Mueller Jackson
Jackson Mueller
Associate Director, Center for Financial Markets
Jackson Mueller is an associate director at the Milken Institute's Center for Financial Markets. He focuses on fintech, capital formation policy and financial markets education initiatives. Prior to joining the Institute, Mueller was an assistant vice president at the Securities Industry and Financial Markets Association (SIFMA), where he focused on...
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FinTech in Focus

By: Jackson Mueller
March 22, 2017

Form 8949

Eight hundred and two U.S. taxpayers filed Form 8949 in 2015 to account for “a property description likely related to Bitcoin,” according to an affidavit filed in support of the IRS lawsuit against Coinbase. David Utzke, an IRS agent, said 807 individuals reported such a transaction on Form 8949 in 2013, with 893 doing so in 2014. In a blog post from Coinbase, the exchange stated that it would “continue to work with the IRS to assess the government’s willingness to fundamentally reconsider the focus and scope of the summons. If it does not, we anticipate filing opposition papers in court in coming months.”

The Great Bitcoin Schism?

Meanwhile, a group of 20 virtual currency exchanges released a statement on preparations for the “very real possibility that a Bitcoin network split may occur in the future.” According to the statement: “Since it appears likely we may see a hardfork initiated by the Bitcoin Unlimited project, we have decided to designate the Bitcoin Unlimited fork as BTU (or XBU). The Bitcoin Core implementation will continue to trade as BTC (or XBT) and all exchanges will process deposits and withdrawals in BTC even if the BTU chain has more hashing power. Some exchanges intend to list BTU and all of us will try to take steps to preserve and enable access to customers’ BTU. However, none of the undersigned can list BTU unless we can run both chains independently without incident. Consequently, we insist that the Bitcoin Unlimited community (or any other consensus breaking implementation) build in strong two-way replay protection. Failure to do so will impede our ability to preserve BTU for customers and will either delay or outright preclude the listing of BTU.” Meanwhile, Brian Armstrong, co-founder and CEO of Coinbase, which did not sign the letter, released a statement noting that while it makes sense to list forked assets separately on exchanges, “it doesn’t make sense to say BTC can only be modified by one development team. If there is overwhelming support from miners and users around any new version of the software (regardless of who wrote it), then I think that will be called Bitcoin (or BTC). I think regardless of what was stated in the letter (and people’s personal views), pretty much every exchange would list whatever version got the overwhelming majority of miner and user support as BTC. I also think miners know this.” Nonetheless, Bitcoin’s price plummeted below $1,000 over the weekend due to the fear of a hard fork, before recovering to $1,086 as of Tuesday morning. Around the same time, other virtual currencies saw their market caps rise, with Ethereum, for example, topping $4 billion.

Tech Hubs and Policy Engagement

A report from the Institute of Development Studies says there is “latent, but recognized, potential for tech innovation hubs in the global South to play a more overt role in promoting social change through contributing to the ‘thickening’ of local democratic space and policy co-creation.” While the full potential of these hubs is yet to be achieved, the report notes certain hubs engaging in policymaking in five emerging ways: indirect, or non-engagement—the most common approach; superficial engagement, or short-term relationships devoid of impactful outcomes; premature engagement, or policy requests without data, coalitions, etc. to demonstrate why a hub’s request should be prioritized; client-based engagement, or moving from a client-consultant dynamic to policy co-creation, which “is, at best, tenuous”; and strategic engagement, or long-term relationships where hubs play an advisory role in policy co-creation. The overarching lesson from the report: “Policy engagement should not mean, but all too often is interpreted to mean, partisan politics. At the same time, successful policy engagement does sometimes require ‘politicking’ and getting political. 

