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FINTECH
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ELGAR FINANCIAL LAW AND PRACTICE
SeriesEditor:RogerMcCormick,LondonSchoolofEconomicsandPoliticalScience,UK
TheElgarFinancialLawandPracticeseriesisalibraryofworksbyleadingpractitioners
andscholarscoveringdiscreteareasoflawinthefieldofbankingandfinance.Titlesinthe
seriesarebothanalyticalanddescriptiveinapproach,highlightingandunpickingthelegal
issuesthataremostcriticalandrelevanttopractice.Designedtobedetailed,focused
referenceworks,thebooksinthisseriesofferanauthoritativestatementonthelawand
practiceinkeytopicswithinthefield,fromFinancialCollateraltoPrivateEquity,from
SecuredTransactionstoFinancialCrime,andfromFinancialDerivativesandHedgeFunds
toBankResolutionandBankCapital.
Titlesintheseriesinclude:
TheLawonCorporateGovernanceinBanks
IrisH-YChiuandMichaelMcKee
YeowartandParsonsontheLawofFinancialCollateral
GeoffreyYeowartandRobinParsons
TheGovernanceofCreditRatingAgencies
RegulatoryRegimesandLiabilityIssues
AndreaMiglionico
Mis-SellingFinancialServices
JonathanKirkQC,ThomasSamuelsandLeeFinch
FinTech
LawandRegulation
EditedbyJelenaMadir
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FINTECH
Law and Regulation
Editedby
JELENA MADIR
ChiefCounsel,EuropeanBankforReconstructionandDevelopment
ELGAR FINANCIAL LAW AND PRACTICE
Cheltenham, UK + Northampton, MA, USA
ColumnsDesignXMLLtd / Job:Madir-FinTech / Division:00aPrelims_final /Pg.Position:1/ Date:28/6
© The Editors and Contributors Severally 2021
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted
in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the
prior permission of the publisher.
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Control Number: 2021947978
This book is available electronically in the
Law subject collection
http://dx.doi.org/10.4337/9781800375956
ISBN 978 1 80037 594 9 (cased)
ISBN 978 1 80037 595 6 (eBook)
CONTENTS
Extended contents vii
Editor and contributors xvi
Preface xxv
Glossary xxviii
Table of cases xxxviii
Table of legislation xli
1 INTRODUCTION – WHAT IS FINTECH? 1
Jelena Madir
PART I PAYMENTS, ALTERNATIVE FINANCING AND CRYPTOASSETS
2 ADAPTING TO A CHANGING PAYMENTS LANDSCAPE 23
Ben Regnard-Weinrabe and Jane Finlayson-Brown
3 CROWDFUNDING 64
Peter Chapman, updated by Simon Crown and Adam Robins
4 CRYPTOASSETS AND INITIAL COIN OFFERINGS 90
Claude Brown, Tim Dolan and Karen Butler
5 CRYPTOCURRENCIES AND CENTRAL BANKS 121
Hubert de Vauplane
PART II BLOCKCHAIN AND DISTRIBUTED LEDGERS
6 BLOCKCHAIN IN FINANCIAL SERVICES 148
Colleen Baker and Kevin Werbach
7 SMART CONTRACTS 175
Jelena Madir
8 GOVERNING THE BLOCKCHAIN: WHAT IS THE APPLICABLE LAW? 199
Harriet Territt
9 LIABILITIES ASSOCIATED WITH DISTRIBUTED LEDGERS: A COMPARATIVE ANALYSIS 219
Dirk Zetzsche, Ross Buckley, Douglas Arner and Anton Didenko
v
CONTENTS
10 CYBERSECURITY AND BLOCKCHAIN 242
Patricia L. de Miranda and Charles Kerrigan
11 BLOCKCHAIN AND PRIVACY 267
Daniel Cooper and Gemma Nash
