Source: Screenshot of the Zoom Panel

Natalie Bravo is an IPilogue Writer and a 2L JD Candidate at Osgoode Hall Law School.

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On November 24, 2021, the Osgoode Emerging Technology Association (OETA) hosted an interactive panel discussion with Professors and , led by OETA president and co-founder Murad Wancho.

from the Osgoode Fintech & Blockchain Association, OETA was founded in Spring 2020 and has quickly grown in popularity. As an OETA executive, I am honoured to share details of this informative event delivered by my dedicated colleagues.

Despite the fast-approaching exam season, the virtual event had an excellent turn-out of students and legal community members. The panel garnered traction preceding the event, with participants eagerly sending in questions on topics ranging from concerns to the future of (“NFTs”). Wancho began by thanking participants and snapping a lovely photo of everyone in the call (as seen above). Everyone rushed to turn on their cameras in time. I regrettably was too slow (or maybe Wancho was too fast!) This spontaneous moment of collaboration and engagement served as a fun icebreaker before introducing the esteemed guests.

Professor is an internationally renowned legal theorist and an Osgoode faculty member since 1982. His research interests include politics, constitutional law, and torts, and he teaches a wide range of courses. Hutchinson also authored an on the intersection between cryptocurrencies and the law, .

Professor has been at Osgoode since 2020. He is a research affiliate at for Internet and Society and a Research Fellow at the based at the University of Toronto. His research lies at the intersection of law, technology, and human rights. Penney recently designed and is currently instructing “” at Osgoode.

Cryptocurrency was the main topic of interest, along with the ever-prevailing questions surrounding its future. This form of decentralized digital currency has been around for but is growing in mainstream popularity. With a show of hands, over half of the participants expressed owning or wanting to own some cryptocurrency.

Hutchinson shared details on his upcoming book and his thoughts on regulation. While no one can accurately predict the future of cryptocurrency, Hutchinson discussed the merit in theorizing unique regulatory approaches to the decentralized system(s). and self-regulation were of notable interest. Many participants asked whether further external regulations would detrimentally affect the appeal and use of cryptocurrencies. The implications of overarching regulatory actions, such as securities or tax, are looming realities of NFTs and cryptocurrency, as we are now witnessing in multiple regions, Penney shared the sentiment of cryptocurrency as a speculative asset that likely cannot succeed without further mainstream support and usage. He also explored the environmental impacts of cryptocurrency , as crypto- utilizes large amounts of energy. Remarking on China’s recent , Penney expressed that some major cryptocurrency players have simply migrated their mining practices elsewhere.

The conversation shifted to career guidance within the legal technology field. This discussion was particularly interesting for 1L students developing their legal paths. Both professors offered pertinent advice on professional development, emphasizing networking. Penney highlighted the importance of reaching out to tech companies for any legal work available. Companies are increasingly incorporating emerging technologies within their operations, such as and algorithms, which may require legal expertise to ensure legal compliance. As innovative technologies emerge, so will the demand for technology lawyers.

Following the event, Professor Penney added, “In the coming years, emerging technologies like cryptocurrency and NFTs will pose a range of complex challenges for law, policy, and broader society. This was an excellent panel discussion, and OETA is showing great leadership in bringing students and faculty together to discuss and debate.”

While no one can ever fully predict the future of cryptocurrency and NFTs, both Penney and Hutchinson provided insightful perspectives. They both have extensive work related to technology that can help us theorize when looking forward. The panel elicited strong engagement and interactive feedback from participants. It was refreshing to learn more about technology law outside of the classroom setting and see different perspectives and interests within the field. I encourage everyone to explore the work of both professors and follow the OETA’s socials below for more information about our next event!

OETA Socials:

LinkedIn:

Twitter:
Facebook:
Instagram:

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On March 23 the European Commission organized a conference devoted to institutions, regulators, professionals and scholars from all EuropeĚý on .

The conference was also the occasion for the Commission to announce an .ĚýĚý The existing EU legislative framework on financial services for consumers is considerable and therefore the Commission does not foresee the adoption of fresh legislation. The innovations in the retail financial services determined by the burst of Fintech require instead to enforce and adapt the existing applicable rules to the new technological scenario. Online payments, robo-advisory, P2P lending and virtual coins are only some examples of such disruption which proposes new legal challenges at all levels.

