KT Fintech Blog

The KT Fintech Blog provides insights into how the emergence of fintech is fundamentally changing virtually every aspect of the financial services landscape and how traditional businesses navigate this rapidly evolving industry.

Archive for December 2017

Posted on Friday, December 22 2017 at 7:36 am by -

3 Key Developments: Fintech & Banking 2017: Further Exploration of Bank Charters for Fintech Companies

by Eamonn Moran

One year ago, the Office of the Comptroller of the Currency (OCC) decided to move forward with considering applications from financial technology (fintech) companies to become special purpose national banks. In early 2017, the OCC provided additional guidance on evaluating special purpose national bank charter applications from fintech companies that engage in the business of banking a nd highlighted unique factors that the agency will consider in evaluating a fintech company application. In July, then Acting Comptroller of the Currency Keith A. Noreika stated that the OCC had not determined if it will actually accept or act upon applications from nondepository fintech companies for SPNB charters, and it had not received, nor is it evaluating, any such applications from nondepository fintech companies. Noreika noted, however, that the OCC will continue to hold discussions with interested companies while the agency evaluates its options.

Key Developments since our last update:

  • On December 12, the United States District Court for the Southern District of New York dismissed the lawsuit filed by the New York Department of Financial Services (NYSDFS) challenging the OCC’s authority to grant SPNB charters to nondepository fintech companies. The district court found that the NYSDFS’s claims were based on the premise that the OCC had reached a decision on whether it would issue SPNB charters to fintech companies, but that the NYSDFS had failed to show that the OCC had reached such a decision. With respect to Article III standing, the district court concluded that the injuries that the NYSDFS alleged would result from the charter decision “would only become sufficiently imminent to confer standing once the OCC makes a final determination that it will i ssue SPNB charters to fintech companies.” Without a charter decision, the district court concluded that NYSDFS’s “purported injuries are too future-oriented and speculative to constitute an injury in fact.” The district court also concluded that NYSDFS’s claims were neither constitutionally nor prudentially ripe.
  • In April 2017, another lawsuit was filed by the Conference of State Bank Supervisors (CSBS) in the District Court for the District of Columbia challenging the OCC’s ability to create a SPNB charter for fintech companies. On December 5, the case was reassigned to Judge Dabney L. Friedrich. The OCC’s motion to dismiss in that case remains pending.
  • Joseph Otting, the new Comptroller of the Comptroller who was sworn into office on November 27, has not yet taken a public position on the SPNB charter proposal.
Posted on Tuesday, December 19 2017 at 12:26 pm by -

Are Bitcoin Futures Foreshadowing Faster Mainstream Adoption?

Written by Michael J. Breslin

Bitcoin futures surged as much as 26 percent in their December 10 debut on Cboe Global Markets, creating traffic on Cboe’s website that was so heavy it caused temporary outages. About twenty trading firms actively participated, with the notional value of contracts traded in the first eight hours totaling around $40 million. Although that is a drop in the bucket compared to the global $1.1 billion of bitcoin traded against the U.S. dollar during the same eight hour period, it appears to be just the tip of the iceberg for futures trading in the world’s most popular cryptocurrency. Cboe’s biggest rival, CME Group, recently joined the movement by launching a competing product on December 18, and Nasdaq Inc. has plans for its own bitcoin futures contract in 2018 (although no hard date is set).

So what does this mean? At face value, it is a milestone in the acceptance of bitcoin by the mainstream investing world, spurred in part by bitcoin’s meteoric rise this year. And while skeptics still abound, the availability of futures contracts may now provide an opportunity to burst what they see as a bubble. According to Craig Pirrong, a business professor at the University of Houston, the availability of futures contracts makes it easier to short bitcoin, which “might keep the bitcoin price a little closer to reality.” But whichever way you want to bet on the cryptocurrency, it seems there is no shortage of interest in bitcoin futures among U.S. exchange companies. Earlier this month, Jeff Sprecher, CEO of Intercontinental Exchange Inc., said at an investor conference that “we may be stupid for not being first” to launch a bitcoin futures contract.

Currently, the bulk of bitcoin is traded on a network of unregulated exchanges, which present obstacles that have kept out big money managers like mutual funds. But the new futures contracts should thrust bitcoin more squarely into the realm of regulators, banks and institutional investors. Cboe and CME got permission to offer the contracts through the “self-certification” process, in which they pledged to the Commodity Futures Trading Commission (CFTC) that their bitcoin futures products do not run afoul of the law.

Despite the somewhat smooth rollout of those products, there is still a view that bitcoin derivatives are premature, given the cryptocurrency’s volatility and lack of transparency in the market. To that point, Thomas Peterffy, the Chairman of Interactive Brokers Group Inc., wrote a November open letter to CFTC Chairman J. Christopher Giancarlo, arguing that bitcoin’s large price swings mean its futures contracts shouldn’t be allowed on platforms that clear other derivatives. More broadly, SEC Chairman Jay Clayton recently reissued a cautionary message on cryptocurrencies and initial coin offerings (ICOs) to Main Street investors, which was quickly endorsed by Mr. Giancarlo.

In sum, the start of futures trading is an important step for bitcoin’s shift towards mainstream investing, but it could be some time before the cryptocurrency becomes a key part of investor portfolios. While the future of bitcoin futures is still hazy, it is clear that more and more big money institutions are warming to the idea, and it will be important to stay abreast of how the market reacts to these new products, as well as the reactions of regulators.

Posted on Wednesday, December 13 2017 at 8:25 am by -

Where Do Consumers Fit in the Fintech Stack?

Written by Eamonn K. Moran

Federal Reserve Board Governor Lael Brainard recently delivered a speech entitled “Where Do Consumers Fit in the Fintech Stack?” at “FinTech Risks and Opportunities: An Interdisciplinary Approach,” a conference sponsored by the University of Michigan.

Governor Brainard likened the new generation of fintech tools to the “financial equivalent of an autopilot.” According to Brainard, “[the powerful new fintech tools represent the convergence of numerous advances in research and technology – ranging from new insights into consumer decision making to a revolution in available data, cloud computing, and artificial intelligence (AI). They operate by guiding consumers through complex decisions by offering new ways of looking at a consumer’s overall financial picture or simplifying choices, for example with behavioral nudges.”

While she highlighted how fintech tools offer the potential to help consumers manage their “increasingly complicated financial lives,” she cautioned about the risks posed that will need to be carefully managed as the marketplace matures. “Consumers need to know and decide who they are contracting with, what data of theirs is being used by whom and for what purpose, how to revoke data access and delete stored data, and how to seek relief if things go wrong. In short, consumers should remain in control of the data they provide. In addition, consumers should receive clear disclosure of the factors that are reflected in the recommendations they receive. If these issues can be appropriately addressed, the new fintech capabilities have enormous potential to deliver analytically grounded financial services and simplified choices, tailored to the consumers’ needs and preferences, and accessible via their smartphones,” stated Brainard.

Brainard noted that consumers face complex financial choices. Given the complexity and importance of these decisions, she finds it encouraging to see the fast-growing development of “advanced, technology-enabled tools to help consumers navigate the complex issues in their financial lives.” She stated that these tools “build on important advances in our understanding of consumer financial behavior and the applications, or ‘app,’ ecosystem.”
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