PART III REGULATION AND COMPLIANCE
12 REGTECH AND SUPTECH: THE FUTURE OF COMPLIANCE 291
John Ho Hee Jung
13 THE RISE OF TECHFINS: REGULATORY CHALLENGES 317
Dirk Zetzsche, Ross Buckley and Douglas Arner
14 REGULATORY SANDBOXES 340
Byungkwon Lim and Charles Low
15 COMPLIANCE AND WHISTLEBLOWING: HOW TECHNOLOGY WILL REPLACE, EMPOWER AND
CHANGE WHISTLEBLOWERS 365
Kieran Pender, Sofya Cherkasova and Anna Yamaoka-Enkerlin
16 REGULATION OF ROBO-ADVISORY SERVICES 395
Lee Reiners
17 PATENTABILITY OF FINTECH INVENTIONS 420
Mirjana Stankovic
PART IV TECHNOLOGICAL INNOVATIONS IN LEGAL SERVICES
18 THE INNOVATION PROCESS IN LAW FIRMS 440
Sophia Adams-Bhatti
19 FUTURE LAWYERS, DIGITAL SKILLS AND SELF-LEARNING 470
Mark Fenwick, Wulf A. Kaal and Erik P. M. Vermeulen
Index 497
vi
EXTENDED CONTENTS
Editor and contributors xvi
Preface xxv
Glossary xxviii
Table of cases xxxviii
Table of legislation xli
1 INTRODUCTION – WHAT IS FINTECH?
A. INTRODUCTION 1.001
B. WHAT IS (AND ISN’T) NEW ABOUT FINTECH? 1.003
C. KEY PLAYERS, PRODUCTS AND TRENDS 1.009
1 Mobile payments and e-wallets 1.012
2 Open banking/APIs 1.014
3 Artificial intelligence (AI) and big data 1.020
4 Machine learning 1.022
5 Biometrics 1.024
6 Robo-advice 1.025
7 Blockchain 1.026
D. HOW SHOULD REGULATORS RESPOND AND WHY SHOULD LAWYERS CARE ABOUT
FINTECH? 1.044
1 Distributed ledgers and data privacy 1.046
2 Rules governing ownership and contractual rights and obligations 1.047
3 Regulatory sandboxes 1.049
4 RegTech 1.052
E. CONCLUSION 1.059
PART I PAYMENTS, ALTERNATIVE FINANCING AND CRYPTOASSETS
2 ADAPTING TO A CHANGING PAYMENTS LANDSCAPE
A. INTRODUCTION 2.001
B. ONLINE AND MOBILE BANKING 2.003
C. GROWTH IN CONTACTLESS PAYMENTS 2.012
D. PSD2 AND REGULATORY TECHNICAL STANDARDS ON STRONG CUSTOMER AU-
THENTICATION AND SECURE COMMUNICATION 2.020
1 Second EU Payment Services Directive (PSD2) 2.020
Changes under PSD2 2.024
Scope of PSD2 2.025
Exclusions 2.026
Changed and additional payment services 2.028
Access to payment accounts 2.032
vii
EXTENDED CONTENTS
Access to bank accounts 2.033
Access to payment systems 2.034
Security 2.035
2 Strong customer authentication 2.036
Scope 2.038
What is SCA? 2.042
Dynamic linking 2.046
Exemptions 2.047
E. THE IMPACT OF BREXIT ON PAYMENTS SERVICES AND SYSTEMS 2.052
1 Overview 2.052
2 Changes to payment services regulation 2.053
3 Changes to payment systems regulation 2.056
4 Changes to data protection legislation 2.057
F. OPEN BANKING TO OPEN FINANCE 2.058
1 Overview 2.059
2 What is the aim of Open Banking? 2.065
3 What sparked this initiative? 2.066
4 Implementation of Open Banking 2.068
5 What are the potential advantages and disadvantages of Open Banking? 2.072
6 The global perspective 2.076
G. PAYMENTS AND DATA PROTECTION 2.082
1 Overview 2.082
2 Consent, transparency and the legal basis for processing data 2.083
Legal basis for data processing – consent under PSD2 vs. the EU GDPR 2.083
‘Silent party data’ 2.086
Practical measures 2.088
‘Sensitive payment data’ 2.089
General principles 2.091
