In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 27 January 2023.


Recent updates from Herbert Smith Freehills include:


ISDA: Paper on bankruptcy in digital asset markets

The International Swaps and Derivatives Association (ISDA) has published a paper Navigating Bankruptcy in Digital Asset Markets: Netting and Collateral Enforceability. The paper considers the legal nature of digital assets; close-out netting; digital assets as collateral; and collateral documentation. The ISDA will publish a second paper in Q1 2023 to address issues relating to customer digital assets held with intermediaries. The papers are intended to help market participants understand the legal and documentation questions that need to be addressed to establish ownership of digital assets, the posting of those assets as collateral, and the enforceability of netting in order to enhance certainty and reduce risk. [26 Jan 2023]



FCA: Cryptoasset AML/CTF regime – new webpage

The FCA has updated its webpage in relation to the cryptoasset anti-money laundering and counter-terrorism financing (AML/CTF) regime. The updated webpage provides feedback on good and poor quality applications made to the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The feedback aims to help applicants prepare their application for registration and make the process as simple and efficient as possible. [25 Jan 2023]


FCA: Speech on building better foundations in AI

The FCA has published a speech by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer, on building better foundations in artificial intelligence (AI). In the speech, Ms Rusu highlights the following;

  • the regulation of AI in financial services should be built on a platform of collaboration;
  • the principles of diversity and inclusion (D&I) are key to building better AI; and
  • innovation will help lead to better AI regulatory outcomes.

Ms Rusu was speaking at The Alan Turing Institute's Framework for Responsible Adoption of AI in the Financial Services Industry (FAIR) event. [24 Jan 2023]




HoC Library: Research briefing on regulation of cryptocurrencies

The House of Commons (HoC) Library has published a research briefing on the regulation of cryptocurrencies. The briefing covers: the definition of cryptocurrencies and cryptoassets; the regulation of cryptoassets and stablecoins; HM Government's (HMG) vision for the future; and consumer protection issues. The briefing also compiles a number of resources, including Parliamentary materials such as written answers to Parliamentary questions regarding cryptocurrencies, links to related Library research, links to UK official documents, and more.

The briefing is published in advance of the 25 January 2023 Westminster Hall debate on the regulation on cryptocurrencies. [23 Jan 2023]




NYDFS issues new regulatory guidance – expectations for sound custody and disclosure practices for virtual currencies

The New York Department of Financial Services (NYDFS) has released regulatory guidance to better protect customers in the event of an insolvency or similar proceeding. The guidance reiterates expectations for sound custody and disclosure practices, and the paramount importance of the equitable and beneficial interest in the asset always remaining with the customer.

The guidance applies to those entities the Department has licensed or chartered to custody, or temporarily hold, store, or maintain virtual currency assets on behalf of their customers. New York's virtual currency regulation requires entities to, among other things, hold virtual currency in a manner that protects customer assets; maintain comprehensive books and records; properly disclose the material terms and conditions associated with their products and services, including custody services; and refrain from making any false, misleading or deceptive representations or omissions in their marketing materials. Entities operating under the BitLicense and Limited Purpose Trust Charter are held to these requirements through NYDFS supervision and examinations, or when need be, enforcement actions.

The new guidance on insolvency covers:

  • segregation of and separate accounting for customer virtual currency;
  • virtual currency entity (VCE) custodian's limited interest in and use of customer virtual currency;
  • sub-custody arrangements; and
  • customer disclosure. [23 Jan 2023]

Ukraine-related sanctions information

Regular updates on sanctions and other developments that may impact businesses with interests or operations in Ukraine and/or Russia are available on our FSR and Corporate Crime Notes blog here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.