FinTech Monthly Bulletin: January 2021

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1. General

1.1 The European Commission has announced new proposals to help the digital services industry to better protect consumers and their fundamental rights online, and to improve safe access to digital markets through introducing two new acts - the Digital Services Act and the Digital Markets Act.  The aim of the Digital Services Act is to encourage further innovation, growth and competitiveness, and facilitate the scaling up of smaller platforms, small and medium-sized enterprises (SMEs) and start-ups whereas the purpose of the Digital Markets Act is to provide a set of narrowly defined objective criteria for qualifying a large online platform as a so-called "gatekeeper" creating a fairer environment for consumers and business users. (15 December 2020)

1.2 The European Council has provisionally agreed to a €2.2billion programme which will fund the increase in the capacity  plans for the EU to deploy digital technologies like AI, supercomputing and data platforms more widely for the public health sphere. A further €1.6 billion is planned to be invested towards cybersecurity, to strengthen coordination between member states, boost Europe's capabilities and support the deployment of cyber-security technology, infrastructure and competence across the EU, through initiatives such as the EU cybersecurity competence centre and network. (14 December 2020)

1.3 The UK Competition and Markets Authority (CMA) has provided advice to the UK Government on a new pro-competition regime for "tech giants". The regime will introduce various governance proposals for big tech firms with the three main pillars being:

• a new, legally binding code of conduct, tailored to each firm;

• pro-competitive interventions, to tackle and prevent sources of market power, allowing competition to flourish and to encourage innovation by others in the market; and

• enhanced merger rules, which would enable the CMA to apply closer scrutiny to transactions involving big tech firms. (8 December 2020)

1.4 China has announced plans to introduce new policies on financial discipline including a focus on the central bank digital currency. Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission stated that FinTech businesses should follow some new and special regulatory rules and that financial infrastructure, such as the electronic payment system and the cross-border settlement system, will be included in the Central Bank's general supervision. (2 December 2020)

2. Artificial Intelligence and Automation

2.1 The House of Lords Liaison Committee has published its first follow-up report, 'AI in the UK: No Room for Complacency'. The report states that further coordination with regards to the UK Government's AI policy and the use of data and technology by national and local government is necessary. Another recommendation mentioned in the report stated that the Government should now start looking to implement AI ethics in the development and deployment of AI systems. (18 December 2020)

2.2 The Bank of England has released its Q4 quarterly bulletin based on the results to a survey conducted in August 2020 on the impact of COVID-19 on machine learning (ML) and data science (DS) in UK banking. In summary, the survey reported that around 50% of the banks that participated placed an increased importance on ML and DS as a result of the pandemic. None of the participants believed that COVID-19 will reduce the importance of ML and DS for them, which is contrary to the historical pattern of businesses tending to respond to negative macroeconomic shocks by reducing expenditure, including spending on investment and innovation. (18 December 2020)

2.3 The EU Legal Affairs Committee has continued to adopt a wide range of resolutions in the field of AI, this time providing guidelines on the use of AI in the health and justice sectors and for military purpose. These draft guidelines warned that the increased use of AI systems in public services, especially healthcare and justice, should not replace human contact or lead to discrimination. Patients' personal data must be protected, AI should not replace humans to pass sentences and a ban on "highly intrusive social scoring applications" (for monitoring and rating of citizens) by public authorities were among the various points dealt with in the resolutions. (10 December 2020)

3. Crypto-assets

3.1 The Irish Government is advancing a bill which will transpose certain provisions of the AMLD5 into national law. In particular, the bill will bring virtual asset service providers and custodian wallet providers in scope of Ireland's AML regime. The bill has been amended during its passage through the legislative process to bring it in line with FATF's recommendations on virtual asset service providers. For more information, please read our Insights article, "AMLD5/virtual assets" here (16 December 2020).

3.2 The Hong Kong Government has commenced a public consultation ("Consultation") on its proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance ("AMLO"). Within this, the government has proposed a licensing regime for virtual asset services providers ("VASPs") pursuant to the recommendations of the Financial Action Task Force ("FATF"). For more information, please read our Insights article, "Proposed licensing regime for virtual asset exchange in Hong Kong" here (10 December 2020).

