On July 31st, the Office of the Comptroller of the Currency (“OCC”) announced that it would begin accepting applications for a special purpose national bank charter (“FinTech Charter”) from nonbank financial technology companies that offer bank products and services, meet the OCC’s chartering requirements (the “FinTech Charter Policy Statement”)

On July 31st, the Treasury Department (“Treasury”) released its fourth and final report in response to President Trump’s Executive Order 13772.  The report, entitled “A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation” (the “Report”), only briefly addresses distributed ledger technologies, blockchain and digital assets, but takes broad aim at perceived regulatory challenges to innovation.  The Report argues for a significant rethinking of state and federal regulation across data access, licensing, payments and many other issues.
Continue Reading Treasury Report Recommends More Consistent Regulation to Spur Innovation

Today, Treasury released its long-awaited FinTech report entitled “A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation”. While the report provided only a very truncated discussion of distributed ledger technologies, blockchain, and digital assets, it discussed at length other key innovation and technology issues that are impacting the market for financial services. While DLT and digital assets appropriately garner many headlines, the innovative potential of new technologies for how financial services are accessed, delivered, bundled, analyzed, marketed, and regulated offers great opportunities as well as risks. The focus of the Treasury FinTech report on these fundamental issues no doubt will spur even more examination of our changing financial environment.
Continue Reading Treasury Releases FinTech Report, and OCC Immediately Relaunches a National FinTech Charter

The New York Department of Financial Services (“NYDFS”) recently announced approval of significant new activities for FinTech-oriented businesses. Over the past week, NYDFS has granted the following approvals:

  • Additional virtual currencies available for trading through Paxos Trust Company LLC (formerly known as itBit Trust Company), a NY-chartered trust company; and
  • Approval of BitLicenses for Xapo, Inc. and Square, Inc. which would authorize them to offer custody and exchange services, respectively, for Bitcoin to residents of New York.

These announcements demonstrate the breadth of state regulation of virtual currency operations through expansion of exchange services to new emerging currencies and through custody and related services. 
Continue Reading New York Department of Financial Services Approves Significant Expansions of State-Regulated Virtual Currency Businesses

On Thursday, June 14th, the SEC Director of Corporation Finance, William Hinman, stated his view that current secondary market trades of Ether are not now securities transactions as part of a speech on the treatment of digital assets under the securities laws.  While he expressly set aside the question of whether the capital-raising that initially accompanied the sale of Ether in 2014 was a securities offering, he confirmed previous suggestions that Ether is a prime example of a digital asset that may once have been offered as a security, but is now “something else” that is not  regulated by the securities laws.  While Hinman’s views are not binding on the Commission, his remarks strongly suggest the Commission’s willingness to consider whether certain digital assets that may be initially offered as securities over time can later lose their status as securities—a view that is shared by at least one CFTC commissioner. 
Continue Reading SEC Director of Corporation Finance States That Secondary Market Sales of Ether Are Not Securities Transactions Now, but “Something Else”

This week the New York Department of Financial Services (“NYDFS”) announced approval of significant new activities for its two licensed FinTech-oriented state trust companies, Gemini Trust Company LLC and Paxos Trust Company LLC (formerly known as itBit Trust Company), engaged in blockchain and virtual currency activities.  Significantly, the approved activities demonstrate both the continuing importance of virtual currency trading and the expansion into permissioned blockchain trading and settlement services.  These announcements represent the first substantive expansions in the approved activities of the two trust companies since their formation in 2015. 
Continue Reading NY Department of Financial Services Approves Expanded FinTech Activities for NY Trust Companies

Following the success of Cleary Gottlieb’s Blockchain and FinTech Opportunities events in New York and California, we will be hosting our first London-based FinTech conference on April 17, 2018.

Sessions will cover Digital Ledger Technology and its use beyond cryptocurrencies, emerging trends, regulatory issues, and other challenges; as well as a session focusing on the

On March 27, 2018, Massachusetts Secretary of State William Galvin announced that the state had ordered five firms to halt initial coin offerings (“ICOs”) on the grounds that the ICOs constituted unregistered offerings of securities but made no allegations of fraud.  These orders follow a growing line of state enforcement actions aimed at ICOs.

This was not Massachusetts’s first foray into regulating ICOs.  On January 17, 2018 the state filed a complaint alleging violations of securities and broker-dealer registration requirements against the company Caviar and its founder for an ICO that sought to create a “pooled investment fund with hedged exposure to crypto-assets and real estate debt.”Continue Reading Massachusetts Orders Five Companies to Halt ICOs as States Step Up Enforcement Efforts

This past week, we received further evidence that U.S. federal regulators will continue to scrutinize potential compliance issues in virtual currency trading and initial coin offerings (“ICOs”) under existing law. However, the key takeaway is that the U.S. regulators, so far, are doing so under established interpretations of their existing authority. In our view, none

On February 6, 2018,  Chairman Clayton of the Securities and Exchange Commission (SEC) and Chairman Giancarlo of the Commodity Futures Trading Commission (CFTC) testified before the Senate Banking Committee (the Committee) on their agencies’ oversight role for virtual currencies.  Consistent with his prior statements, Clayton took a strong stance on SEC regulation of Initial Coin Offerings (ICOs).  But, when it came to cryptocurrencies themselves, he and Giancarlo struck a somewhat more circumspect tone.  In particular, despite acknowledging that their existing jurisdiction does not extend to spot transactions in cryptocurrencies, the Chairmen did not yet seek additional regulatory authority.

However, Chairman Clayton particularly expressed concerns about whether virtual currency exchanges provided adequate protections for investors and whether state regulation as payment services was sufficient.  While the Chairmen did not request new authority, it is clear that there would be support within the Committee for legislation in this area, and Clayton and Giancarlo committed to work with each other and other authorities (including bank regulators and law enforcement authorities) to develop an appropriate approach.  When the Chairmen of the SEC and CFTC express that they are “open” to exploring whether increased federal regulation is needed, there is a clear message.
Continue Reading SEC and CFTC Testimony on Virtual Currencies: Is More Regulation on the Horizon?