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Financial Services Law Insights and Observations


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  • SEC issues no-action letter, permitting offering and selling of “tokens” without registration


    On April 3, the SEC issued a no-action letter to a Delaware-based airline chartering services company not recommending enforcement action for offering and selling “tokens” without registration under the SEC Act. According to the letter, the SEC relied upon the company’s counsel’s opinion, which assured that consumers are purchasing the tokens solely for prepaid “air charter services and not for investment purposes or with an expectation to earn a profit,” in determining that the “tokens” were not securities. Additionally, the SEC’s relief considered numerous other factors such as: (i) the platform for conducting the sale of the tokens will “be fully developed and operational” at the time any tokens are sold and funds derived from token sales will not be used to develop the platform; (ii) consumers will be able to immediately use the tokens for their intended functionality (i.e., to purchase air charter services) at the time of sale; (iii) the company will restrict the transfer of tokens to company wallets only and not to external wallets; (iv) the tokens will be sold for one dollar to be used solely on the platform to purchase air charter services, and will be treated as having a value of one dollar; (v) if the company offers to repurchase tokens, it will do so at a discount to the face value of the tokens that the holder seeks to resell to the company, unless a court orders the company to liquidate the tokens; and (vi) the tokens will not be marketed in such a way that there is a perceived potential for an increase in the token’s market value.

    Securities SEC No Action Letter Initial Coin Offerings Fintech

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  • Waters says housing finance reform and diversity are top priorities

    Federal Issues

    On April 2, House Financial Services Committee Chairwoman Maxine Waters (D-CA) spoke before the American Bankers Association’s Washington Summit to discuss several priorities and emerging issues, including comprehensive housing reform, diversity in financial services, fintech regulation, cannabis banking, and Bank Secrecy Act/anti-money laundering (BSA/AML) reform.

    • Housing finance reform. Waters discussed resolving the long-term status of GSEs and several core principles underlying housing finance reform including, among other things, (i) maintaining access to the 30-year, fixed-rate mortgage; (ii) ensuring sufficient private capital is available to protect taxpayers; (iii) requiring transparency and standardization that ensures a level-playing field for all financial institutions especially community banks and credit unions; (iv) maintaining credit access for all qualified borrowers; and (v) ensuring access to affordable rental housing. “Many of the proposals for housing finance reform exclude small financial institutions from being able to access the secondary mortgage market. I believe that the inclusion of small financial institutions must be a critical part of any conversations about GSE reform,” Waters stated.
    • Diversity in financial services. Waters discussed the newly formed Diversity and Inclusion Subcommittee (previously covered by InfoBytes here) when noting that minority representation in financial services management positions remains underrepresented. The new subcommittee will examine diversity trends to promote inclusion. “Diverse representation in these institutions, and particularly at the management level, is essential to ensure that all consumers have fair access to credit, capital, and banking and financial services,” Waters stated.
    • Fintech regulation. Waters commented that fintech regulation is a committee priority. Waters stated that it is important “we encourage responsible innovation with the appropriate safeguards in place to protect consumers and without displacing community banks.”
    • Cannabis banking. Waters highlighted her committee's work last month in advancing HR 1595, which would create protections for financial institutions that provide services to state-sanctioned cannabis-related businesses. The bill would create a safe harbor for depository institutions that would bar federal banking regulators from terminating banks’ deposit insurance or otherwise penalize them if they provide services to a cannabis-related legitimate business or service provider.
    • BSA/AML reform. Waters discussed a hearing that was held to look at “common sense” improvements that could be made to the current BSA/AML framework. She further stated that the committee is considering beneficial ownership legislation, in addition to exploring ways to work with the Financial Crimes Enforcement Network regarding BSA/AML reporting.

    Federal Issues House Financial Services Committee Consumer Finance Housing Finance Reform Bank Secrecy Act Anti-Money Laundering Fintech Medical Marijuana Diversity and Inclusion Subcommittee FinCEN

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  • Utah says blockchain tokens are not money transmissions

    State Issues

    On March 26, the Utah governor signed SB 213, which, among other things, defines and clarifies blockchain technology-related terms and exempts from the state’s Money Transmitter Act certain persons who facilitate the “creation, exchange, or sale of certain blockchain technology-related products.” Specifically, the amendments state that blockchain tokens are not money transmissions. The amendments take effect 60 days after adjournment of the legislature.

    State Issues State Legislation Blockchain Fintech

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  • Arizona modifies its Regulatory Sandbox Program

    State Issues

    On April 1, the Arizona governor signed HB 2177, which modifies the state’s Regulatory Sandbox Program (RSP). As previously covered by InfoBytes, in March 2018, Arizona became the first state to create a regulatory sandbox for companies to test innovative financial products or services without certain regulatory requirements. The bill clarifies the RSP to allow participants to temporarily test an innovation “with respect to providing a financial product or service or a substantial component of a financial product or service,” as opposed to, an “innovative financial product or service.” Among other things, the bill also (i) removes the Arizona consumer residency requirement when participants test innovative money transmitter products, requiring only that the consumer have physical presence in the state at the time of the transaction; (ii) removes record keeping requirements for participants testing investment management products; and (iii) provides sole enforcement authority of state regulatory laws applicable to RSP participants to the state Attorney General. The bill is effective 91 days after the state’s legislative session ends.

