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.
CFPB Proposes New Examination Authority over “Larger Participants” in the Digital Wallet and Consumer Payment App Markets
In a shot across the bow to the digital payments industry, the U.S. Consumer Financial Protection Bureau (the Bureau) has issued a proposed rule to expand its oversight authority to nonbank providers of consumer payment apps.
AI in the Biden Administration’s Crosshairs—Summarizing the Sweeping New Executive Order and Ten Top Takeaways
The Fed Proposes a Sea Change in Debit Card Interchange Fee Regulation
The Federal Reserve Board hasproposeda new rule for public comment that would significantly lower the cap on interchange fees that debit card issuing banks (issuers) may charge a merchant’s bank (an acquiring bank) for processing debit card transactions. Importantly, the proposal also includes a formula that would periodically adjust the interchange fee cap based on data voluntarily reported to the Board by debit card issuers. If adopted, this formulaic approach would result in automatic revisions to the amount of the interchange fee cap every two years, without any public comment.
Navigating the Current State of Financial Services for Marijuana Businesses and Preparing for Future Changes in Cannabis Banking
The legal landscape for marijuana-related businesses (MRBs) has seen significant change and challenges in recent years. Despite the legalization of marijuana for medical or recreational use in various states, it remains a controlled substance under the federal Controlled Substances Act (CSA). As a result, banks and certain payment companies have generally been hesitant or unwilling to provide financial services to MRBs due to risk management and regulatory compliance challenges, particularly with respect to anti-money laundering laws.
Wilson Sonsini Represents SpotOn in Sale of Business Unit to Shift4
On October 2, 2023, SpotOn, one of the leading software and payment companies in the United States, announced that it has reached a strategic agreement to sell its sports and entertainment business to Shift4, while retaining select assets to support the growth of its restaurant business. Wilson Sonsini Goodrich & Rosati represented SpotOn in the transaction.
Following the deal, SpotOn will focus its teams and investment to supercharge growth in the restaurant space. SpotOn Restaurant has delivered high double-digit growth year over year and has been rated the No. 1 restaurant point-of-sale by real users. The company began serving restaurants in 2019 and has aggressively grown its market share each year. SpotOn Restaurant is now one of the most comprehensive, end-to-end restaurant technology platforms on the market, giving restaurant operators everything they need to drive profit—from an intuitive point-of-sale system with solutions for online ordering, reservations, and labor management to hardware designed to improve employee efficiency and service speed.
The Wilson Sonsini team representing SpotOn in the transaction includes:
FedNow Legal Terms Contain a Gamechanger for Digital Wallets and Payment Apps
Note: this article originally appeared in TechCrunch.
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.
Wilson Sonsini Advises Pismo on $1 Billion Acquisition by Visa
On June 28, 2023, Visa announced it has signed a definitive agreement to acquire Pismo, a cloud-native issuer processing and core banking platform with operations in Latin America, Asia Pacific, and Europe, for $1 billion in cash. Wilson Sonsini Goodrich & Rosati advised Pismo on the transaction.
By acquiring Pismo, Visa will be positioned to provide core banking and issuer processing capabilities across debit, prepaid, credit and commercial cards for clients via cloud native APIs. Pismo’s platform will also enable Visa to provide support and connectivity for emerging payment rails, like Pix in Brazil, for financial institution clients. After the transaction is complete, Pismo will retain its current management team. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close by the end of 2023.
Insights into Central Bank Payments Innovation: Tokenized Money, DLT-based Infrastructures, and Public-Private Sector Collaboration
The head of the Federal Reserve’s New York Innovation Center (NYIC), Per von Zelowitz, joined Wilson Sonsini partner Jess Cheng for a conversation on the central bank’s payments innovation initiatives regarding the future of money and new financial market infrastructures at an American Bar Association (ABA) Business Law Section event in New York City on June 7, 2023.1 This alert briefly summarizes the event’s key takeaways.
Guardrails for Bank-Fintech Partnerships: The Federal Banking Agencies Finalize Third-Party Risk Management Expectations
The Board of Governors of the Federal Reserve System (Fed), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the Agencies) issued the long-awaited finalInteragency Guidance On Third-Party Relationships: Risk Management(Final Guidance) on June 6, 2023. The Final Guidance replaces the disparate set of guidance and FAQs separately issued by the Agencies over the years, bringing greater consistency to supervisory expectations for banks in managing risks arising from their business relationships with service providers, contract counterparties, and other third parties.
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.