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On May 4, 2022, California Governor Gavin Newsom signed an executive order aimed at creating a framework for both regulating and developing the quickly growing blockchain and cryptocurrency industry. The Order follows President Biden’s March 9, 2022, Executive Order on Ensuring responsible Development of digital Assets. In a press release announcing the Order, the Governor’s office cited the rapid growth of the crypto asset and blockchain technology business—from $14 billion five years ago to $3 trillion last November—as the impetus for issuing the Order.
Continue Reading California Governor Newsom Signs Blockchain and Crypto Assets Executive Order: Familiar Agencies To Lead Efforts To Regulate New Technology

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Long before eMortgages, electronic signatures, and mobile apps hit the secured lending scene, Lord Nottingham proposed that the English Parliament pass An Act for Prevention of Frauds and Perjuries in 1677 to prevent nonexistent agreements from being “proved” through false testimony. That statute and its progeny remain an important resource in today’s financial services industry. All states have adopted a version of the statute of frauds and many states have enacted statutes of frauds specifically designed to provide broad protection for financial institutions.  If used effectively, these “super” statutes of frauds can quickly dispose of claims and defenses related to credit agreements, allowing lenders to recover collateral, enforce notes and guarantees, and reduce the expense of litigation. These statutes should be one of the first tools lenders reach for when defending claims for breach of an unsigned credit agreement or prosecuting loan enforcement actions where claims and defenses related to credit agreements are asserted.
Continue Reading Win Your Lender-Liability Lawsuit and Enforce Your Loan Documents with this 342-year-old Statute

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Co-Authored by Erin Fonte and Brenna McGee

Continuing from last week’s post, here is the second half of our “Top 10 List” of key issues U.S. financial institutions, non-banks providing financial services, and financial technology (fintech) entities should plan for and watch throughout 2019.

  1. OCC Fintech Charter

On July 31, 2018, after several years of discussion, the Office of the Comptroller of the Currency (OCC) announced that it is accepting applications for special purpose national bank charters for fintech companies. Long anticipated by the fintech industry and opposed by multiple state regulators, the OCC fintech charter could potentially alter the financial services landscape for nondepository financial institutions. For fintech companies serving customers in multiple states, the OCC fintech charter could reduce the administrative and compliance challenges posed by the existing patchwork of state licensing requirements. But it comes at a steep cost because fintech companies would have to meet the stricter, bank-like regulatory requirements associated with a bank charter. 
Continue Reading Crumpets, Congress, Cannabis and Crypto: Top 10 Issues for Financial Services in 2019 – Part 2

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Co-Authored by Erin Fonte and Brenna McGee

As an eventful 2018 comes to a close, we look ahead to 2019 and our “Top 10 List” of key issues U.S. financial institutions, non-banks providing financial services, and financial technology (fintech) entities should plan for and watch throughout the upcoming year. The first five items on the list are discussed below, and the remainder of our list will follow shortly in another post.

  1. Brexit

We will start the list with a couple of topics from “over the pond” that will have a continuing impact on U.S. financial services entities. The British Parliament was scheduled to vote on Tuesday on the agreement that Prime Minister Theresa May reached with the European Union (EU) for Britain’s departure from the EU, commonly referred to as “Brexit.” But in an unscheduled address to Parliament on Monday, May said that she would seek to postpone the parliamentary vote, noting that if the vote were to be held as planned, her proposal “would be defeated by a significant margin.” As a result, May’s own party triggered a no-confidence vote on May that would have seen her removed as Prime Minister if she lost. By a vote of 200 to 117, May won a vote of confidence in her leadership and is now immune from a leadership challenge for a year. 
Continue Reading Crumpets, Congress, Cannabis and Crypto: Top 10 Issues for Financial Services in 2019 (Part 1 of 2)

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Co-Authored by Erin Fonte

Cryptocurrencies have captured the imaginations of individuals and emerging businesses drawn to their potential to serve as alternative stores of value, to reduce transaction costs by eliminating intermediaries, and―most notably in popular culture and media―to provide eye-catching opportunities for speculative investing. Coin valuations for well-established players Bitcoin and Ethereum have fallen sharply since late 2017/early 2018, and new players continue to enter and leave the marketplace. As noted previously in this blog, regulators are taking interest.

