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fintech developments August 2, 2018

Posted by Bradley in : financial regulation , add a comment

The OCC has announced that it will begin to accept applications for national banking charters from Fintech companies via a policy statement, and a supplement to the Comptroller’s Licensing Manual. The Department of the Treasury published another in the series of papers on A Financial System That Creates Economic Opportunities, this time on Nonbank Financials, Fintech, and Innovation. The report summarizes its recommendations as falling within four categories:

Adapting regulatory approaches to changes in the aggregation, sharing, and use of consumer financial data, and to support the development of key competitive technologies; Aligning the regulatory framework to combat unnecessary regulatory fragmentation, and account for new business models enabled by financial technologies; Updating activity-specific regulations across a range of products and services offered by nonbank financial institutions, many of which have become outdated in light of technological advances; and Advocating an approach to regulation that enables responsible experimentation in the
financial sector, improves regulatory agility, and advances American interests abroad.

The report identifies regulatory fragmentation as an impediment to responsible innovation in many areas, is largely deregulatory, and endorses the idea of regulatory sandboxes, suggesting Congress enact legislation to provide for these. But the report uses words like appropriate a lot to describe what regulation might look like, and there are recognitions of some risks associated with Fintech (such as cybersecurity and other operational risks). So, a bit cagey about how deregulatory the plan is. I imagine a lot, but it’s written in a way that doesn’t always make that completely clear. However, note that whereas in many cases the report argues for federal rules (supposedly to eliminate complexity) in the case of payday lending the report argues that the CFPB’s payday lending rule should be rescinded in favour of state regulation.

The NYDFS expressed reservations about both initiatives. The NYDFS’ recent Online Lending Report emphasized the need for consumer protection in the online lending context.

The Treasury Report did not address blockchain and distributed ledger technologies in any detail the report notes that FSOC is leading a working group on these issues although there’s not much information publicly available about what the working group is doing. And we know that the SEC has concerns about initial coin offerings.

Towards the end of the report there are some comments about the US needing to be involved in the work of international forums and standard-setters, and to work with regulators in other jurisdictions. But international standards should let domestic regulators establish their own approaches before setting international standards, and they should be careful to adhere to their core mandates.

climate change and financial regulation February 2, 2018

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I have a short piece on this topic in the current Miami Law Magazine.

new draft of paper: climate change and brexit as financial stability risks July 21, 2017

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Here: Climate Change and Brexit as Financial Stability Risks (July 2017 version).

aals: the corporate stake in climate change response January 4, 2017

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I’ll be at the AALS in San Francisco this week, participating in a panel on climate change. I.m going to be talking about climate change as a financial stability issue based on this draft paper.

useful and timely caveat from the comptroller of the currency November 30, 2016

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Thomas Curry, in a speech at The Clearing House Annual Conference:

I am glad that our banks and the banking system are stronger today, but now is not the time to let our guard down. Those who have been in this business for more than one cycle know a downturn will come. Effective regulation and supervision will help ensure that the trough will not be so deep or so wide. Those who forget or choose to ignore the lessons of the last crisis do so at their own peril and increase the risk to all of us.

consequences of financial sector misconduct September 28, 2016

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John Chiang, California State Treasurer, announced sanctions against Wells Fargo for a period of one year from today including the suspension of investments by the Treasurer’s Office in all Wells Fargo securities, suspension of the use of Wells Fargo as a broker-dealer for purchasing of investments by his office and suspension of Wells Fargo as a managing underwriter on negotiated sales of California state bonds where the Treasurer appoints the underwriter. The letter announcing the sanctions to Wells Fargo states:

In the case of Wells Fargo, how can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who have placed their financial well-being in its care? I have a responsibility as a leader in the financial marketplace to take action aimed at helping you understand that integrity and trust matter.

Meanwhile the UK’s Financial Conduct Authority published a raft of consultation and other documents collected together under the rubric “new measures to maintain firms’ focus on culture”, including a Policy Statement on regulatory references, a Consultation Paper on Duty of Responsibility, a Consultation Paper on non-executive directors, a Discussion Paper on the legal function, a Consultation Paper on whistleblowing in foreign branches and a Consultation Paper on remuneration in CRD IV firms. The announcement notes that the Senior Managers’ and Certification Regime has been functioning for 6 months and today’s publications give information about the Regime and move to strengthen it.

what hope of suing the troika over austerity? September 21, 2016

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In an article with the title Austerity-hit citizens allowed to sue troika, ECJ rules, which discusses the implications of the decision in Ledra Advertising v Commission and ECB (Judgment) [2016] EUECJ C-8/15 (20 September 2016), Nicole Sagener writes:

Green MEP Sven Giegold said it was a “breakthrough for the protection of fundamental rights”and announced that he would endeavour to support any citizens looking to seek compensation from the troika. Giegold added that people who have been affected in countries like Greece, Portugal, Ireland and Cyprus finally have legal means by which to have their cases heard.

The article does note some caveats expressed by Andreas Fischer-Lescano: it’s not a “blank check” and will only apply in “extreme cases.”
To me the decision is another example of the Court nodding in the direction of the protection of human rights while emphasizing that they are not absolute. The Court states (in para 70, but this is not new):

restrictions may be imposed on the exercise of the right to property, provided that the restrictions genuinely meet objectives of general interest and do not constitute, in relation to the aim pursued, a disproportionate and intolerable interference, impairing the very substance of the right guaranteed

The need to protect financial stability, the Court says, is an objective of general interest for the EU:

Indeed, financial services play a central role in the economy of the European Union. Banks and credit institutions are an essential source of funding for businesses that are active in the various markets. In addition, the banks are often interconnected and certain of their number operate internationally. That is why the failure of one or more banks is liable to spread rapidly to other banks, either in the Member State concerned or in other Member States. That is liable, in turn, to produce negative spill-over effects in other sectors of the economy…In view of the objective of ensuring the stability of the banking system in the euro area, and having regard to the imminent risk of financial losses to which depositors with the two banks concerned would have been exposed if the latter had failed, such measures do not constitute a disproportionate and intolerable interference impairing the very substance of the appellants’ right to property. Consequently, they cannot be regarded as unjustified restrictions on that right.

Imagining circumstances in which EU institutions stated they needed to take urgent action to protect financial stability and the court said that the action was an unjustified interference with fundamental rights is. I think, difficult.

cambridge international symposium on economic crime (2016) – 2 September 12, 2016

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Lots of discussions of misconduct last week, with perspectives from around the world. News stories include: proposals to make employers responsible for preventing money-laundering, false accounting and fraud in the UK (Jeremy Wright speech here), the SFO’s emphasis on genuine co-operation when considering deferred prosecution agreements, the need for global co-operation on economic crime, and arguments for new approaches to economic crime due to the failure of existing approaches.

sec announces over $100 million in whistleblower awards August 30, 2016

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whistleblower awards

And today the SEC announced its second largest award of $22 million.

financial stability, regulation and politics August 25, 2016

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I will be talking about my current draft of my financial stability paper at the University of Miami Law School next Wednesday lunchtime (August 31, 12.30-2pm).