash-free society. (11 June 2020)

3.8. The High-Level Forum (HLF) on capital markets union (CMU) has published its final report on the EU's capital markets union. The report proposes 17 recommendations intended to move the CMU towards completion, covering: the financing of business, including a review of the framework for long-term investment funds, the regulatory treatment of cryptoassets and digital assets, market making activities by banks and non-banks, and the securitisation market. (10 June 2020)

3.9. See also paragraph 1.12 and 10.1

4. Cybersecurity

4.1. The DFSA has published a thematic review report on cyber risks. The review found that a significant number of firms had either not implemented a comprehensive cyber risk management framework or performed only a limited cyber risk assessment. Assessing how firms have implemented cyber hygiene practices, the findings also show that a number of firms, particularly smaller firms, did not enforce encryption on devices to protect sensitive data. (24 June 2020)

4.2. The UK Government has published its review of the Network and Information Systems Regulations, which came into force in 2018. The review assesses how effective the regulations have been, how they have been implemented and the associated costs and benefits. The evidence gathered for this review suggests that, while it is too early to judge the long-term impact of the regulations, organisations are taking measures to ensure the security of their networks and information systems as a result of the Regulations being in place. (1 June 2020)

4.3. See also paragraph 1.9 and 1.10.

5. Data

5.1. The EDPS has presented its 2020-2024 strategy "Shaping a Safer Digital Future: a new Strategy for a new decade" to the public. The strategy focusses on three pillars: foresight, action and solidarity to address digital challenges for a safer, fairer and more sustainable future in an economy that has now become so much more digitalised as a result of COVID-19. (30 June 2020)

5.2. The European Commission has released its evaluation report on the General Data Protection Regulation (GDPR). The report shows that the GDPR has met most of its objectives, in the empowerment of citizen data protection rights. It concludes that there has been widespread harmonisation of data protection regimes amongst Member States but there are still elements of fragmentation that need to be addressed. The report contains a list of actions to facilitate further the application of the GDPR for all stakeholders, especially for small and medium sized companies, to promote and further develop a truly European data protection culture and vigorous enforcement. The European Commission has published some Q&As relating to the report's content. (24 June 2020)

5.3. The EDPS has released an Opinion on the European Data Strategy. In its Opinion, the EDPS underlines its support a more sustainable alternative data economy model - one that is open, fair and democratic. Reducing the concentration of data in a handful of commercial actors. (16 June 2020)

5.4. In its 32^nd plenary session, the European Data Protection Board (EDPB), amongst other things, has adopted a response on the relevance of encryption bans in third countries for assessing the level of data protection provided by those countries. According to the EDPB, any ban on encryption or provisions weakening encryption would seriously undermine compliance with GDPR security obligations applicable to controllers and processors, be that in a third country or in the EEA. (15 June 2020)

5.5. See also paragraph 1.7, 1.9, 2.1 and 2.2.

6. Distributed Ledger Technology, Blockchain and Smart Contracts

6.1. The National Bank of Cambodia has published a white paper for its Project Bakong payments system. The paper outlines an ambitious strategy to reduce the dominance of the US dollar as the de facto currency of choice (over the country's own Khmer Riel currency). The paper describes a QR code and mobile app-based system to facilitate payments on a Hyperledger blockchain. The project is expected to launch in 2020. (19 June 2020)

7. InsurTech

7.1. The European Insurance and Occupational Pensions Authority (EIOPA) has also issued its response to the consultation mentioned in paragraph 1.3 above. EIOPA considers Insurtech start-ups throughout and how further improvements could be achieved in Insurance Regulation becoming fit for purpose for a newly digitalised economy. EIOPA highlights that access to relevant datasets is critical for insurance, particularly in the context of Open Insurance, which EIOPA notes it has recently started a broader discussion on. (29 June 2020)

7.2. EIOPA in its Annual Activity Report 2019, has underlined its commitment to increasing its allocation of resources to the development and monitoring of the InsurTech sector. (15 June 2020)

