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  • NYDFS Authorizes Coinbase to Offer Trading of Digital Currencies in New York

    FinTech

    On March 22, the New York State Department of Financial Services (NYDFS) announced the approval of Coinbase, Inc.’s application to offer Ether and Litecoin to New York customers.  “Ether” is a “digital cryptography-based asset” of the Ethereum network, “similar to how bitcoin is the digital cryptography-based asset of the Bitcoin network.” Litecoin, developed as a modification of the Bitcoin protocol, is the first alternative virtual currency to Bitcoin to gain public acceptance.  NYDFS also approved Coinbase’s linked debit card service “Shift Card”—a VISA debit card that allows Coinbase users in select U.S. states and territories to use Bitcoin anywhere VISA is accepted. As discussed in a previous InfoBytes post, NYDFS recently issued a virtual currency and money transmitter license to Coinbase, which permits the company to operate as a service for buying, selling, sending, receiving, and storing Bitcoin. Financial Services Superintendent Maria T. Vullo noted, “DFS has proven that the state regulatory system is the best way to supervise and cultivate a thriving fintech industry, like virtual currency. New York will remain steadfast in pushing back against federal encroachment efforts like the OCC’s proposal to impose a one-size-fits-all national bank charter that increases risk and seeks to usurp state sovereignty.”

    Fintech Digital Commerce bitcoin NYDFS Virtual Currency

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  • SEC Denies Application for Bitcoin ETF Due to Lack of Regulation, Potential for Manipulation

    Agency Rule-Making & Guidance

    On March 10, 2017, the SEC issued an Order disapproving of a proposed rule change by the BATS BZX Exchange (“the Proposal”), which proposed to list and trade “commodity-based trust shares” issued by the Winklevoss Bitcoin Trust. The Proposal, if approved, would have established a bitcoin exchange-traded fund (“ETF”) that market participants could invest in through the BATS BZX Exchange platform. Specifically, in rejecting the Proposal, the Commission emphasized the lack of regulation in the bitcoin market, noting both (i) that the BATS BZX Exchange platform “would currently be unable to enter into, the type of surveillance-sharing agreement that helps address concerns about the potential for fraudulent or manipulative acts and practices in the market for the Shares”; and (ii) that bitcoin regulation, at present, would leave a bitcoin ETF more susceptible to manipulation than an ETF comprised of other commodities, such as gold and silver. Ultimately, the Commission concluded that, “[a]bsent the ability to detect and deter manipulation of the Shares—through surveillance sharing with significant, regulated markets related to the underlying asset—the [Commission] does not believe that a national securities exchange can meet its” regulatory obligations.

    Comments submitted in response to the original BATS BZX Exchange proposed rule change can be accessed here.

    Securities Fintech Digital Commerce bitcoin SEC Agency Rulemaking & Guidance

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  • President of Philadelphia Fed Makes an Argument for FinTech Regulation

    Federal Issues

    In prepared remarks at the “Global Interdependence Center’s Payment Systems in the Internet Age” Conference, Philadelphia Fed President Patrick T. Harker said that regulating the evolving FinTech industry benefits not only consumers, but also the innovators. While Harker did not speculate as to whether the Fed will become involved in FinTech regulation, he stated that it is in the best interest of FinTech companies “to have an established framework in which to operate.” He cautioned, however, that “all financial systems are a matter of trust” and thus FinTech firms will “need that trust the same as any other bank or financial institution.” Harker noted that regulations will help determine which companies can survive the “down side” of a credit cycle, but implementing regulations after a “crisis. . . could mean tighter strictures and less room for innovation.”

