FinTech Monthly Bulletin: September 2020

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1. General

1.1. The Organisation for Economic Co-operation and Development (OECD) has published an Economic Survey of Korea, which highlights continuing economic support measures to help businesses recover from COVID-19 crisis. One section of the survey focuses on digital economy and recommends building on the system of regulatory sandboxes - where regulatory obligations can be partly waived to encourage innovation in products or business models - to improve product market regulations. It also recommends facilitating the use of telemedicine to boost productivity and well-being. (11 August 2020)

1.2. The UK's Financial Policy Committee (FPC) has published a financial policy summary and record of the FPC meetings identifying risks to financial stability associated with COVID-19 and agreeing policy actions aimed at safeguarding the resilience of the UK financial system. Among other things, the FPC discussed payment innovations and, in particular, stablecoins. (06 August 2020)

1.3. The U.S.-UK Financial Innovation Partnership (FIP) have met virtually to exchange views on topics of mutual interest as part of their ongoing partnership such as deepening U.S.-UK ties in financial innovation, as well as engaging on topics including digital payments, operational resilience, cross-border testing of innovative financial services, and regulatory and supervisory technology. (05 August 2020)

1.4. The Bank for International Settlements Innovation Hub (BISIH) centre in Hong Kong and the Hong Kong Monetary Authority (HKMA) has launched the TechChallenge competition. The aim is to highlight the potential of new technology to safeguard and enhance trade financing. The deadline for submission was 31 August 2020 and financial sponsorship will be available for shortlisted entrants to further develop their solutions. The winners will be announced in November 2020. (03 August 2020)

1.5. The lasting impact of COVID-19 on consumer behaviour will transform the e-commerce sector and drive innovative FinTech solutions in money and payments. Please read more information from our recent insights article, 'How to spend it - post COVID'. (03 August 2020)

2. Artificial Intelligence and Automation

2.1. The Ministry of Commerce and the Ministry of Science and Technology in China has unveiled a newly revised catalogue of technologies prohibited and restricted from export - tightening its export control rule on Artificial Intelligence (AI) for the first time since 2008. This move has made AI interfaces (such as text and speech recognition and data analysis) a matter of national security. This means that government approval (which can take up to 30 days) is needed before transferring or exporting the technology outside China. (28 August 2020)

2.2. Beijing, China's science and technology innovation centre, has been integrating and is increasingly becoming dependant on artificial intelligence, big data and cloud computing, which the Chinese authorities claim has led to Beijing becoming a well-organized and supported living space for the public and has led to the city being dubbed a "smarter" city. Further information can be found in the following article. (28 August 2020)

2.3. The Bank of England has hosted a webinar to discuss how firms will embrace AI post-COVID. This webinar discusses different reactions to AI and how financial firms may hold back on developing and deploying new AI applications at a time of great uncertainty, when revenues are squeezed, and with no clarity on future trends in customer and market behaviors. (10 August 2020)

2.4. The Information Commissioner's Office (ICO) has published its guidance on AI and data protection. It is a framework for auditing AI, focusing on best practice for data protection compliance, as well as provide insight as to how the ICO interprets data protection laws in the context of AI systems. You can find a summary of the new guidance on the Insights pages of our website. (03 August 2020)

2.5. The Scottish Commission has released its response to the European Commission's White Paper on AI. The Scottish Government welcomes the publication of the White Paper and states that it continues to seek to collaborate with the EU across a wide range of issues, including research and trade and investment, reflecting shared values and goals. (August 2020)

3. Cryptoassets

3.1. South Korea's Central Bank has started the technical phase for developing a central bank digital currency (CBDC) ahead of its 2021 pilot as it aim to compete with China as the first major nation to launch a digital version of its fiat currency.

3.2. The Financial Markets Law Committee (FMLC) has published a letter addressed to the European Commission responding to the action plan for a comprehensive EU policy on preventing money laundering and terrorist financing. The letter focusses on two specific points, namely virtual currencies and on the use of electronic identifiers. (27 August 2020)

3.3. Brazil's Central Bank, Banco Central do Brasil (BCB), has established an intergovernmental CBDC study group to produce a road map to digital currency issuance. The group will investigate, among other things, CBDC security risks, economic implications and societal benefits against Brazil's existing payments landscape. (24 August 2020)

3.4. The UK's Joint Money Laundering Steering Group (JMLSG) has published a press release announcing it has received HM Treasury ministerial approval for the final guidance it published in June and July 2020, which includes the new Sector 22 Cryptoasset exchange and custodian wallet providers. (19 August 2020)

3.5. The UK Financial Conduct Authority (FCA) has started to register firms as digital securities exchange and custodian wallet providers under the amended UK AML regulations. With its cryptoasset registration and FCA authorisation to operate a Multilateral Trading Facility (MTF), the first registered firm, Archax, plans to provide a regulated platform for trading of digital issuances from across the world. (19 August 2020)

3.6. The US Federal Reserve has published its research and experimentation undertaken to understand the opportunities and risks associated with central bank digital currencies. This is an initiative that complements a broad set of payments-related innovation projects currently underway within the Federal Reserve System. The Federal Reserve has also released a webcast on providing an update surrounding the topic of digital currencies. It covered key topics such as RegTech, blockchain, cybersecurity, and digital banking. (13 August 2020)

3.7. See also paragraph 5.2.

4. Cybersecurity

4.1. The Eurosystem, the monetary authority of the eurozone, has released its sixth oversight report on card fraud focusing on 2018 data through analysing the five-year period prior to 2018, in which, it reports that card fraud was dominated by online, mail and phone channels. (14 August 2020)

4.2. The UK's National Cyber and Security Centre has published new guidance containing the seven cyber security questions organisations should ask when purchasing cyber insurance. (06 August 2020)