3 Purpose limitation: regulating the use of data 2.092
4 Security 2.096
Overlap in the regulatory regimes 2.097
Incident reporting 2.100
H. LOOKING FORWARD – THE NEXT PHASE OF PAYMENTS LAW DEVELOPMENT 2.103
1 UK Treasury Payments Landscape Review 2.103
2 New Payments Architecture 2.104
3 UK Treasury Consultation on Stable Token Regulation 2.106
4 European Commission Digital Finance Strategy 2.110
Digital Finance Strategy 2.112
Retail Payments Strategy 2.113
Markets in Crypto-Assets Regulation (MiCA) 2.115
Regulatory framework on Digital Operational Resilience 2.117
5 G20/FSB’s Cross-border payments 2.118
I. CONCLUSION 2.121
3 CROWDFUNDING
A. INTRODUCTION 3.001
B. FORMS OF CROWDFUNDING 3.005
1 Donation-based crowdfunding 3.006
2 Reward-based crowdfunding 3.008
3 Investment-based crowdfunding 3.011
4 Lending-based crowdfunding 3.014
5 Initial coin offerings and securities token offerings 3.015
C. RATIONALE FOR CROWDFUNDING REGULATION 3.017
1 Should crowdfunding be regulated at all? 3.017
2 Is there a need for specific crowdfunding regulation? 3.021
3 The case for differing approaches to the different forms of crowdfunding 3.023
viii
EXTENDED CONTENTS
4 Regulation to achieve more efficient capital markets 3.025
D. REGULATORY FRAMEWORK 3.027
1 Platform requirements 3.027
Authorisation/licensing 3.028
Platform continuity 3.033
Prudential standards 3.035
Administration arrangements 3.039
Governance and risk management 3.044
2 Investor protection and business conduct 3.052
Financial promotion restrictions 3.055
Disclosures, risk warnings and information 3.057
Suitability/appropriateness assessments 3.060
Investor caps 3.064
Investee due diligence 3.068
Client asset and client money protections 3.072
Cooling-off and cancellation rights 3.076
Shareholder rights 3.079
Loan enforcement 3.082
Contingency funds 3.084
Measures to address different treatment of retail and institutional investors 3.086
3 Market integrity and financial crime 3.090
4 Market liquidity 3.094
E. CONCLUSION 3.099
4 CRYPTOASSETS AND INITIAL COIN OFFERINGS
A. INTRODUCTION 4.001
B. WHAT ARE CRYPTOASSETS AND INITIAL COIN OFFERINGS? 4.006
C. UK AND EUROPE 4.017
1 Overview 4.017
2 Categorisation of cryptoassets 4.023
3 E-money and cryptoassets 4.025
4 Payment services and cryptoassets 4.031
5 Collective investment schemes and cryptoassets 4.037
6 Alternative investment funds and cryptoassets 4.049
7 Carrying on of a regulated activity 4.055
8 Registry, settlement and clearing 4.064
9 Recent EU and UK regulatory developments 4.067
D. UNITED STATES 4.079
1 Overview 4.079
2 New York: the BitLicense regime 4.080
3 Other state cryptocurrency statutes 4.089
4 Commodity Futures Trading Commission 4.090
5 Financial Crimes Enforcement Network 4.096
6 Securities and Exchange Commission 4.097
7 Other federal agencies 4.100
E. ASIA 4.103
1 Overview 4.103
2 China 4.104
3 Thailand 4.107
4 Japan 4.109
5 Singapore 4.114
F. CONCLUSION 4.120
5 CRYPTOCURRENCIES AND CENTRAL BANKS
A. INTRODUCTION 5.001
ix