    Federal Issues Digital Commerce Federal Reserve Fintech Agency Rulemaking & Guidance

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  • Texas Appeals Court Holds Email “From:” Line to be a Valid Electronic Signature Under State’s Uniform Electronic Transactions Act (UETA)

    Courts

    On December 22, in an unpublished decision, a Texas Court of Appeals held that an email exchange constituted an executed contract between two individuals under the state’s enactment of the Uniform Electronic Transactions Act (“UETA”). Khoury v. Tomlinson, No. 01-16-00006-CV (Tex. App. Dec. 22, 2016). The dispute involved an email sent from Appellant to Appellee, which outlined terms of an agreement to repay investment funds. Appellee responded to the email, stating "We are in agreement," but did not type his name or include a signature block at the end of his message. A jury found that an electronic contract was formed by this exchange, but the trial court granted the Appellee’s motion for judgment notwithstanding the verdict on the basis that the electronic contract violated the state statute of frauds. On appeal, the Appellant invoked the UETA, arguing that the email satisfied the writing requirement of the statute of frauds because it was an electronic record and that the header, which included a “From:” field bearing the Appellee’s name, constituted Appellee’s signature because that field serves the same “authenticating function” as a signature block. The appellate court agreed that the email was an electronic record sufficient to satisfy the writing requirement in the statute of frauds.

    Courts Digital Commerce Electronic Signatures UETA Payments

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  • CFTC Extends Public Comment Period for Regulation Automated Trading (Reg AT) to May 1

    Federal Issues

    On January 23, the CFTC extended the comment period for the supplemental proposal for Regulation Automated Trading (Regulation AT) from January 24 to May 1. Acting CFTC Chairman Chris Giancarlo recently announced his intention to “allow more time for public comments on the proposal” in light of “the complexity of the supplemental notice and the well-reasoned requests from interested parties.”  Initially proposed in November 2015, the CFTC released a revised version of the rule in November 2016 in response to concerns expressed by trading firms over, among other things, the requirement that they make their source code available to the agency without a subpoena. All comments will be posted on the CFTC’s website.

    Federal Issues Digital Commerce CFTC Fintech

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  • Coinbase Gets NY BitLicense, Clearance For Its Operations

    State Issues

    On January 18, the New York State Department of Financial Services (NYDFS) announced that it had approved the application of Coinbase, Inc., for a virtual currency and a money transmitter license. According to NYDFS, the license was issued to Coinbase—a digital currency wallet that facilitates transactions with Bitcoin and other virtual currencies—only after “a comprehensive review of Coinbase’s applications, including the company’s anti-money laundering, capitalization, consumer protection, and cyber security policies.”  Having met the New York regulator’s standards for operations in the state, Coinbase may now operate, under supervision by NYDFS, as a service for buying, selling, sending, receiving and storing Bitcoin.

    As previously covered in InfoBytes, NYDFS’s BitLicense framework—which was finalized back in June 2015—requires virtual currency companies to submit a 31-page application providing information covering, among other things:  (i) written policies and procedures including, but not limited to BSA/AML, cybersecurity, privacy and information security, (ii) company information, (iii) biographical information on company directors and stockholders, and (iv) an explanation of the methodology used to calculate the value of virtual currency in fiat currency. In addition, the NYDFS released a set of FAQs to help clarify the BitLicense requirements. To date, NYDFS has approved five firms for virtual currency charters or licenses, while denying those applications that did not meet its standards.

    State Issues Digital Commerce Anti-Money Laundering NYDFS bitcoin

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  • NYDFS Submits Comment Letter Opposing OCC FinTech Charter

    State Issues

    On January 17, the New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo submitted a comment letter in stern opposition to the OCC proposal to create a new FinTech charter, stating that the proposed regulatory scheme is not authorized by federal law and would create a number of problems, including a serious risk of regulatory confusion and uncertainty. New York’s top financial regulator is of the opinion that “the OCC should not use technological advances as an excuse to attempt to usurp state laws.” More specifically, NYDFS’ contends, among other things, that: (i) state regulators are better equipped to regulate cash-intensive nonbank financial service companies; (ii) a national charter is likely to stifle rather than encourage innovation; (iii) the proposal could permit companies to engage in regulatory arbitrage and avoid state consumer protection laws; and (iv) a national charter would encourage large “too big to fail” institutions, permitting a small number of technology-savvy firms to dominate different types of financial services.

    An interview of Superintendent Vullo discussing this topic may be accessed here.

