Fintech quarterly round-up: July – September 2018

Author: Charles Proctor

Charles Proctor, Partner, Fladgate LLP (


This quarterly round-up looks into some of the main regulatory developments and trends in fintech regulation during the third quarter of 2018.

The previous briefings for 2018 can be found here and here.

Regulation, regulation, regulation

The much anticipated Treasury Committee report on crypto-assets in the UK was published in September.  The main takeaway is that the Treasury Committee recommended that activities related to crypto-assets be subject to regulation.  It advised that self-regulation in the industry is insufficient and, given the potential risks to consumers as well as the money laundering implications, that regulation should be introduced as a matter of urgency.  As a minimum, it was recommended that any regulation should cover Initial Coin Offerings (or ICOs) and crypto-exchanges.  A level of investor protection similar to that of the United States was also mooted in the report.

The Treasury Committee also suggested that, regardless of the final Brexit arrangements, the fifth Money Laundering Directive, which will impose know your customer requirements on crypto-exchanges and crypto-wallets, should be implemented in the UK as a priority, and that the consultation process should be expedited.

A slightly more relaxed approach was taken by the Financial Stability Board in its report to the G20 on crypto-assets, which outlined a framework to monitor the financial stability implications of crypto-assets markets.  Given the comments in the report, it seems likely that focus will be on consumer and investor protection, market integrity and money laundering as well as the use of crypto-assets as a means of payment.

Finally, in view of the increase in reports of market manipulation of crypto-assets, including so-called “pump and dump” schemes, we also expect increasing regulatory scrutiny of this area.

Crypto-assets: the cautious approach continues

In the UK, the Financial Conduct Authority has announced that, in addition to a number of blockchain based businesses, it has admitted to its regulatory sandbox a number of businesses involving crypto-assets.  Is this a sign of increasing acceptance of crypto-assets by the UK regulator?

On the other hand, other regulators are less enthusiastic.  Saudi Arabia is one of the latest jurisdictions to declare that cryptocurrency trading is illegal and China is reportedly seeking to block access to foreign crypto-exchanges.

Crypto-assets may also be a risk too far for certain insurers.  Lloyd’s, the specialist insurance and reinsurance market, issued a market bulletin in July advising a level of caution for underwriting agents given the risks associated with crypto-assets.  Whether this will lead to a general reluctance to insure risks related to crypto-assets remains to be seen.  However, it is possible that crypto-businesses may find that the current issues with gaining access to banking extend to insurance.

Crush them or welcome them?

Despite the hard line being taken by some jurisdictions on ICOs: “we will crush them as soon as they dare to surface” (People’s Bank of China), more jurisdictions are starting to put in place ICO-specific regulation and guidance.

The most notable developments have been in Jersey where the Jersey Financial Services Commission issued a Guidance Note on the application process for ICO issuers.  In that Guidance Note it acknowledged that most ICOs are unlikely to be regulated by the Jersey Financial Services Commission, but nevertheless imposed certain requirements on ICO issuers including that the issuer be incorporated in Jersey and administered through a licensed trust and company service provider.

Interestingly, we are finding that ICOs are increasingly following a similar process to standard securities offerings.  Certain minimum standards for white papers are being recommended and an ICO eco-system appears to be developing which includes firms providing “know your customer” vetting for issuers as well as ICO rating agencies.

Fladgate has already been advising on a wide variety of fintech matters including ICOs and cryptocurrency related issues such as cryptocurrency exchanges and the regulation of crypto-assets. Fladgate’s regulatory team, therefore, has specific regulatory expertise in and market insight into this fast-moving area.

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