The Action Plan focuses on two main issues:

1. cross-border provision of services across the EU single market, by enhancing the eIDAS regulation infrastructure (which enables consumers to be recognized via an electronic identification system) on one hand and, on the other, by introducing common creditworthiness assessment standards;
2. consumer protection and in particular pre-contractual disclosure requirements in light of the new technologic environment.

In the context of the Action plan, the Commission launched a public consultation on ‘Fintech: a more competitive and innovative European financial sector’ (is the consultation document) to collect the stakeholders’ views on the following policy objectives that according to the Commission constitute the main opportunities, and the relevant challenges, related to Fintech:

• fostering access to financial services for consumers and businesses;
• reducing operating costs and increase the efficiency of services;
• improving market competitiveness by removing or lowering entry barriers;
• finding an appropriate balance among data sharing, transparency, security and privacy needs.

Based on the and the work of the EU Fintech task force, the Commission will propose an European strategy for FinTech, to develop and improve the most promising sector in financial services area.

The UE Commission’s interest in Fintech as a new frontier of financial services is meaningful. Also, it should be stressed that the Commission decided to focus on the characteristic areas of the European action, such as creation of an integrated internal market and consumer protection.Ěý To this purpose the consultation document is particularly interesting as it presents the main challenges raised by the innovations in the financial services.Ěý From the use of AI and big data analytics for automated financial advice and execution, to the use of sensor data for risk evaluation in the Insurtech sector, to the Regtech impact on compliance costs, to the use of DLT in financial services, to the regulatory barriers for new market entrants, etc.

According to the Commission the EU policies on Fintech should be:

1. Technology neutral – to ensure that the same activity is subject to the same regulation;
2. Proportional;
3. Integrity-enhancing with a focus on market transparency to the benefit of consumers and businesses.

In the above depicted scenario, consumers’ protection appears to be particularly challenging. An example is the pre-contractual information allowing consumers to make well-informed choices. In this respect, the spread of online services determines a growing need of simplicity in the access of information.

This aspect, however, will certainly require adapting the existing rules.Ěý An example of this issue is the robo-advisory, where the traditional information asymmetries are combined with significant technological information asymmetries. Do the consumer have to be informed, for instance, about the characteristics of the robo-advisor’s algorithm? How detailed should be consumer information, considering the great influence that the calculation power might have on investment choices?

A first answer to the above questions may be found in the and addressing the issue of disclosure. These guidelines, amended where necessary, might be a model for one of the action of the announced EU Fintech strategy.

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Similar to other traditional industries, a digital revolution for financial services is underway. Financial technology, or ‘‘FinTech,” is an accelerating technical sector gaining in popularity with both traditional financial institutions and new market entrants.Ěý Competitors are forming constructive partnerships to collaborate, efficiently develop, and deploy new FinTech products and services. Patents for core technology provide a mechanism to exclude others from making, using or selling patented technology. A company may also permit use of patented technology by third parties or contribute to a patent pool using various licensing arrangements while still maintaining control of its intellectual property rights. However, recent case law and patent office guidelines make obtaining global patent protection for FinTech an increasingly complex matter.

FINTECH PRIMER

FinTech is transforming the financial sector by supplementing or replacing traditional services, business models and providers. FinTech may create brand new market opportunities or give a competitive edge in relation to traditional offerings. This may have broad ranging implications for diverse stakeholders, including major financial institutions, insurance companies, hedge funds, institutional investors, ratings agencies, audit and accounting firms, regulators, technology companies, consortiums, not-for-profits and start-ups. Indeed, large institutions may be making significant investments upgrading or replacing legacy technology systems with new FinTech products.