    State Issues Digital Commerce OCC NYDFS Fintech

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  • PA Amends Money Transmission Business Licensing Law

    State Issues

    Pennsylvania’s Secretary of Banking and Securities, Robin L. Wiessmann, issued guidance to businesses engaged in money transmission to inform them of significant changes that will be required for their businesses as a result of amendments to the Money Transmission Business Licensing Law. Governor Tom Wolf signed the changes into law on November 3, 2016 (Act 129 of 2016) and the new law became effective on January 2, 2017.

    State Issues Digital Commerce Payments Money Service / Money Transmitters

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  • US Court Rejects DocuSign e-Signatures as Method to Provide Digital Authorization

    Courts

    Back in July, the United States bankruptcy court for the Eastern District of California held that under its local rules, an attorney submitting electronically signed documents for filing with the court must maintain an originally signed document in paper form bearing a “wet” signatureIn re Mayfield, No. 16-22134-D-7, 2016 WL 3958982 (U.S. Bankr. Ct. E.D. Cal.).  The United States Trustee (UST) filed a motion for sanctions against a debtor’s attorney who used the an electronic signature platform to have the debtor execute certain documents that were subsequently filed with the court.  The court’s local rules 9004-1(C) and (D) provide that if these documents were executed with a “software-generated electronic signature,” the submitting attorney is required to maintain “an originally signed document in paper form” and produce it upon request by the UST.   When asked by the UST to produce the original signed versions of the documents he filed, the debtor’s attorney was unable to do so.  In response to the motion, the debtor’s attorney argued that the requirements of 9004-1(C) and (D) did not apply because the electronic signatures were manually created by the debtor’s actions taken on the electronic signature platform.  As such, they were not “software-generated electronic signatures” within the meaning of the rule, and under the federal ESIGN Act constituted “original” signatures.

    Ultimately, the court held that: (i) the ESIGN Act was not applicable because of the express exemption for court rules at 15 USC § 7003(b)(1), thereby permitting the court to establish and interpret its own rules with respect to electronic signatures, (ii) the electronic signatures created using the platform were within the meaning of the term “software-generated electronic signature” under the local rules, and (iii) the local rule’s reference to “an originally signed document in paper form” required the attorney to also maintain a copy of the document bearing a “wet ink” signature.  Accordingly, the Court granted the UST’s motion and, as the sanction imposed, required the debtor’s attorney to certify completion of the court’s online e-filing training course.

    Courts Digital Commerce ESIGN Electronic Signatures Sanctions Payments UST

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  • Implementation of New EU Regulation Establishes Uniform Legal Framework for e-Signatures Across All EU Member States

    FinTech

    Recently, the EU adopted a new EU Electronic Signature Regulation 910/2014/EU, which established a new, comprehensive, legal framework for e-signatures, as well as e-identification, e-seals, e-timestamp, e-documents, e-delivery services, and website authentication. The new regulation applies to transactions dating back to July 1, replacing the prior Directive on Electronic Signatures (1999/93/EC). Among other things, the new regulation defines three levels of e-Signatures: (i) e-Signature, (ii) advanced e-Signature, and (iii) qualified e-Signature. “E-Signature” is defined as data in electronic form which are attached to, or logically associated with, other electronic data, which are used by the signatory to sign. “Advanced electronic signature” is defined as uniquely linked to the signatory, capable of identifying the signatory, and created using e-signature creation data that the signatory can, with a high level of confidence, use under his sole control. And finally, a “qualified electronic signature” is defined as an advanced electronic signature created by a qualified electronic signature creation device.

    Notably, and in contrast to previous EU directives on e-signatures, the new regulation is directly applicable in all 28 EU Member States without any requirement that it be formally adopted into national law. Specifically, Article 25 of the New Regulation provides that an electronic signature shall not be denied legal effect and admissibility as evidence in legal proceedings solely on the grounds that it is in an electronic form or that it does not meet the requirements for qualified electronic signatures. Rather, a qualified electronic signature in one EU Member State shall now be recognized as a qualified electronic signature in all other Member States.

    Digital Commerce International Electronic Signatures European Union Miscellany

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