Much less appreciated and often overlooked is the business potential for the distributed-ledger, or blockchain, architecture that makes cryptocurrencies possible. Distributed-ledger systems present enormous opportunities for businesses to operate more efficiently and mitigate risks. The financial-services industry in particular stands to gain from the adoption of blockchain technology due to the significant variation and complexity of products, business processes, and relationships among industry participants. We have seen great interest in blockchain technology in the banking and securities industries in particular. 
Continue Reading Brave New Wheels? Potential Uses for Blockchain Technology in Auto Finance

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Co-Authored by Erin Fonte

On July 31, 2018, the U.S. Department of the Treasury (“Treasury”) released a report on “Nonbank Financials, Fintech, and Innovation,” its fourth and final report on the U.S. financial system pursuant to Executive Order 13772 (the “Report”). At over 200 pages long, with 80 separate recommendations, the Report addresses products and services ranging from payments and marketplace lending to debt collection and wealth management. While many of Treasury’s recommendations would have a positive impact on creating a national and state regulatory environment to foster innovation in financial services, the Report is ambitious, and implementing many of its recommendations will be a massive effort in legislation, policy-making and regulatory oversight. 
Continue Reading Fintech-Forward: U.S. Treasury Department’s Report on Nonbank Financials, Fintech, and Innovation

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Anyone interested in charters from the Office of the Comptroller of the Currency should be following Lusnak vs. Bank of America, 883 F.3d 1185 (9th Cir. 2018), which is being appealed from the Ninth Circuit to the United States Supreme Court. OCC charters are of course a hot topic—now that the OCC is accepting applications from FinTech companies for national bank charters, the power of federal regulators to excuse federally chartered entities from compliance with state regulations may be more important than ever. After all, the key benefit offered by a national bank charter for many FinTech companies is exemption from state-level money transmission licensing and regulation… in theory.

In reality, many state-vs-federal constitutional questions remain unanswered. Federal courts are still defining the extent of the power of federal financial regulators to exempt federally regulated institutions from state laws. The Supreme Court could help clarify these important issues in the next year or two if it grants the recent request to consider Lusnak. 
Continue Reading Supreme Court Asked to Clarify Applicability of State Laws to OCC-Chartered Entities in Lusnak v. Bank of America

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Co-Authored by Erin Fonte

The recent flurry of activity and press coverage, over the past 18 months in particular, concerning “initial coin offerings” (also referred to as a “digital token sale”) has created confusion regarding their relationship to cryptocurrencies. While certainly connected in both concept and actuation, those with an interest in this burgeoning marketplace will be wise to note that both the risk and the regulatory landscape for existing cryptocurrencies (also referred to as “virtual currencies”) differ from ICOs/tokens. Those who forge ahead, uninformed, stand to learn an expensive lesson. We hope to illuminate certain fundamental concepts here.
Continue Reading Cryptocurrency vs. Initial Coin Offerings (ICO): Different Animals, Different Regulatory Concerns

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Not long ago, financial technology (FinTech) startups were all seeking to disrupt the market for financial services and compete directly with financial institutions (FIs) for customers. But as these startups have grown into more mature companies, cooperation with FIs has come to replace disruption for many FinTech firms. These companies have realized that FIs can help scale their technology to larger bases of potential users, and can also help FinTechs raise capital by showing strong partnerships and FI distribution channels.

In turn, FIs now recognize that FinTech firms offer more than competition, representing potentially valuable partnerships with better technology and an improved user experience. By collaborating with FinTechs, FIs can improve product offerings and increase efficiency, all without the FIs committing significant resources to create new solutions themselves.
Continue Reading Access vs. Security: Takeaways For U.S. Financial Institutions from the European PSD2 Open API Framework

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2018 has a tough act to follow, after a 2017 full of momentous developments—starting with a new Administration and wrapping up with a showdown over the right to serve as Acting Director of the Consumer Financial Protection Bureau (CFPB) (a fight that continues as of this writing, as discussed below).

But 2018 is unlikely to be a quiet year. In addition to developments in the CFPB leadership battle and other litigation, the year is expected to bring developments such as effective and compliance dates for major regulations on data protection, Bank Secrecy Act/anti-money-laundering (BSA/AML), mortgage servicing, and other topics, and could bring changes in supervisory focus at multiple federal agencies. 
Continue Reading Fasten Your Seatbelts: Are You Ready for Another Eventful Year?