U.S. Financial Industry Developments

US CFTC and UK FCA Sign Arrangement to Collaborate on FinTech Innovation

On February 19, The US Commodity Futures Trading Commission ("CFTC") and the UK's Financial Conduct Authority ("FCA") signed an arrangement that commits the regulators to collaborating and supporting innovative firms through each other's financial technology ("FinTech") initiatives — LabCFTC and FCA Innovate. This is the first FinTech innovation arrangement for the CFTC with a non-U.S. counterpart.

The Cooperation Arrangement on Financial Technology Innovation ("FinTech Arrangement") focuses on information-sharing regarding FinTech market trends and developments. It also facilitates referrals of FinTech companies interested in entering the others' market, and sharing information and insight derived from each authority's relevant sandbox, proof of concept, or innovation competitions. Release.

Swiss FINMA Publishes ICO Guidelines

In guidelines published on February 16, the Swiss Financial Market Supervisory Authority ("FINMA") sets out how it intends to apply financial market legislation in handling enquiries from initial coin offering (ICO) organizers. The guidelines also define the information FINMA requires to deal with such enquiries and the principles upon which it will base its responses, creating clarity for market participants.

In particular, the guidelines contain very helpful definitions of (i) "Payment Tokens," which are synonymous with cryptocurrency and have no further functions or links to other development projects, (ii) "Utility Tokens," which are tokens which are intended to provide digital access to an application or service, and (iii) "Asset Tokens," which represent assets such as participations in real physical underlyings, companies, or earning streams, or an entitlement to dividends or interest payments — in terms of their economic function, Asset Tokens are analogous to equities, bonds or dividends. That being said, FINMA noted that "hybrid forms are possible". Release.

European Financial Industry Developments

ECB Speech on European Retail Payments Developments

On February 15, 2018, the European Central Bank ("ECB") published a speech by Yves Mersch, ECB executive board member, on European retail payments markets developments. The speech is available here.

In the speech, Mr. Mersch calls on the payment industry to develop end-user solutions that will allow consumers and businesses to enjoy the benefits of instant payments in any payment situation, in addition to cash. Issues considered by Mr. Mersch include:

• Instant payments. Among other things, Mr. Mersch notes that the TARGET instant payment settlement ("TIPS") service is scheduled to go live in November 2018.
• Point-of-sale-payments. Mr. Mersch calls on the payment industry to develop instant point-of-sale solutions that provide merchants with immediate and final payment, with funds credited to their accounts with finality, like cash.
• E-commerce. The ERPB's work to reach an agreement on the necessary technical, operational business elements to ensure the pan-European provision of innovative and competitive payment initiation services is expected to be concluded by June 2018.
• Security. Mr. Mersch notes that the regulatory technical standards supplementing the revised Payment Services Directive on strong customer authentication and common and secure communication calls on payment service providers will probably not be applicable until September 2019 at the earliest.

He calls on payment service providers to comply with these regulatory technical standards before they apply, even though they will not be legally required to do so.

Council of EU Agrees to Delay Application Date of IDD

The Council of the European Union ("EU") has agreed to delay the transposition deadline of the Insurance Distribution Directive ((EU) 2016/97) ("IDD") to July 1, 2018, and the application date to October 1, 2018.

On February 14, 2018, the Council of the EU published a press release confirming this. The press release is available here.

The press release explains that the delay will help the insurance industry prepare for the IDD and the changes necessary to comply with implementing rules. Member states will also have more time to transpose the IDD's provisions.

The press release states that the delay will apply retroactively from February 23, 2018, as the European Parliament and the Council are not expected to adopt the proposed Directive delaying application of the IDD before March 2018.

ESMA Launches Interactive Single Rulebook

On February 14, 2018, the European Securities and Markets Authority ("ESMA") launched a new interactive single rulebook to help facilitate the consistent application of the EU single rulebook in the securities markets area.

In a related press release, available here, ESMA explains that this new interactive tool will provide market participants and other interested stakeholders with a comprehensive overview of and easy access to all level 2 and level 3 measures adopted in relation to a level 1 text. This includes all relevant delegated and implementing acts adopted by the European Commission (including regulatory technical standards and implementing technical standards developed by ESMA and endorsed by the Commission), as well as guidelines, opinions and Q&As issued by ESMA. The interactive single rulebook is described as a "documentation tool," and users are reminded that they should refer to the Official Journal of the EU for the authentic version of EU legislation. ESMA is committed to developing the online tool in its 2018 work program.

U.S. Pay-for-Results Funding

The U.S. budget bill enacted on February 9, 2018 provides funding for states and localities for pay-for-success projects and feasibility studies. Title VIII of the bill, titled "Supporting Social Impact Partnerships to Pay for Results," authorizes the U.S. Treasury to award $100 million of competitive funding to states and local governments for "social impact partnership projects" that "produce one or more measurable, clearly defined outcomes that result in social benefit and Federal, State, or local savings." The legislation also provides for up to $10 million of the total available funding to be awarded for feasibility studies to apply for project funding.

Projects can be related to a variety of issues, including increasing employment; reducing dependence on Federal benefits and increasing financial stability of low-income families; improving high school graduation rates and improving educational outcomes; reducing teen and unplanned pregnancies; improving birth outcomes and childhood health and development; reducing rates of preventable diseases among low-income families; increasing the proportion of children living in two-parent families; reducing the number of youth in foster care; reducing recidivism in high-risk populations; and other measurable outcomes defined by a State or local government. At least 50 percent of funding must be for initiatives that directly benefit children. If selected, the project will only receive funding if an independent evaluator determines that the project has achieved a defined outcome as a result of the project.

The legislation directs Treasury to publish a request for proposals from State and local governments within a year of enactment of the legislation. Applications will be required to include, among other things, rigorous evidence demonstrating that the described intervention can be expected to produce the desired outcomes, projected government savings if the project is implemented and the outcomes achieved, and the metrics that will be used to determine whether the outcomes have been achieved. Treasury, in consultation with a Federal Interagency Council on Social Impact Partnerships created by the legislation, will evaluate applications within 6 months after receipt.

Rating Agency Developments

On February 14, Fitch updated its criteria for rating state housing finance agency general obligations. Release.

On February 12, Fitch updated its criteria for rating investment holding companies. Release.

On February 9, Moody's updated its criteria for rating independent schools. Release.