FinTech Global FS Regulatory Round-up – W/e 27 January 2023 – Fin Tech

ISDA: Paper on bankruptcy in digital asset markets

The International Swaps and Derivatives Association (ISDA) has published an article Navigating Bankruptcy in Digital Asset Markets: Netting and Security for Enforcement. The article addresses the legal nature of digital assets; closing net; digital assets as collateral; and security documentation. ISDA will publish another paper in Q1 2023 to address issues related to customers’ digital assets held with intermediaries. The papers are intended to help market participants understand the legal and documentation issues that need to be addressed to establish ownership of digital assets, the positioning of those assets as collateral, and the enforceability of netting to increase security and reduce risk. [26 Jan 2023]

FCA: Cryptoasset AML/CTF regime – new website

The FCA has updated its website in relation to the Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) regime. The updated website provides feedback on good and poor quality applications to the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Payer Information) Regulations 2017 (MLR). The aim of the feedback is to help applicants prepare their application for registration and to make the process as simple and efficient as possible. [25 Jan 2023]

FCA: Talk about building better foundations in AI

The FCA has published a speech by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, on building better foundations in artificial intelligence (AI). In the speech, Rusu highlights the following;

• the regulation of artificial intelligence in financial services should be built on a collaborative platform;




• the principles of diversity and inclusion (D&I) are key to building better AI; and




• innovation will contribute to better AI regulatory outcomes.

Rusu spoke at the Alan Turing Institute’s Framework for Responsible Adoption of AI in the Financial Services Industry (FAIR). [24 Jan 2023]

#D&I

#Innovation

HoC Library: Research Orientation on Regulation of Cryptocurrencies

The House of Commons (HoC) Library has published a research briefing on cryptocurrency regulation. The orientation covers: the definition of cryptocurrencies and cryptoassets; regulation of cryptoassets and stablecoins; HM Government’s (HMG) vision for the future; and consumer protection issues. The briefing also brings together a number of resources, including parliamentary materials such as written responses to parliamentary questions regarding cryptocurrencies, links to related library research, links to UK official documents and more.

The guidance has been published ahead of the debate in Westminster Hall on 25 January 2023 on the Regulation on Cryptocurrencies. [23 Jan 2023]

#Stablecoins

NYDFS Releases New Regulatory Guidance – Expectations for Safe Custody and Disclosure Practices for Virtual Currencies

The New York Department of Financial Services (NYDFS) has issued regulatory guidance to better protect clients in the event of an insolvency or similar proceeding. The guidance reiterates the expectations of sound custody and disclosure practices, and the overarching importance that the fair and beneficial interest in the asset always remains with the customer.

The guidance applies to those entities that the department has licensed or chartered to keep, or temporarily hold, store or maintain virtual currency assets on behalf of its customers. New York’s virtual currency regulation requires entities to hold virtual currency in a manner that protects customer assets, among other things; maintain extensive books and records; disclose the material terms and conditions relating to their products and services, including custody services; and refrain from making false, misleading or deceptive representations or omissions in their marketing materials. Entities operating under the BitLicense and Limited Purpose Trust Charter are held to these requirements through NYDFS oversight and investigations, or when necessary, enforcement actions.

The new insolvency guidance covers:

• segregation of and separate accounting for the Customer’s virtual currency;




• virtual currency entity (VCE) custodian’s limited interest in and use of the customer’s virtual currency;




• sub-custodial; and




• customer disclosure. [23 Jan 2023]