The Financial Technology Law Review

However, firms must not invite or induce to engage in investment activity (financial advertising) in the course of their activities, unless the investment firm is authorised or the content of the communication is approved by an authorised person.15 Breaches of the restriction on financial disclosure will result in criminal penalties. Each jurisdiction has its own rules regarding physical presence requirements. In general, foreign companies can provide financial services in any U.S. jurisdiction by registering with the appropriate regulatory authority or, if necessary, with the Secretary of State or tax authorities in that jurisdiction. Some jurisdictions even allow their own licensed businesses to maintain some or all of their essential business activities outside the jurisdiction. Charter applications from U.S. financial institutions and government money transmitters are subject to strict criminal background checks, as well as financial records and fingerprint requirements for owners, major shareholders, directors and officers. From an investment perspective, private finance has been critical to the UK`s success as a fintech hub. The Kalifa Review of UK Fintech recommended an expansion of existing research and development tax credits and other investment incentives to encourage fintechs to continue growing their businesses instead of selling them. Another important suggestion from the review is to improve the stock market environment for companies wishing to proceed with IPOs through the reduction of the free float, two-tier equities and the relaxation of subscription rights with a view to establishing a UK technology index in the future. The lack of a harmonised trade agreement on financial services certainly poses challenges for FinTech business models, but it also presents opportunities as the UK adapts its financial regulatory system to make itself more attractive to fintech entrepreneurs and corporate capital, while maintaining its reputation as a global leader as a financial services hub.

In this context, the government commissioned the “Kalifa Review of UK Fintech”4, which contains a series of proposals to trigger a “digital big bang” after Brexit (see Section VIII for a discussion on its implementation in 2021). In 2019, the SEC and the Financial Industry Regulatory Authority issued the “Joint Statement on the Custody of Digital Asset Securities by Dealers” (the Joint Statement), in which “digital asset” refers to any asset issued and transferred using distributed ledger or blockchain technology, and a “digital asset title” is any digital asset that is also collateral under federal laws on securities. The joint statement discussed the application of digital asset securities to the SEC`s client protection rule, which, among other things, requires broker-dealers to hold clients` securities in a “good checkpoint,” which is typically a third-party custodian such as a trust company. The customer protection rule considers banks to be a good place of supervision; However, FDIC-insured banks are currently not allowed to hold securities for digital assets. Usage was slow at first, but in 2019, Open Banking surpassed 1 million users for the first time. As more consumers and small businesses approve of connecting their bank accounts to authorized third parties, the responsibility for protecting their data lies with a broader ecosystem of providers. This poses challenges in terms of security, data routing, and combining data with other data sets. The trust framework that is at the heart of Open Banking and managed by the Open Banking Implementation Entity has been so successful that the FCA is interested in developing “open finance” as an extension of Open Banking. Open finance would open up a wider range of financial products and services to the exchange of data by third parties; For example, pensions and insurance. In its March 2021 comment statement, the FCA set out its vision for open finance, where consumers and businesses can give trusted third parties access to their data and, in return, access a wider range of financial services. The FCA believes that open finance is an important initiative that will further stimulate innovation and lead to a wider range of services and an improvement in the financial health of consumers and businesses in the UK.

The creation of secondary markets on platforms is not prohibited, but it is becoming increasingly unusual for more established platforms due to the additional regulatory burden it entails (in particular due to potential financial support problems). It is more common for platforms to create venture capital-type fund structures that give investors the opportunity to leave the fund without having to find other users to buy their shares. The U.K., like many other jurisdictions, is still grappling with some of the transfer pricing and taxable presence issues that arise from FinTech companies. These depend on the value attached to a decentralized system, and new types of questions about what is required for a taxable presence in a country will likely need to be answered. The starting point for UK tax is to check whether there is a permanent establishment, which usually involves a physical presence. However, there are also anti-tax avoidance provisions designed to prevent permanent establishment or fragmentation of avoided profits and, in some cases, agreements surrounding a FinTech business need to be reviewed to determine whether there is a risk that these provisions will be triggered. In some cases, it will be more difficult to assess how this might apply to a global supply chain compared to a more traditional company. Unlike the revised EU Payment Services Directive, there is no law or regulation in the US that directly requires financial institutions to share customer data with FinTech companies. Although Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) requires banks and other financial services companies to provide customers` financial information to the customer in a usable form, there are no promulgated rules defining what “usable form” means or identifying penalties for financial institutions that restrict the information they share.