PAYMENTS

Digital wallet technology is currently already in public use and will likely be employed on a widespread scale in the future. Digital cards include credit cards, debit cards, public transportation cards and other value cards offered by different companies. Mobile technology companies and retailers are entering the payment space with smartphone payment tokens, networks and applications. Digital payment accounts like PayPal are also widely accepted on e-commerce platforms and by the public at large, with intramember payment exchanges often not involving traditional financial institutions. Shopify, for example, is an online and brick-and-mortar transaction platform provider based in Ottawa, and raised $131 million in its initial public offering. Another payment company, Adyen, is now valued at $2.3 billion that enables Web companies such as Facebook and Yelp to accept and process payments, and provides mobile-payment tools for clients such as Uber and Airbnb. Finally, Nanopay, a Toronto-based provider of a payment and loyalty mobile application that combines identity, loyalty and payment into a single-use transaction token for contactless payment, recently acquired the Mintchip digital payment platform from Royal Canadian Mint.[1]

BLOCK CHAIN

A block chain is a decentralized peer-to-peer network of nodes recording authenticated, encrypted transactions as a distributed public ledger, thereby providing a trust and verification system [2] by using programmed rules to govern the replication of the ledger across the computing nodes of the networks. Initially invented as a solution to the weaknesses of a trust-based model,[3] the increased use and development of block chain infrastructure is changing payment and secure transaction ledgering services by providing increased security, integrity and verifiability of transactions. Currently, public block chain technology may be used under open license with transparency to help third parties understand the technology offering and associated security levels to build interoperable, trusted solutions. Private and hybrid block chain networks are also being developed by companies individually and working together through consortiums.

While block chains are well known as the technology underlying the transaction database for digital currency,[4] block chains can also be utilized in other types of applications. These include verifying proof-of-existence, smart contracts that automatically execute when certain conditions are met, verifying origin and delivery of products, and peer-to-peer exchanges. For example, Slock develops technology that combines block chain and the Internet for peers to rent, share or sell ‘‘things” such as parking spots and apartments.

LENDING

New lending, investing, and fundraising models are emerging. Indeed, crowdfunding platforms like Kickstarter enable an organization or individual to reach out directly to a community to raise capital for a business, product or creative endeavour. SeedsUp, another example, is a Canadian equity crowdfunding platform for limited private placement offerings for early stage businesses.

FinTech also generates financial inclusion and opens new markets through the provision of microfinance solutions, which offers small amounts of financing to new customers that may not have been qualified for traditional funding sources.[5] A prime example of this is M-Pesa, a mobile-phone microfinancing service that launched in 2007 by Vodafone for the largest mobile network operators in Kenya and Tanzania — Safaricom and Vodacom.

New personal investment solutions are also emerging. Toronto start-up Borrowell offers online lending technology to provide low-interest personal and business loans, and the low-fee automatic rebalancing system by another fellow Toronto start-up, Wealthsimple, recently raised $10 million in Series A funding
from Power Financial Corporation.[6]

REGULATORY COMPLIANCE AND AUDIT

Establishing fairness and trustworthiness of financial transactions becomes increasingly complex as different types of financial transactions emerge. Organizations expend significant resources to adhere with evolving regulatory requirements.[7]Ěý The rise of FinTech provides innovative tools that may help alleviate the burdens of such compliance, validation and verification.

Companies can leverage technology such as distributed ledgers, block chains, encryption, automation, and others to perform tasks which otherwise would have been impractical or impossible with traditional methods. While these technologies are starting to gain in capability and acceptance, it is a challenge to understand how evolving jurisprudence and regulatory activities apply to FinTech innovation. Legal requirements may develop out of step with technology, and compliance may be uncertain where regulation is drafted around outdated or obsolete technologies.

The full article is available in the latest issue of the , volume 28(3), pp. 303-314.

Maya Medeiros is a lawyer, patent agent, and trade-mark agent at Norton Rose Fulbright LLP Canada (Toronto). Maya Medeiros’ practice focuses on the creation and management of intellectual property assets in Canada, the United States and around the world.

Brian Chau is an Associate at Norton Rose Fulbright, focusing on intellectual property, primarily patent prosecution, strategy, and portfolio management.

[1] There are several other examples: Adyen also provides point of sale technology for retailers, and Braintree (acquired by PayPal) provides an online and mobile payment application that aggregates different payment options and currencies, and offers an API for developers.

[2] The Standing Senate Committee on Banking, Trade and Commerce, Digital Currency <http://www.parl.gc.ca/Content/SEN/Committee/412/banc/rms/
12jun15/home-e.htm>.

[3] S. Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008).

[4]Ěý A digital currency secured with encryption is a cryptocurrency. A prime example is Bitcoin, which is the most widely used cryptocurrency-issuing system built on a block chain framework. Cryptography greatly decreases the vulnerability of the block chain to unauthorized or malicious changes.