7.3. EIOPA has launched a public consultation on a 'Discussion paper on (re)insurance value chain and new business models arising from digitalisation'. The paper focuses on the disruption of traditional insurance systems by evolutions in technology. The consultation closes 7 September 2020. (10 June 2020)

8. Payments and Open Banking

8.1. The Open Banking Implementation Entity (OBIE) has announced the publication of Open Banking Standard 3.1.6 - which supports the transition of open banking-enabled services when users switch bank accounts using the Current Account Switching Service (CASS) (25 June 2020)

8.2. The BIS has published, as part of its Annual Economic Report, a special chapter on central banks and payments in the digital era. Commenting on the publication, Hyun Song Shin, Economic Adviser and Head of Research at the BIS, stressed the importance that central bank policymakers remain in step with innovation in order to ensure the integrity of the payments system. (24 June 2020)

8.3. MAS has announced that 14 of the 21 applications for its digital bank programme have met the eligibility criteria required for consideration. These eligible applicants, comprising five digital full bank (DFB) applicants and nine digital wholesale bank (DWB) applicants, will progress to the next stage of assessment. (18 June 2020)

8.4. The EBA has published an Opinion on obstacles to the provision of third party provider services (TPPs) under the Regulatory Technical Standards (RTS) on strong customer authentication (SCA) and common and secure communication (CSC). The Opinion aims to support the objectives of the revised Payment Services Directive (PSD2) of enabling customers to use new and innovative payment services offered by TPPs by addressing a number of issues regarding the interfaces provided by account servicing payment service providers (ASPSPs) to TPPs. (4 June 2020)

8.5. Genevieve Marjoribanks, Head of Policy at the Payment Systems Regulator (PSR), has delivered a speech at the Payment Systems Innovation and Regulation Summit. In her speech, Marjoribanks highlighted the importance of the incoming New Payments Architecture (NPA) in ensuring the UK's continued position as a leader in payments technology. Marjoribanks also underlined the importance of access to cash, an issue that has been exacerbated by the COVID-19 pandemic. She also stressed the importance of looking forward to a post lockdown world and considered   whether the changes in payment habits spurred by the pandemic are here to stay. (3 June 2020)

8.6. See also paragraphs 1.7, 3.5, 3.7 and 6.1.

9. RegTech

9.1. The FCA has published an insight detailing how the increased risk of key staff falling ill, reduced human resources through redundancies or furloughing and a search for savings in a period of economic downturn has further incentivised financial services firms to automate their compliance processes through RegTech.(25 June 2020)

9.2. The FCA has announced its intention to move firms to its new data collection platform, RegData. The platform replaces the existing Gabriel system and includes several improvements to the platform's speed, accessibility and notification capability. The FCA will contact firms to arrange platform migration. (22 June 2020)

9.3. In the United Arab Emirates (UAE), the Securities and Commodities Authority (SCA), in collaboration with the Arab Federation of Exchanges (AFE), has hosted the first webinar to discuss supervisory technology, SupTech, for capital market regulators. (22 June 2020)

9.4. The U.S. Securities and Exchange Commission's Strategic Hub for Innovation and Financial Technology (FinHub) has announced the launch of virtual peer-to-peer meet-ups (P2Ps). The first meet-up will cover RegTech. (11 June 2020)

9.5. See also paragraph 1.3 and 1.7

10. Other

10.1. The Advertising Standards Authority (ASA) has launched a Scam Ad Alert system to better protect consumers online. The new system will assist in efforts to get paid-for advertisements for fraudulent products taken down across multiple platforms. The ASA has highlighted advertisements for fraudulent crypto products as a particular target of the system. (16 June 2020)

10.2. ESMA has published, for consultation, draft guidance on outsourcing to cloud service providers. The draft guidance forms part of the European Union FinTech Action Plan. The purpose of the draft guidelines is to provide guidance on the outsourcing requirements applicable to firms where they outsource to cloud service providers. The consultation is open until 1 September 2020 and seeks feedback from both national competent authorities and financial market participants that use cloud services provided by third parties. (3 June 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.

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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.

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