4.3. See also paragraph 3.6.

5. Data

5.1. The Age Appropriate Design Code has completed the Parliamentary process and will come into force on 2 September 2020. The Code sets out new requirements that information services providers must adhere to if they are processing the personal data of children. This includes active obligations to determine the age of users, a requirement to provide data privacy policies tailored to certain age groups, and default highest privacy settings on devices. The code provides a transition period of 12 months to give online services time to conform. (12 August 2020)

5.2. The European Data Protection Supervisor has published an article on quantum computing and its potential ability to break currently used cryptography and undermine the protection of (personal) data. The article suggests that this could harm IT security severely and the risk implications could extend to the core internet security protocols. (07 August 2020)

5.3. See also paragraphs 2.1, 2.2 and 2.4.

6. Investments in FinTech

6.1. The Digital Finance Forum (DFF), a network of over 100 UK FinTech founders, has published its second annual summer survey of FinTech founders. The survey focusses on three aspects:

• how FinTechs have been adapting to the ongoing Covid-19 pandemic;

• what the most pressing issues are for founders; and

• how Government can best respond.

Amongst other findings, the survey indicates that nine out of ten founders believe Covid-19 will make it harder to raise finance in the next year and two thirds of respondents don't think their voice is properly heard in UK policy and regulatory circles.  (August 2020)

7. Payments and Open Banking

7.1. The State Council in China has announced that it is to enforce regulations, which ensure timely payments to small and medium-sized enterprises (SMEs) in a bid to safeguard legitimate rights and interests of SMEs and improve the business environment. The regulations came into force from 01 September 2020. (31 August 2020)

7.2. The UK's Open Banking Implementation Entity (OBIE) has published the latest Service Quality Indicators APIs.These indicators are one of the measures required by the Competition and Markets Authority (CMA) following its investigation into the UK retail banking market. This data is published every 6 months and ultimately enables people to compare service levels provided by banks to facilitate open banking.(17 August 2020)

7.3. The UK's CMA has released the latest banking customer satisfaction results.  This is the fifth publication over 3 years of the service quality league table of personal and business current account providers. For the first time these new publications include the service quality rankings for the new digital banks Monzo and Starling, and for Virgin Money. Monzo and then Starling top the table for overall service quality for personal bank accounts. (17 August 2020)

7.4. The UK's OBIE has responded to EBA's statement regarding the need for financial institutions to finalise preparations for the end of the post-Brexit transitional arrangements between the EU and UK, i.e. 31st December 2020. The three main points covered in the response are:

• PSD2 eIDAS certificates issued in the EU to UK Third Party Providers will be revoked, meaning that they can no longer be used for the purposes of identification with ASPSPs.

• UK-based financial institutions will no longer be able to offer financial services to EU customers on a cross-border basis (passporting).

• Financial institutions wishing to operate in the EU and offer services to their EU customers should ensure they have obtained the necessary authorisation and effectively establish themselves before the end of the transition period. (13 August 2020)

7.5. The European System of Central Banks (ESCB) has responded to the EC's consultation on a retail payments strategy for the EU. Within the responses, the ESCB states that the potential of open banking for European retail payments is yet to be fully realized.  The response also touches on EU's competitiveness in the field of payments, the successful roll-out of instant payments and suggests that the settlement finality directive should be revised. (05 August 2020)

7.6. The Saudi Arabian Monetary Authority (SAMA) has updated its Payment Services Provider Regulations (the PSP Regulations). The PSP Regulations were first introduced in January 2020 in the context of SAMA's efforts to achieve the Financial Sector Development Vision Realization Program - one of the 13 programs of the Kingdom of Saudi Arabia (KSA) 2030 Vision. In particular, the PSP Regulations were introduced to enable the licensing of non-banking financial institutions and regulate Payment Services Providers (PSPs) in the KSA (borrowing some familiar concepts from the European Union's Payment Services Directive (PSD2)). As the number of PSPs operating in KSA continues to grow, this latest update can be seen as a step by SAMA to further develop and refine its regulatory framework for the payments system.

7.7. See also paragraph 3.6.

8. RegTech

8.1. The Bank for International Settlements (BIS) has published a speech by Benoît Cœuré, Head of the BIS Innovation Hub, emphasising that RegTech and FinTech are high on BIS's agenda and discussing the potential benefits and challenges they pose for regulatory authorities and financial institutions. (21 August 2020)

8.2. The European Banking Authority (EBA) has launched two RegTech industry surveys, one for financial institutions and the other for Information and Communication Technology (ICT) third-party providers, inviting them to share their views and experience on the use of RegTech solutions, on a best efforts basis. The aim of the surveys is to better understand the ongoing activity and raise awareness of RegTech and will have a specific focus on:

• mapping and understanding the existing RegTech solutions;

• identifying the main barriers and risks related to the use of RegTech solutions; and

• identifying potential ways to support the uptake of RegTech across the EU.

The consultation runs until 30 September 2020 and can be found the following links: financial institutions survey; and ICT third-party providers survey. (12 August 2020)

8.3. The Saudi G20 Presidency and the Bank for International Settlements Innovation Hub (BISIH) has announced a list of 20 shortlisted teams out of 128 submissions from 35 countries following a midpoint review of the G20 TechSprint initiative, a hackathon-style competition. The competition aims to highlight the potential for technologies to resolve regulatory compliance (RegTech) and supervisory (SupTech) challenges - final judging is scheduled for October 2020. (10 August 2020)

8.4. See also paragraph 3.6.

9. Other

9.1. A new draft law 7637 (the Draft Law) has been submitted to the Luxembourg parliament aiming to modernise Luxembourg securities laws as Luxembourg looks to bring dematerialised securities onto the blockchain. You can find a summary of the Draft Law on the Insights pages of our website. (03 August 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.