[5] Many people worldwide, for example, do not have access to traditional banks.

[6] Financial Post, online: <http://business.financialpost.com/entrepreneur/fpstartups/wealthsimple-aims-to-turn-financial-services-industry-on-its-headwith-
new-low-coast-approach-to-investing>.

[7] Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173), Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745).

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“Open Banking” is an emerging term in financial services / financial technology that refers, among other things, to the use of open application programming interfaces (“APIs“) enable third party developers to build applications and services around a financial institution. This requires a financial institution to throw open the doors to its customer data and allow it to be used by developers and other third party providers. Think of it as an app store for banks, where the apps allow consumers to compare rates, manage their accounts, obtain credit and make payments – all without having to actuallyĚýengage a bank.

In Europe, this is set to become the norm in early 2018, thanks to the revised which was passed in January. PSD2 is designed to create a more level playing field for third party payment processors by making banks in Europe offer APIs that provide access to account information to third parties.

Some banks are embracing this, and see it as an opportunity to drive value in innovative new ways. Other banks are not as keen, and are taking steps to cut out the interlopers to preserve existing value and protect the customer relationship.

Long before there was a concept of “open banking”, there were similar products available, products that don’t rely on the openness of banking but rather the willingness of an account holder to share his or her login information. Users provide their user IDs and passwords for the financial accounts they want to consolidate, so that the aggregation service can access these accounts to gather their financial information (a process known as “screen scraping”). A single third party web portal then displays the information, dashboard-style.

Concern in Canada and the US

In March of 2011, the Financial Consumer Agency of Canada (“FCAC”) issued a , warning Canadians to be aware of the possible risks of disclosing their online banking and credit card information to financial aggregation services. Aside from the obvious data security and privacy risks, the FCAC cautioned that using such a service could also violate the terms and conditions of the account:

Consumers should be aware that if they disclose their online banking information to any other party, including financial aggregators, they may risk losing their protection against unauthorized transactions. Some financial institutions’ user agreements clearly state that users will be responsible for unauthorized transactions if they provide other parties, including financial aggregators, with their passwords and account information.

The FCAC reminded consumers it was their responsibility to manage their online banking and credit card credentials in accordance with the terms of their user agreements, as well as to review their user agreements and to understand their responsibilities thereunder.

In 2015, that a number of US banks had cut off data to these financial aggregators, citing concern that the rising use of such sites will overload bank servers, on top of worries that customer data could potentially be vulnerable to hackers. The aggregators charged that the banks, facing increasing competition from these companies, were becoming too protective of their customer information.

Germany Finds Banks’ Data Rules Violate Competition Law

The German competition regulator has now weighed in,ĚýĚýthat rules set buy the German Banking Industry Committee violate both German and European competition law by imposingĚý“special conditions for online banking” that mean customers cannot use their PINs (personal identification numbers) and TANs (transaction authentication numbers) in non-bank payment systems.

This, said the German regulator, has “significantly impeded” the use of non-bank providers for online purchases, preventing people from using lower-priced alternatives.

The German Banking Industry CommitteeĚýhad cited security concerns as the basis of the rules but the German Ěýcompetition regulator (the Bundeskartellamt) dismissed this, saying that “the rules currently used cannot be considered as a necessary part of a consistent security concept of the banks and they impede non-bank competitors”.

Andreas Mundt, president of the Bundeskartellamt, said:

The online banking conditions of the German Banking Industry Committee hinder the offer of new and innovative services in the growing market for payment services in the e-commerce sector. In essence, it is about whether non-bank payment services can also use PINs and TANs. We have taken careful consideration of the justified interest of the banking industry that security in online banking has to be safeguarded. However, the rules currently used cannot be considered as a necessary part of a consistent security concept of the banks and they impede non-bank competitors.

The Bundeskartellamt has only declared certain specified clauses of the banks’ terms and conditions illegal, not the entire agreement. It also suspended the enforcement of its decision, meaning the parties are not under tight deadlines to change their course of action, although they must make the necessary changes.ĚýThe Bundeskartellamt also noted that rules governingĚýthe activity of non-bank payment solution providers are currently undergoing a European legislative process.

Š McCarthy TÊtrault LLP

is Counsel in McCarthy Tétrault’s National Technology Group.

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