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04/04/2019
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The latest in fintech (2019)17th April 2019
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LexisNexis® Confidential 2
The law as stated during this webinar is up to date as of 3rd April 2019
The latest in fintech (2019)
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Introduction
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PartnerKemp Little
Chris Hill
Jake Ghanty
PartnerKemp Little
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Who we are
• Chris Hill
o Commercial technology
o Contracting with a technology and regulatory interface
o Start-ups and institutions
• Jacob Ghanty
o Financial regulation
o Application to new technologies in financial services
o All types of FCA/PRA-regulated businesses
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What we are going to cover
• Updates on:
o General market developments and risks
o Open banking
o PSD2 and strong customer authentication
o Crypto and blockchain
o AML legislation
o Biometrics
o AI
o Regtech
o Insurtech
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Chris Hill
Market developments
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Market updates
• Investment in 2018
o $3.3bn in the UK, $36.6bn globally (Innovate Finance figures)
o UK still ahead of European peers
• Maturing market
o Out of the start-up phase
o Regulatory Sandbox - 5th cohort
o Global Financial Innovation Network (= “global sandbox”) launched 2019
• Financial institutions get used to fintechs
o Collaboration with fintechs – ISO PAS 201:2018
o Disruption still feasible but less of a focus
• Brexit effect
o Passporting rights
o Access to talent
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Jake Ghanty
PSD2 and the EBA’s RTS on strong customer authentication
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PSD2 and strong customer authentication (“SCA”) (1)
• The Recast Payment Services Directive (EU) 2015/2366 (“PSD2”)
o Payment initiation services
o Account information services
• Article 97 of PSD2
o Authentication
• Article 98 of PSD2
o Regulatory Technical Standards (“RTS”) on authentication and communication
o The European Banking Authority’s RTS on SCA (EBA-RTS-2017-02)
• What is SCA?
o Payment transaction authentication based upon knowledge (e.g. PIN, password), inherence (e.g. biometric ID, including fingerprint, iris or voice recognition) and possession (e.g. card or mobile phone)
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PSD2 and SCA (2)
• Exemptions including those based upon transaction risk analysis and low value transactions
• When will SCA apply from?
o 14 September 2019
o Firms should already be testing/preparing in readiness for the deadline
o The same date also marks the end of the PSD2 transitional period for TPPs (AISPs and PISPs) who were already providing services before 12 January 2016
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Chris Hill
Open banking
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Open banking latest
• Account information services (AISP) and payment initiation services (PISP)
• CMA 9 Bank APIs progressing
o About midway through development roadmap
o A little behind schedule but getting there – CMA Directions
o Version 3 of the Read-Write API Specification
o eIDAS Certificates
o Testing facility open to third parties
• Open banking in practice
o Services in action
o Token first payment (June 2018);
o iwoca first business loan with o/b data
• Non-CMA open banking gaining traction
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Jake Ghanty
The regulation of cryptocurrencies
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Cryptocurrency regulation (1)
• Cryptocurrencies not regulated as such in the UK
o However, each token needs to be reviewed on its own merits to determine if it amounts to any kind of regulated product
o Derivative products linked to the performance of underlying cryptocurrencies can be subject to regulation
o Fund structures used for cryptocurrency investment can be alternative investment funds and/or collective investment schemes
• FCA CP 19/3: Guidance on Cryptoassets
o Specified Investments under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
o Financial Instruments such as transferable securities under the Markets in Financial Instruments Directive II
o Payment services under the Payment Services Regulations 2017 or electronic money under the Electronic Money Regulations 2011
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Cryptocurrency regulation (2)
• The Fifth Money Laundering Directive (EU) 2018/848 (“5MLD”)
o Entered into force on 9 July 2018
o To be implemented by 10 January 2020
• Amendments to scope
o Custodian wallet providers and providers of exchange services between cryptocurrencies and fiat currencies will be caught by AML requirements
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Chris Hill
Biometrics
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Biometrics (1)
• Types:
o Facial recognition (inc. ear shape)
o Fingerprints
o Voice
o Iris
o Gait
o Typing/signature recognition
o Vein
o DNA
• Part of day-to-day life
o Opening mobiles (fingerprint/face)
o Passports
o NatWest fingerprint card
o Some security systems
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Biometrics (2)
• Conflict between security/efficacy and privacy
• Law is behind technology
o Payment services/SCA
o Special category data under GDPR
o Issues over use in police enforcement – Biometrics Commissioner
• Predict greater usage
o Strong customer authentication
o AML/KYC
• Hashing/pseudonymisation
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Jake Ghanty
Fintech and anti-money laundering
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Anti-money laundering (“AML”) requirements
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
o Overview
• Issues for fintech companies
o Use of technology for AML compliance
o Who applies customer due diligence (“CDD”) measures?
• 5MLD
o Regulation of crypto exchanges and custodian wallet providers
o Lower limits for CDD exemption for electronic money products (lowered from EUR 250 to EUR 150)
• Joint Money Laundering Steering Group Guidance
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Chris Hill
Artificial intelligence
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Artificial intelligence
• Machine learning
o Huge data sets
o Pattern-spotting
o Not necessarily the whole picture
o Assistive
o Time-saving
• Examples
o Cybersecurity - Darktrace
o Fraud prevention - Cybertonica; ThetaRay
o Trade surveillance - Nasdaq Buy-side Compliance (formerly Sybenetix)
o Information retrieval - Eigen Technologies
o Regulatory information – Cube Global; Requirement One
o Cashflow/financial forecasting – Fractal Labs; Fluidly
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Jake Ghanty
Regulatory technology
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Regulatory technology (“regtech”)
• What is regtech?
• FCA’s Project Innovate
• The FCA’s Senior Managers and Certification Regime
o Periodic reporting
o References
• The Markets in Financial Instruments Directive II
o Trade surveillance
o Transaction reporting
• Client money and client assets
o Reconciliations
o Periodic reporting
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Chris Hill
Insurtech
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Insurtech
• What is insurtech?
o Fintech in the insurance industry
o Further behind than other areas
o The same, but different
o Starting to gather pace
• Data usage
o AI for pattern-spotting
o Open banking for risk analysis
o Platforms for data retrieval and analysis
o Linking services for cost efficiencies
• Claims handling
o Platforms for gathering information and tracking claims
o Fraud prevention
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Upcoming TMT webinars
• The latest in telecommunications (2019) – 14th June 2019
• Artificial Intelligence and the law (2019) – 22nd July 2019
• Litigation in IT and technology (2019) – 2nd October 2019
• Developments in advertising law and regulation (2019) – 18th November 2019
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On demand TMT webinars
• Artificial Intelligence and the law: managing risks and exploiting opportunities
(2018) – expires 5th March 2020
• Public procurement and IT law (2018) – expires 26th March 2020
• Autonomous Vehicles (2018) – expires 23rd April 2020
• Cyber security for lawyers (2018) – expires 3rd August 2020
• The Data Protection Act (2018) – expires 5th October 2020
• The latest in defamation (2018) – expires 24th September 2020
• Law, E-commerce and the latest Digital Single Market initiatives (2018) –
expires 14th December 2020
• ePrivacy in 2019 – expires 18th February 2021
• The latest in fintech (2019) – expires 15th April 2021
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Thank you and reminders
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