Financial Institutions

On Tuesday, September 11, 2018, Judge Raymond J. Dearie of the Eastern District of New York issued a decision holding that Initial Coin Offerings (“ICO”) may qualify as securities offerings and therefore be subject to the criminal federal securities laws.  This ruling came as two U.S. regulators—the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”)—announced separate actions under securities laws against companies engaged in the cryptocurrency marketplace, including the sale of digital tokens.  As the popularity of cryptocurrencies grows and businesses and entrepreneurs increasingly turn to ICOs to raise capital, these developments may serve as guideposts for how cryptocurrencies and ICOs will be viewed by courts and federal regulators in cases to follow.
Continue Reading Federal Court, SEC, and FINRA Scrutinize Cryptocurrencies and ICOs

This week, the New York Department of Financial Services (“NYDFS”) announced approval for its two licensed FinTech-oriented state trust companies, Gemini Trust Company LLC and Paxos Trust Company LLC (formerly known as itBit Trust Company), to offer a new type of cryptocurrency referred to as a Stablecoin.  The Gemini Dollar (“GUSD”) and Paxos Standard Token (“PAX”) are designed to be collateralized one-for-one by the U.S. dollar, and will permit payment for other assets traded on blockchains with instant settlement and minimal transaction costs. As described, GUSD and PAX are issued only when a customer of Gemini or Paxos deposits a corresponding amount of U.S. dollars, which are always held in a reserve account by the issuer on behalf of GUSD and PAX holders.  At all times under this framework, Gemini or Paxos are required to hold, in a fiduciary capacity, at least as much fiat currency as GUSD and PAX in circulation.
Continue Reading New York Department of Financial Services Approves Gemini and Paxos Virtual Currency “Stablecoins”

Artificial intelligence and machine learning (for simplicity, we refer to these concepts together as “AI”)[1] have been hot topics in the financial services industry in recent years as the industry wrestles with how to harness technological innovations.  In its report on Nonbank Financials, Fintech, and Innovation released on July 31st, the Treasury Department (“Treasury”) generally embraced AI and recommended facilitating the further development and incorporation of such technologies into the financial services industry to realize the potential the technologies can provide for financial services and the broader economy.

Continue Reading Treasury Report Embraces Machine Learning and Artificial Intelligence in Financial Services

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

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