In this most recent issue, we discuss a number of updates and developments from federal regulators, including those related to novel banking arrangements, misrepresentations in advertisements and marketing, the intersection of fintech and AI, and other areas of increased scrutiny. We also discuss rule updates from the SEC, including the SEC’s Cybersecurity Rule and its proposed reforms to the Internet Adviser Exemption. Finally, we wrap up this edition with key litigation updates and our state law round-up, which discusses state commercial financing laws, California’s Digital Financial Assets law, and New York’s “tightening of the belt” on crypto asset companies.
Not So NFTy: What the Impact Theory and Stoner Cats Enforcement Actions Could Mean for NFTs
The U.S. Securities and Exchange Commission (SEC) recently announced charges against and settlements with two NFT issuers for allegedly conducting illegally unregistered offers and sales of securities in the form of “non-fungible tokens,” or NFTs, in violation of Section 5 of the Securities Act of 1933 (the Securities Act). One issuer is a California-based media and entertainment company,Impact Theory, LLC, while the other,Stoner Cats 2, LLC, is the producer of an adult animated television show about cats that become sentient after being exposed to their owner’s medical marijuana. These are the SEC’s first two public actions against NFT issuers under the federal securities laws.
Two New Rulings from the SDNY with Mixed Messages for Crypto: Potential Implications for Regulation of the Crypto Industry
A pair of recent rulings from the Southern District of New York (SDNY) have potentially increased confusion around the regulatory status of crypto asset regulation—but may also provide some interesting signs of what’s to come. In a long-awaited decision, Judge Analisa Torresruledthat certain sales by Ripple Labs, Inc. (Ripple) of its XRP token did not constitute unregistered sales of securities, as alleged by the U.S. Securities and Exchange Commission (SEC). Weeks later, Judge Jed S. RakoffdeniedTerraform Labs Pte. Ltd.’s (Terraform) and Do Hyeong Kwon’s motion to dismiss an SEC complaint alleging that Terraform and Kwon violated securities laws based in part on the assertion that various tokens developed and distributed by Terraform are securities.
Focus on Fintech – Q2 2023
In this most recent issue, we discuss a number of federal banking agency updates, including the long-awaited Final Interagency Guidance on Third-Party Relationships and the Federal Reserve Bank of New York’s report on the feasibility of an interoperable network for wholesale payments, among other developments. We also address several updates from the SEC, including the reopening release for the proposed rule to amend the definition of “exchange” and the increased focus on investment adviser marketing, and examine proposed stablecoin and crypto asset legislation. Finally, we wrap up this edition with regulatory updates from the UK, consumer protection updates, and updates on certain fintech litigations, as well as an overview of select legislative developments at the state level.
SEC Adopts Cybersecurity Disclosure Rules for Public Companies
On July 26, 2023, the U.S. Securities and Exchange Commission (SEC) approvedfinal rulesrequiring that public companies report material cybersecurity incidents as well as disclose their cybersecurity risk management, strategy, and governance. In adopting the final rules, the SEC noted that disclosure practices under existing guidance1varied and that trends related to the economy’s dependence on electronic systems and the increasing prevalence of cyber incidents, as well as increasing costs and consequences of incidents, underpin investors’ and other market participants’ need for more timely, reliable, and comparable information. The final rules will be effective 30 days after publication in the Federal Register, with a transition period for compliance (as described below). This client alert summarizes the final rules and provides guidance about what companies should be doing now to get ready.
Considerations for M&A Transactions Involving Fintech Companies
M&A transactions involving financial services providers—including tech-based providers or “fintechs”—raise a host of unique questions based on the types of services they provide, which are often highly regulated and may involve fiduciary or similar obligations. Parties to fintech M&A transactions should therefore carefully consider issues related to their regulatory status in structuring and executing those transactions.
FINRA Finally Approves a Special Purpose Broker-Dealer to Custody Crypto Asset Securities—What's Next?
More than two years after the U.S. Securities and Exchange Commission (SEC) introduced a new class of “special purpose broker-dealers” authorized to custody crypto asset securities, the first special purpose broker-dealer (SPBD) appears to have been approved.Prometheum Ember Capital LLC, a registered broker-dealer, now also appears to be approved to operate as an SPBD.
Focus on Fintech – Q1 2023
In this latest issue of the firm’s Focus on Fintech newsletter, our attorneys discuss the dissolution of Silicon Valley Bank and Signature Bank and the increased scrutiny on banking activity, as well as a number of updates from the SEC, including its newly issued cash management order, its increase in enforcement activity against crypto companies, and its customer protection efforts. We also examine regulatory updates from the UK, provide an update on certain fintech litigations, and discuss the SEC’s 2023 exam priorities, as well as provide an overview of recent guidance and proposed bills from state regulators.
SEC Goes After Staking-as-a-Service: Crypto Exchange Kraken Shuts Down Its U.S. Staking Program
With theannouncementof charges against and a settlement with two subsidiaries of a prominent crypto exchange, Kraken, the U.S. Securities and Exchange Commission (SEC) appears to have a new target within the blockchain industry: staking-as-a-service.
Focus on Fintech – Q4 2022
In this latest issue of Wilson Sonsini's Focus on Fintech newsletter, we discuss the FTX bankruptcy and the increased federal regulatory scrutiny of crypto assets, and new rules and innovations in the payments industry—focusing on the Regulation II final rule, the experimental development of a regulated liability network, CBDC interoperability, and sanctions compliance for instant payments. We examine consumer protection developments from the U.S. Treasury, CFPB, and FTC, as well as the California DFPI. We also discuss regulatory updates, including new UK regulation of crypto assets and agency-specific updates from the SEC and the OCC. Finally, we wrap up this edition with a discussion of the White House’s Blueprint for an AI Bill of Rights, as well as an overview of some recent decisions, settlements, enforcement actions, complaints, laws, and guidance from various federal and state regulators.
How Fintech Regulators Can Get Ready for Gen Z
We're pleased to share an article authored by our attorneys that was published recently inThe Bankeron how regulators can keep up with new trends in the fast-paced world of fintech and adapt as the next generation enters the world of financial services.
SEC Disclosure Considerations Arising from Recent Developments in Crypto Asset Markets
The staff of the Division of Corporation Finance at the U.S. Securities and Exchange Commission (SEC) recently provided guidance for public companies regarding disclosures pertaining to recent developments in crypto asset markets, including recent bankruptcies and financial distress among crypto asset market participants.