Rise of the Robos (and Humans)

Let’s be clear: RoboCop was part human and part robot. And while I would be happy to engage with you in a lengthy debate on whether Officer Alex Murphy is more human or more robot, it is important to note that robo advisors themselves are increasingly becoming more human. For instance, Charles Schwab, Vanguard, and Betterment have all added human options over the past year. Meanwhile, T. Rowe Price recently launched its robo advice platform, ActivePlus Portfolios. The platform is currently open only to IRA investors with at least $50,000 in investable assets and, unlike most robos, will include only actively managed funds. Lastly, Goldman Sachs is making moves to enter the robo-advice market after posting an employment opportunity on Tuesday.

Accelerators Accelerating

A few headlines covering certain accelerators popped up over the last week. For instance, 500 startups will expand to Australia later this year with the launch of the 500 Melbourne office. Meanwhile, Techstars just launched a program in Paris, roughly three weeks after launching an accelerator in Toronto. Lastly, Plug and Play partnered with Maersk to launch a supply chain and logistics accelerator, while Startupbootcamp InsurTech joined with Zurich Insurance Group, allowing Zurich to tap into the accelerator’s InsurTech portfolio. The development comes roughly three weeks after Startupbootcamp FinTech launched an accelerator in Mexico City.

Global Developments

Australia: Equity crowdfunding (ECF) legislation passed the Senate, allowing retail investors to invest up to $10,000 annually in unlisted public companies with gross assets of up to $25 million and which can raise up to $5 million in any given year. Unfortunately, the legislation does not include proprietary companies, which represent 99 percent of Australian businesses. FinTech Australia welcomed the passage of the legislation and stated that it “will assist the government, industry and companies to better understand the dynamics of the ECF market in Australia, while preparing broader legislative change for private companies.”

Meanwhile, the Australian Securities and Investments Commission (ASIC) released guidance for startups and licensed firms seeking to use distributed ledger technology. “At this stage, we believe the existing regulatory framework is able to accommodate the DLT use cases we have seen,” it said. “However, as DLT matures, we anticipate that additional regulatory considerations may arise. These are most likely to be resolved with early and collaborative dialogue between ASIC and the industry. This information sheet is intended to form part of that dialogue.”

Canada: IBM and SecureKey Technologies announced a collaboration to develop a digital identity network, currently being piloted in Canada. The network will provide for a simpler verification process using IBM Blockchain and is expected to launch later this year. Separately, India’s Paytm launched its digital wallet service in Canada on Thursday.

China: The People’s Bank of China (PBoC) has reportedly amended anti-money-laundering (AML) requirements for virtual currency exchanges. The changes include requiring exchanges to establish an AML structure and internal control systems and clarification of a platform’s obligations, including a customer identification system, the preservation of records, and a system for reporting suspicious transactions. The PBoC also held a news conference at which officials discussed their efforts on FinTech, including strengthening the regulation of third-party payment platforms.

European Union: The European Central Bank is reportedly scrutinizing lenders’ use of cloud technology to cut costs, particularly at banks that utilize third parties to host data for them. Speaking of outsourcing practices, Olivier Guersent, European Commission director-general for financial stability, financial services, and capital markets union, provided an update, in prepared remarks, covering the commission’s task force on FinTech. “In the middle of all this change and increased competition, banks are calling for a level playing field—same activity, same rules. I do believe that the EU financial services regulations recognize this principle—it is activity-based, so anyone who wants to provide a regulated service has to ask for a license and comply with rules. But we should also honor the principle of proportionality.” Toward the end of his remarks, Guersent mentioned that the commission would hold a FinTech conference Thursday in Brussels focused on a number of activities and platforms.

Germany: The 21-member German Crowdfunding Association has reportedly set stringent standards for how platforms report to investors, going well beyond legal requirements in Germany and standards imposed by crowdfunding associations across the globe.

India: According to reports, the Securities and Exchange Board is looking to establish a regulatory framework for crowdfunding, including minimum net worth requirements for investors and standardized disclosures. Meanwhile, the country’s central bank is also looking at options to slow the growth of the nation’s peer-to-peer lending industry, through heightened disclosures and potential caps on interest rates. 