    State Issues Regulatory Sandbox Fintech State Legislation State Attorney General

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  • Utah creates regulatory sandbox

    State Issues

    On March 25, the Utah governor signed HB 378, which creates a state regulatory sandbox program through the state’s Department of Commerce (Department) that allows participants to temporarily test innovative financial products or services on a restricted basis without requiring a license or authorization to act under Utah law. Under the program, approved applicants will have 24 months from the date an application is approved to test the product or service on Utah residents without being subject to state laws and regulations that normally would regulate such products or services, unless the Department determines otherwise. Additionally, the Department, upon written notice, may end a participant’s participation program at any time and for any reason. The program allows for participants to request an extension of time up to six months after the end of the regulatory sandbox testing period in order to obtain a license or other authorization required by the law to continue to market the product or service. The act takes effect on May 13.

    State Issues Regulatory Sandbox Licensing State Legislation Fintech

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  • New York Federal Reserve Bank launches Fintech Advisory Group


    On March 22, the Federal Reserve Bank of New York (New York Fed) announced the launch of its Fintech Advisory Group, which is designed to offer “views and perspectives on the emerging issues related to financial technologies, the application and market impact of these technologies, and the potential impact on the New York Fed’s ability to achieve its missions.” The group’s members will participate on a rotating basis, and will include representatives from financial institutions, nonprofits, and research providers. According to the head of the Supervision Group at the New York Fed, “The Fintech Advisory Group will provide the New York Fed with a more complete picture of the rapidly evolving fintech landscape. The Advisory Group will also gather insights that may inform our interaction with market participants and institutions, our training and hiring efforts, and the application of innovative approaches for internal business use.” The group’s first meeting will be held on April 1.

    Fintech Federal Issues Federal Reserve Bank of New York

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  • Bipartisan bill introduced to streamline fintech regulation


    On March 4, bipartisan bill, H.R. 1491, was introduced by its co-sponsors to provide federal financial regulatory clarity for fintech startups. According to a press release issued by Congressman David Scott (D-GA), the FINTECH Act of 2019 would: (i) mandate federal financial regulators harmonize and coordinate conflicting regulations that would cover fintech operations; and (ii) establish a Fintech Council to service as a “single point of entry” into the federal financial regulatory system, assigning approved fintechs to one or more designated regulators. The bill was introduced by Scott and by Congressman Barry Loudermilk. Both Congressmen are members of the House Financial Services Committee and co-chair the Fintech and Payments Caucus. The full text of the bill is not yet publicly available.

    Fintech Federal Issues Federal Legislation U.S. House House Financial Services Committee

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  • Wyoming law classifies digital assets as personal property

    State Issues

    On February 26, the Wyoming Governor signed SF 125, which classifies digital assets, including virtual currency, as personal property. Specifically, the bill divides digital assets into three categories of intangible personal property within the existing Wyoming Uniform Commercial Code: (i) digital consumer assets are considered “general intangibles”; (ii) digital securities are considered “intangible personal property” and classified as securities and investment property; and (iii) virtual currency is classified as money. Among other things, SF 125 also establishes an opt-in framework for banks to provide custodial services for digital assets as custodians (and authorizes supervision fees for banks that provide such services), and clarifies the jurisdiction of Wyoming courts to hear claims related to digital assets.


    State Issues State Legislation Virtual Currency Securities Fintech

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  • Wyoming is second state to create fintech sandbox


    On February 19, the Wyoming Governor signed HB 57, which creates a fintech sandbox program in the state for companies to test innovative financial products and services. Wyoming is the second state to introduce a regulatory sandbox program, following Arizona’s sandbox introduction last March. (Previously covered by InfoBytes here.) Under the “Financial Technology Sandbox Act” (the Act), the state’s sandbox will be open to innovative financial products and services, including those focused on blockchain and cryptocurrencies, and will allow testing of these products for up to two years with the possibility of an additional 12 month extension before requiring participants to apply for formal licensure. Additionally, under certain conditions, the Act—which grants various supervisory and enforcement power to the state banking commissioner and the secretary of state, including revocation and suspension rights—will authorize (i) limited waivers of specified statutes or rules, and (ii) reciprocity agreements with other regulators. The Act takes effect January 1, 2020.

    Fintech State Issues State Legislation Regulatory Sandbox Blockchain Cryptocurrency Licensing

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  • CSBS seeks public comment on model state payments law

    State Issues

    On February 21, the Conference of State Bank Supervisors (CSBS) issued a request for information (RFI) on issues related to state money transmission and payments regulation as state regulators begin coordinating model legislation for all 50 states to adopt in whole or in part. CSBS’ RFI is based upon recommendations made by the Fintech Industry Advisory Panel (a part of CSBS’ Vision 2020 previously covered by InfoBytes here) and seeks feedback on several areas of law and regulation to help states create harmonized definitions and interpretations on a national level. According to the Advisory Panel, “despite the general similarity of state money transmission laws, each state defines and interprets money transmission and its exemptions differently.” The RFI solicits comments framed towards outlined policy standards and risks on the following issues:

    (i) The scope of covered money transmission activities and applicable exemptions; (ii) the change in control process, including the personal vetting requirements for individuals deemed new control persons; (iii) prudential regulations—in particular, permissible investment, net worth, and surety bond requirements; (iv) supervision processes; and (v) coordination—in particular, how states can ensure the areas outlined above are implemented consistently without state-by-state policy diversion or needless duplication of effort.

    Comments on the RFI are due April 20 and will be made publically available here.

    State Issues CSBS State Regulators Money Service / Money Transmitters RFI Fintech

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