3.3 G7 Finance Ministers have held the 12^th and final virtual discussion of 2020 in response to the COVID-19 pandemic. In addition to discussions surrounding effective actions in response to the pandemic, the attendees also focussed on the evolving landscape of cryptocurrencies and other digital assets and stressed the need to:

• regulate digital currencies; and
• prevent their use for illegal purposes. (7 December 2020)

3.4 India has planned to tax income from bitcoin investments. The tax authority has not yet categorized returns from cryptocurrencies under any specific bracket. However, some are anticipating a 30% tax on cryptocurrency gains and many are advising their clients to file bitcoin returns as capital gains, which are associated with stocks. (7 December 2020)

3.5 The U.S. Treasury Department has warned the state and federal regulators to review digital asset innovations with greater regulatory scrutiny. This is due to the anticipation of stablecoins becoming widely adopted as a form of payment in the future meaning it could potentially upset the balance of the current financial system. (4 December 2020)

3.6 Bank for International Settlements' Innovation Hub (BISIH) Swiss Centre has reported a successful wholesale bank digital currency (CBDC) experiment. The experiment explored the technological and legal feasibility of transferring digital assets through issuing a wholesale CBDC onto a distributed digital asset platform; and linking the digital asset platform to the existing wholesale payment system. (3 December 2020)

3.7 Ukraine has passed the first stage of its Draft bill on virtual assets. The proposed legislation has two more hearings before it can become law and for Ukraine to join the short list of nations that have put in place dedicated laws regulating cryptocurrencies. (2 December 2020)

3.8 U.S. Congresswoman Rashida Tlaib together with the Chairman of Task Force on Financial Technology, Stephen Lynch have released a press report proposing a new bill called the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act. The bill would require, among other things, any prospective issuer of a stablecoin to obtain a banking charter  and  any company offering stablecoin services to follow the appropriate banking regulations under the existing regulatory jurisdictions.  These measures are said to be directed at protecting consumers from the risks posed by emerging digital payment instruments. (2 December 2020)

4. Cybersecurity

4.1 The Abu Dhabi Technology Innovation Institute (TII), has announced that it has built the UAE's first national sovereign crypto library. The intention is that the library can be used to protect highly confidential information and protect against the threat of cyberattacks. (23 December 2020)

4.2 The European Commission and the High Representative of the Union for Foreign Affairs and Security Policy have released a new EU Cybersecurity Strategy aimed toward safeguarding a more global and open Internet through harnessing and strengthening resources available to ensure the fundamental rights of everyone. The Strategy contains proposals for regulatory, investment and policy initiatives, in three areas:

• resilience, technological sovereignty and leadership;
• building operational capacity to prevent, deter and respond to threats; and
• advancing a global and open cyberspace through increased cooperation with partners around the world.

Further information on the new EU Cybersecurity Strategy can be found in the European Commission's Q&As here. (16 December 2020)

4.3 The European Council has announced that the new European Cybersecurity Industrial, Technology and Research Competence Centre will be located in Bucharest, Romania. The Council is hoping that the creation of the Centre will help improve the coordination of research and innovation in cybersecurity in the EU. It will also be the EU's main instrument for pooling investment in cybersecurity research, technology and industrial development. Further information in relation to the role Cybersecurity Competence Centre will play can be found here. (10 & 11 December 2020)

4.4 The UK's Information Commissioner's Office (ICO) together with the Global Cyber Alliance have agreed a Memorandum of Understanding which sets out the intention of both organisations to help each other better protect personal data from cyberattacks through:

• sharing of technical information from cyber incident investigations;
• coordinating information and intelligence which enhances the ability to identify cyber threats, risks and trends; and
• collaborating efforts towards research to improve each parties' understanding of the cyber landscape including its size, actors operating therein and the business models they are adopting. (11 December 2020)

4.5 The European Council has summarised and adopted conclusions that acknowledge the increased use of consumer products and industrial devices connected to the internet and the related new risks for privacy, information security and cybersecurity. The conclusions state and prioritise the key issues of privacy, information security and cybersecurity, and sets out the standards of resilience, safety and security the EU IoT industry must have in place in order to boost the global competitiveness of the EU's IoT industry. (2 December 2020)

5. Data

5.1 The UK's Information Commissioner's Office (ICO) has released its Data Sharing Code of Practice. The purpose of the Code is to provide practical advice to businesses and organisations on how to carry out responsible data sharing. (17 December 2020)

