Milbank LLP and the Institute of International Bankers (“IIB”) hosted the “Banking Seminar on FinTech and Digital Assets” this month at Milbank’s New York office at Hudson Yards. The half-day seminar featured a series of three panels that focused on the latest regulatory and business developments related to FinTech, digital assets and cryptocurrencies. Milbank Financial Institutions Regulatory partner Douglas Landy and Derivatives partner John Williams served as moderators for the panels, and panelists included Milbank attorneys with deep experience in regulatory and FinTech issues, as well as leading banking and FinTech industry members.
The first panel, “Regulatory Status of Digital Assets,” discussed the latest developments on the regulatory status of digital assets, including cryptocurrencies. The panel examined actions taken by federal agencies, such as the Securities and Exchange Commission (“SEC”), the Commodity Futures Trading Commission (“CFTC”), and the Office of the Comptroller of the Currency (“OCC”), and the effect they may have on digital assets. The panelists discussed how regulators are encouraging responsible innovation with initiatives like the OCC’s special purpose national bank charter (“SPNB”) and the CFTC’s LabCFTC, and efforts under federal and state laws to bring clarity to the use of digital assets.
Mr. Landy moderated this discussion with panelists including Sharon Bowen, a partner at Seneca Women and former Commissioner of the CFTC; Jonah Crane, Principal at West 4thStreet Advisors and former Deputy Assistant Treasury Secretary for the Financial Stability Oversight Council (“FSOC”); Amy Friend, Senior Advisor at FS Vector and former Senior Deputy Comptroller and Chief Counsel at the OCC; and Milana Salzman, Head Financial Security Council for Société Générale Americas.
Mr. Landy said: “This is an incredibly exciting time to work in FinTech and digital assets. The industry presents tremendous opportunity to investors, financial institutions and consumers. Yet with those opportunities are a host of unresolved questions, many of which we tackled in this seminar, including the substantial uncertainty and risk in the market that is, in some cases, chilling innovation and investment. The panelists have echoed calls we’ve heard from clients around the need for additional legal certainty in the United States to maintain our leading position in the capital markets versus our European and Asian counterparts.
The second panel, “Trading, Settling and Clearing Issues for Digital Assets,” began with a discussion led by Wayne Aaron, a partner in Milbank’s Technology and Financial Services Regulatory practices, on whether digital assets should be defined as securities and evaluated the regulatory consequences and market structure issues related to issuing and trading digital asset securities. Highlighting the constantly-evolving regulations, the panelists pointed to the SEC’s “Framework for “Investment Contract” Analysis of Digital Assets” released April 3, which noted the Howey test used to determine whether an asset is a security applies to both traditional and digital assets, other recent SEC guidance and no-action relief. The panel also highlighted the need for standardization of decentralized assets in order to govern data uniformly across different databases. Panelists reiterated that there is a constant struggle for digital asset custodians to balance security and liquidity, and that there are benefits of the “atomic swap,” where tokens and cash can be exchanged instantaneously without an intermediary.
Mr. Williams moderated this discussion, whose panelists included partner Wayne Aaron of Milbank, Nimesh Avantha, Director of Transaction Banking at Standard Chartered Bank; Jeanine Hightower-Sellitto, Managing Director of Operations at Gemini Trust Company; and Zohar Hod, Chief Strategy Officer at Digital Asset.
Mr. Williams added: “This panel brought together some of the industry’s leading voices and each shared expert insight on the issues facing FinTech and digital assets, as well as provided potential solutions for lawmakers, investors and financial institutions. It is clear that digital assets and the related underlying blockchain technology can spur innovation and efficiencies most effectively when paired with clear regulatory frameworks and guidance.”
The third panel, “Secured Lending with Digital Assets,” looked at the future of lending and digital assets. The panel focused on issues that are preventing development of these markets, including the difficulty in obtaining a perfected, security interest under the Uniform Commercial Code, and issues related to how digital assets are held in custody. The panel reviewed the approach being taken by the State of Wyoming, which has passed an entire suite of new laws encouraging financial institutions to provide banking services on digital assets and cryptocurrencies. The panelists discussed how the settlement system differs between digital and traditional assets and the implications for lending, including the option of peer-to-peer lending. Another key focus of this panel was on the steps that the United States, Europe and Asia have taken to create an environment friendly to digital asset lending, and how legislation such as a UCC Amendment or national charter could support the development of a digital asset lending-friendly environment.
The panelists for this discussion, which was moderated by Mr. Landy, included David Brill, General Counsel at OST; James Kong, an associate in Milbank’s Financial Institutions Group; and Caitlin Long, Co-Founder of the Wyoming Blockchain Coalition and a consultant to the Wyoming State Legislature.
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