FinTech Monthly Bulletin: October 2020

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1. General

1.1. The Financial Conduct Authority (FCA) has published an updated version of the FCA handbook to show how rules will apply at the end of the Brexit transition period and how it intends to use its Temporary Transition Powers. Under the directions, firms do not generally need to prepare immediately to meet their UK regulatory obligations connected with Brexit, but the FCA expects firms to take reasonable steps to comply with the post-exit obligations, for example in relation to key reporting obligations (i.e. MIFID II transaction reporting, EMIR and SFTR reporting and issuer rules) (1 Oct 2020).

1.2. The European Commission has adopted a new Digital Finance Package, including strategies to improve digital finance and retail payments across the EU, and new legislative proposals in relation to crypto-assets and digital resilience. The EU Commission has stated that the package is intended to boost the EU's competitiveness and innovation in the financial sector (24 Sep 2020).

1.3. Representatives from the UK and US financial and related professional services have published a white paper on the future of UK-US regulatory cooperation proposing tighter links between the UK and US financial centres. The paper includes a commitment to promote the cross-border development and growth of financial technology through the Financial Innovation Partnership or other initiatives. It also states that there may be a need to address the traditional prudential model of regulation based on capitalisation and liquidity, as this may not be suitable for start-up companies or smaller technology companies that facilitate transactions without holding money reserves or providing capital themselves (24 Sep 2020).

1.4. The FCA has published an updated version of its Regulatory Initiatives Grid, which sets out the regulatory pipeline that allows the financial services industry and other stakeholders to be aware of the timing of initiatives that may have a significant operational impact on them. The current timing for the publication of the FinTech Strategic Review Report is Q1 2021 (18 Sep 2020).

2. Artificial Intelligence and Automation

2.1. The EU has announced a new committee on Artificial Intelligence that will analyse the future impact of AI in the digital age on the EU economy, including the impact of AI on financial technology (23 Sep 2020).

2.2. The UK Government has published a call for views on Artificial intelligence and intellectual property in a bid to better understand the implications AI might have for IP policy in the near to medium term. This call for views sets out how the IPO believe the IP framework relates to AI at present. It also poses a number of questions which the IPO believe are of central importance to the future of AI and IP policy. The consultation is due to close on 30 November 2020 (7 Sep 2020).

2.3. The UK Department for Business, Energy & Industrial Strategy has announced £10m of funding for the UK's first commercially available quantum computer. The new quantum computer will be developed by tech company Rigetti Computing (2 Sep 2020).

3. Cryptoassets

3.1. The Financial Action Task Force (FATF) has published a report, "Virtual Assets - Red Flag Indicators of Money Laundering and Terrorist Financing", which will help national authorities detect whether virtual assets are being used for criminal activity. Based on more than 100 case studies collected by members of the FATF Global Network, it highlights the most important red flag indicators that could suggest criminal behaviour. Key indicators in this report focus on, among others:

• Technological features that increase anonymity - such as the use of peer-to-peer exchanges websites, mixing or tumbling services or anonymity-enhanced cryptocurrencies; and

• Geographical risks - criminals can exploit countries with weak, or absent, national measures for virtual assets (14 Sep 2020).

3.2. BaFin, the German regulator, has clarified that installing a crypto-ATM requires a licence under the German Banking Act. Following the introduction of a new licensing requirement for the crypto custody business at the beginning of this year, BaFin has now provided further clarification of the rules. Please read more information from our recent insights article here (10 Sep 2020).

3.3. The Law Society has published a report with the Tech London Advocates' Blockchain legal and Regulatory Group setting out key issues for legal practitioners to be aware of when advising on distributed ledger technologies (DLT). The report includes a list of recommendations covering topics such as data governance, intellectual property, data protection and dispute resolution (7 Sep 2020).

3.4. The European Central Bank (ECB) has released an Occasional Paper which summarises the outcome of an analysis of stablecoins undertaken by the ECB Crypto-Assets Task Force. The paper assesses the implications of stablecoins for the euro area based on three scenarios, depending on their uptake:

• as an accessory function of crypto-assets;

• as a new payment method; and

• as an alternative store of value.

It concludes that the Eurosystem could rely on appropriate regulation, oversight and supervision frameworks to manage the possible implications under these scenarios (7 Sep 2020).

3.5. See also paragraph 1.2.

4. Cybersecurity

4.1. Euro Cyber Resilience Board for pan-European Financial Infrastructures (ECRB) has announced the creation of the Cyber Information and Intelligence Sharing Initiative (CIISI-EU). It is a multilateral initiative bringing together public and private entities to share strategic, operational and tactical cyber information through technical platforms and meetings. The core objectives of CIISI-EU are to:

• protect the financial system by preventing, detecting and responding to cyberattacks; and

• raise awareness of cybersecurity threats. (15 Sep 2020).

5. Data

5.1. The UK and Japan have agreed an international trade deal, which includes provisions to ensure the free flow of data and a ban on data localisation. The Department of International Trade has stated that this will help UK FinTech firms operating in Japan, by removing the costs of setting up local servers (11 Sep 2020).