5.2 The UK's Centre for Data Ethics and Innovation has published a blog on its relationship with public sector bodies and industry (Police Scotland, Bristol City Council and Ministry of Defence (to name a few)) on its live projects, and on its capability to help the government to enable and deliver responsible data-driven innovation. The focus is on the programme to develop an AI assurance ecosystem and its work on promoting responsible data-driven innovation and provide practical support for interventions in the tech landscape alongside the Government. (17 December 2020)

5.3 The International Trade Committee has launched an inquiry into digital trade and data. Digital trade refers to digitally enabled, or digitally delivered, trade in goods and services which involves the movement of data. Committee have set out various questions on its portal on a wide range of topics, including:

• digital trade and data provisions in Free Trade Agreements;
• concerns around the security and privacy of data;
• the environmental impact of digital trade; and
• relevant legal frameworks.

The Committee have invited responses to be submitted by Friday 12 February 2021. (15 December 2020)

6. Distributed Ledger Technology, Blockchain and Smart Contracts

6.1 The Law Commission of England and Wales has published its call for evidence on smart contacts as part of the scoping study into the law on smart contracts requested by the UK Government. The scoping study is aimed at analysing current law as it applies to smart contracts as well as identifying areas where further reform may be required. The call for evidence, which closes on 31 March 2021, focuses on how smart contracts are currently being used and covers the following topics:

• What is a smart contract?
• Formation of smart contracts.
• Interpretation of smart contracts.
• Remedies and smart contracts.
• Consumers and smart contracts.
• Jurisdiction. (17 December 2020)

6.2 Japan has announced that it is trialling blockchain technology to allow residents from Kaga to vote online in the next local elections. The aim is for the initiative to address some concerns with voting online such as double voting, high technical hurdles to keep voting secret, and the cost of voting devices. (7 December 2020)

6.3 The Thai Excise Department has stated that it is to use blockchain technology to help boost revenue and assist the nation's economic recovery through making tax receipt collection more efficient rather than raising taxes for the 2021 fiscal year. (7 December 2020)

7. Payments and Open Banking

7.1 The UK's Open Banking Implementation Entity together with Ipsos MORI have published a research report stating that since the start of the COVID-19 pandemic, the UK's small business community has been increasingly adopting the services offered by open banking providers to future-proof their business operations. The report also stated that open banking has led to improved resilience amongst the SMEs, an increase in the tendency for SMEs to switch banking current accounts and an increase in small business borrowing. (7 December 2020)

8. Other

8.1 The Dubai Financial Services Authority (DFSA) has announced updates to the DFSA Rulebook following the publication of Consultation Paper No. 136. Consultation 136 posed a number of questions including whether a new Periodic Fund Return should be introduced and whether there should be changes to regulations covering crowdfunding regimes. (23 December 2020)

8.2 The UK's Digital, Culture, Media and Sport Committee has warned the UK Government that it risks failing to meet its revised-down target for 2025 gigabit-capable broadband in the face of considerable challenges to infrastructure roll-out. (22 December 2020)

8.3 The UAE Central Bank (CBUAE) has announced the opening of its new FinTech Office that aims to develop the position of the UAE as a FinTech hub both regionally and globally. The aim is that the Office will help in attracting more international and regional FinTech companies and to ensure that the CBUAE has effective regulations and a robust infrastructure. (7 December 2020)

8.4 The European Commission has introduced several initiatives to modernise the EU justice systems. The purpose is to speed up digitalisation of justice in the EU and boost training of justice professionals. (2 December 2020)

8.5 The Central Bank of Oman (CBO) has launched its FinTech Regulatory Sandbox (FRS) initiative, through which participants can apply to live test their FinTech solutions in a safe environment under the supervision of the CBO. The first phase of the FRS will be open for applications related to payments solutions. (10 December 2020)

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The FinTech Monthly Bulletin is prepared by the FinTech team of Simmons & Simmons.

Since its emergence into the mainstream, the FinTech sector has captured the interest and imagination of entrepreneurs, investors, governments and regulators, not to mention financial institutions and asset managers. We understand the opportunities and challenges that lie at the heart of the FinTech revolution and advise clients navigating the novel legal and regulatory issues that frequently arise.

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