Malaysia: The central bank’s director for financial sector development, Aznan bin Abdul Aziz, spoke at Finnovasia KL, where he discussed the bank’s position on financial innovation and efforts to develop the country’s FinTech sector. “We are initiating a call for participation known as ‘FinTech Hacks,’ ” he said in prepared remarks. “This initiative is for the public to submit their innovative ideas through our various electronic channels for the improvement of the financial services sector.”

U.K.: Article 50 is likely to be triggered on March 29, according to reports. Meanwhile, the Bank of England’s FinTech Accelerator wants a community of FinTech organizations to engage with the bank to share insights, increase networking, and ensure the bank is addressing issues involving a wide range of FinTechs. The news release also notes that the bank will be working with MindBridge AI “to explore the benefit of machine-learning technology in analyzing the quality of regulatory data input” and Ripple “to lower settlement risks and improve the speed and efficiency of cross-border payments.” Separately, the British Business Bank has invested £135 million in peer-to-peer platforms since its creation in November 2014, according to a recent freedom of information request.

U.S.: On the blockchain front, the Illinois Department of Financial and Professional Regulation joined R3, becoming the first state-level regulatory agency to join the consortium. The development comes a few months after the state formed the Illinois Blockchain Initiative. In Delaware, legislation has been proposed (full text here) that would amend the state’s General Corporation Law to allow corporations to manage and create corporate records. According to the legislation, “Amendments to Sections 219, 224, and 232 and related provisions are intended to provide specific statutory authority for Delaware corporations to use networks of electronic databases (examples of which are described currently as “distributed ledgers” or a “blockchain”) for the creation and maintenance of corporate records, including the corporation’s stock ledger.” Delaware Blockchain Initiative’s Andrea Tinianow and Symbiont’s Caitlin Long, according to a recent post, said: “Gone would be the days of discovering that a company’s capitalization table is wrong before a material corporate transaction, which today requires a scramble to perfect the capitalization table through a Section 204 filing that, in turn, requires a forensic audit and payment of overdue franchise taxes. Furthermore, even after a capitalization table has been perfected, errors still occur today that would simply not be possible with distributed ledger shares.”

At the federal level, the Office of the Comptroller of the Currency (OCC) released a draft licensing manual supplement for evaluating FinTech charter applications. Public comments on the draft are due by April 14. Comptroller Thomas Curry’s five-year term is set to expire in early April and it’s being reported that former OneWest Bank executive Joseph Otting will likely be tapped to replace him. And, since we’re on the topic of FinTech charters, 33 House Republicans sent a letter to the OCC urging it not to rush on finalizing special-purpose charters for FinTech firms. At the legislative level, Rep. Emanuel Cleaver (D-Mo.) submitted a letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray expressing deep concern “that some FinTech companies may be using algorithms that shut out hardworking individuals from communities of color from accessing affordable small-business credit.” The letter also asks when the CFPB intends to finalize Section 1071 of the Dodd-Frank Act and whether the bureau has engaged in supervisory activities over FinTech small-business lenders.

Lastly, two additional councils and task forces have been formed by the Chamber of Digital Commerce and the National Association of Insurance Commissioners (NAIC). The chamber formed a Blockchain Intellectual Property Council chaired by Marc Kaufman, partner at the law firm Rimon; Patrick Murck, special counsel at the law firm Cooley and fellow at the Berkman Klein Center at Harvard; and James Murdock, chief business officer and general counsel at Blockstream. NAIC launched the Innovation and Technology Task Force “to help insurance regulators stay informed on key developments, including new products and services from startup companies, as well as established insurance industry players.” The task force will be led by Michigan Insurance Director Patrick M. McPharlin and Oregon Insurance Commissioner Laura Cali.

Vietnam: The central bank announced the formation of a FinTech steering committee tasked with submitting an annual committee action plan, providing advice on developing a legal framework supportive of FinTech, and drafting plans to accelerate the development of FinTech in the country.



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