5.2. The Cloud Industry has announced an addendum to the EU Cloud Code of conduct to provide a proposed legal solution to the transfer of personal data outside the EU. If approved by the European Data Protection Board, this may provide a new method for transferring personal data outside of the EU. This follows the Schrems II ruling which invalidated the Privacy Shield. Please read more information about the Schrems II ruling from our recent insights article here.  (9 Sep 2020).

6. Distributed Ledger Technology

6.1. The World Economic Forum has published an article on three ways blockchain can accelerate sustainable development. The report focussed on the following three areas:

• building resilient and transparent supply chains;

• creating stronger and more accountable public institutions; and

• spurring responsible sourcing and consumption. (27 Sep 2020)

6.2. The Monetary Authority of Singapore has released the Parliamentary Reply to the question on live adoption of a blockchain-based multi-currency payments network prototype. The project is intended to help the Monetary Authority of Singapore explore the use of blockchain technology more effectively (4 Sep 2020).

7. Investments in FinTech

7.1. The FCA has launched a Call for Input on the Consumer Investment Market. The Call For Input is seeking views on a number of questions including what more the FCA can do to help the market offer a wider range of products that meet straightforward investment needs and how regulation can be used to help people understand the level of regulatory protections afforded to them when they invest (15 Sep 2020).

7.2. Chinese officials and experts have announced at the 2020 China Financial Technology Forum that China plans to build pioneering FinTech hubs nationwide, focusing on the research and development of blockchain technology and digital currency to boost investment in financial infrastructure. Part of the People's Bank of China's (China's Central Bank) three-year FinTech development plan launched last year, China has been focussing on issuing the central bank digital currency, which also involves developing FinTech services based on blockchain, big data, artificial intelligence and financial security technology. The three-year plan aims to promote China's FinTech industry to an international leading level. (9 Sep 2020)

8. Payments and Open Banking

8.1. The Committee on Payments and Market Infrastructures (CPMI) and World Bank has published a report, "Payment aspects of financial inclusion: application tools" (PAFI). The report is intended to help national authorities apply the PAFI guidance for expanding access to payment services. The tools allow comparisons with international benchmarks and/or with a jurisdiction's own situation over time, and aim to make it easier to follow reform efforts in the area of financial inclusion from a payments perspective. (29 Sep 2020)

8.2. The Court of Justice of the European Union's Advocate General Pitruzzela, has given a non-binding advisory opinion that companies operating within the 27-member political and economic union should accept Euro notes as cash payments, but that countries may make their own currency regulations as long as they are in the public interest (29 Sep 2020).

8.3. The UK Parliament Treasury Committee has reported that customers of UK banks living in the European Union have received letters that their current accounts will be closed at the end of the transition period with the EU on 31 December 2020. Rt Hon. Mel Stride MP, Chair of the Treasury Committee, has asked the FCA, to set out the expectations for how much notice firms must provide such customers should they decide to close their customers' accounts and the protections that the FCA will put in place to ensure that firms provide customers with such notice (29 Sep 2020).

8.4. The FCA has announced further proposals to ensure firms continue to provide support for users of consumer credit and overdraft products who continue to face payment difficulties due to COVID-19. These include measures such as putting sustainable repayment arrangements in place and preventing any interest or fees escalating (16 Sep 2020).

8.5. The FCA has published its expectations to firms for maintaining access to cash. The FCA and Payment Systems regulator have been collecting data since the start of the COVID-19 lockdown to track the closures of ATMs and branches. The FCA, PSR, Bank of England, and HM Treasury, are working together as part of the Joint Authorities Cash Strategy Group to develop suitable solutions for cash access over the longer term (14 Sep 2020).

8.6. The Open Banking Implementation Entity (OBIE) published a response to the FCA consultation on eIDAS certificates, which currently governs the technical manner in which firms within OBIE's open banking ecosystem confirm their identity and regulatory status prior to sharing customers' sensitive financial data. They have stated that they believe the existing OB certificates are a proven alternative to PSD2 eIDAS certificates for the basis of identification and the provision of electronic signatures. OBIE hosted a webinar on 15 September 2020 to discuss the impact of the revocation of eIDAS certificates and other technical alternatives that can be implemented before the end of the transition period and have encouraged participants of the open banking ecosystem to submit their own responses to the FCA consultation, which ran until the 5 October 2020 (4 Sept 2020).

9. RegTech

9.1. The European Banking Authority (EBA) survey that invited the RegTech industry to share their views and experience on the use of RegTech solutions closed on 30 September 2020. The EBA intends to report on the use of RegTech solutions in the first half of 2021 (30 September 2020).

10. Other

10.1. The Financial free zone Abu Dhabi Global Market (ADGM) has appointed Emmanuel Givanakis as new CEO of its Financial Services Regulatory Authority. Givanakis will be taking over this role in April 2021. ADGM, which aims to connect the capital with international markets in the Middle East, Africa and South and East Asian economies, is part of Abu Dhabi's efforts to diversify its economy. (28 Sep 2020)

10.2. The Prudential Regulation Authority (PRA) has published an update on its guidance to what constitutes a key financial worker who is critical to the COVID-19 response. This includes the fact that the use of face coverings in close contact services (which includes branch staff) is now mandatory, and guidance to state that where office workers can work effectively from home, they should continue to do so (24 Sep 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.

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