Cleary FinTech Update

The Latest Insights Into Innovation in Financial Services

On September 26, 2018, a federal court in the District of Massachusetts found that virtual currencies are a commodity under the Commodity Exchange Act, 7 U.S.C. § 1 et seq, (“CEA”). This marks the second time that a court has accepted the Commodity Futures Trading Commission’s (“CFTC”) position and upheld the agency’s authority to regulate unleveraged and unmargined spot transactions in virtual currency under the agency’s anti-fraud and manipulation enforcement authority.  Most notably, however, the…
Over the past year, the U.S Securities and Exchange Commission (“SEC”) has increasingly scrutinized initial coin offerings (“ICO”) and certain digital assets.  On September 20, 2018, the SEC’s Enforcement Division co-Director, Stephanie Avakian, gave a speech in which she addressed the Division’s approach to dealing with these new forms of tradeable assets.  This speech came only days after the SEC settled its first case charging an unregistered broker-dealer for facilitating the sale of digital tokens…
On September 11, the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) each separately initiated their first enforcement action for violations of broker-dealer regulatory requirements under U.S. securities laws in digital asset markets. These actions echo all prior agency actions and alerts indicating that where a “security” is involved, both agencies will expect digital asset market participants to fully comply with U.S. securities laws. Additionally, they serve as a serious reminder…
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…
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…
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…
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”) and adhere to the OCC’s supplemental Licensing Manual (the “Comptroller’s Manual Supplement” or the “Supplement”).  Hours earlier, the Treasury Department released its…
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…
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…
On Wednesday, July 25th, Pamela Marcogliese, a partner at Cleary Gottlieb,  moderated a panel for Women in Derivatives on the role of artificial intelligence (“AI”) and machine learning in the financial industry featuring experts such as Dr. Sherry Marcus, Managing Director and Co-Head of Data Science Core at BlackRock, Asita Anche, Managing Director, Head of Systematic Market Making, Risk Centralization & Data Science at Barclays, Kristina Fan, CEO & Founder at 7 Chord (a FinTech…