• At Kemp Little, we are known for our ability to serve the very particular needs of a large but diverse technology client base. Our hands-on industry know-how makes us a good fit with many of the world's biggest technology and digital media businesses, yet means we are equally relevant to companies with a technology bias, in sectors such as professional services, financial services, retail, travel and healthcare.
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  • Our Commercial Technology team has established itself as one of the strongest in the UK. We are ranked in Legal 500, Chambers & Partners and PLC Which Lawyer, with four of our partners recommended.
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  • At Kemp Little, we advise clients in diverse sectors where technology is fundamental to the ongoing success of their businesses.They include companies that provide technology as a service and businesses where the use of technology is key to their business model, enabling them to bring their product or service to market.
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Themes and warnings from the GB Gambling Commission's Raising Standards Conference 2017

Following the publication of its Strategy 2018-2021, the British Gambling Commission hosted its Raising Standards Conference 2017 on 21 November, which further explored some of the themes emerging from the Strategy and the Commission’s priorities for the next few years, which include industry collaboration, the Commission’s work with the UK’s Competition and Markets Authority (‘CMA’) on consumer T&Cs in relation to promotions, and industry compliance with the General Data Protection Regulation. Susan Biddle, Legal Consultant at Kemp Little LLP, reflects on the themes raised at the Conference.

“Go further and faster” was the overwhelming message from the British Gambling Commission’s second annual Raising Standards Conference on 21 November 2017. Well-timed to follow up on the Commission’s publication of its Strategy for the next three years1 (‘Strategy’), this was an opportunity to explore further some of the themes of that Strategy and the Commission’s priorities.

The Strategy, and the Commission’s priorities, remain consistent with the approach of the last 18 months: the focus remains on consumers and their protection. The Commission acknowledged that some progress had been made - but not enough, and not fast enough. The Commission thinks there is still a disconnect between the industry’s good intentions, and its delivery - something which is reflected in the continued decline in public trust.

Richard Lloyd, former Executive Director of Which?, provided some worrying comparisons with other sectors, but finished on a more encouraging note: like other speakers, he thinks that the industry is at a tipping point, but he does not think it is too late to turn it around, provided that the industry acts promptly.

In relation to problem gambling, the Commission will be looking not only at the person who is gambling, but also at how/where they are doing this and the nature of the product being played. The Commission re-iterated the message in the Strategy document, that the industry must focus on exploiting data and technologies to manage risks and protect consumers, as much as it does for profit. Sarah Harrison, Chief Executive of the Gambling Commission, gave the examples of improving existing tools such as reality checks, and exploring new ones such as mandatory deposit limits and stronger age verification. She emphasised the need for robust internal handling of customer complaints, and stressed that it is not sufficient simply to outsource this to ADR (alternative dispute resolution) providers. She warned that the Commission is likely to step up its reporting requirements, and more generally that over the life of the Strategy the Commission will use “tougher and broader” sanctions.

Some of the messages in the Strategy came through with particular clarity. These included the need for the industry to do more to collaborate, and to share knowledge and good practice - and then to implement this learning, including ideas coming from other operators. The industry increasingly recognises the need for this (subject to appropriate protections for commercially sensitive information, and competition law requirements), and participants made the point that the more industry players that  participate, the better, as this will reduce the risk of their market and margins being eroded by non-participants. Richard Lloyd warned that big players should be wary of leaving smaller businesses behind and should be willing to invest in industry-wide initiatives for the good of all. There was a welcome suggestion that the Commission will look at issuing more guidance on “what good looks like.”

In particular, the whole industry is expected to learn from the CMA’s current review of consumer T&Cs in relation to promotions - and though its focus has been on online gambling promotions, the CMA considers that its concerns are probably of wider application. The CMA confirmed that it does not intend to outlaw such incentives, but the terms must be fair. The importance that the Commission places on this is demonstrated by its publication of the CMA presentation on its website. It was made very clear that the Commission and the CMA expect all operators to review their T&Cs, and to make any necessary changes so as to meet the CMA’s requirements - and to comply with these requirements immediately as they are published.

The Commission emphasised that it will be monitoring compliance in subsequent months and the industry should expect appropriate enforcement action. The CMA and the Commission are continuing to work together in examining the wider question of withdrawal of player funds. Good practice needs to be embedded in the industry and its products. Social responsibility, otherwise known as ‘safe & fair gambling,’ needs to be part of everyone’s role, from the top down throughout the entire workforce. Kate Lampard, Chair of GambleAware, put in a plea for diverse main boards, so as to get a more complete view of the business and better reflect the diversity of the customer base; she recommended that the person responsible for responsible/ ‘safe & fair gambling’ should sit on the main board. Protections gainst problem gambling need to be designed into products, and not just be later add-ons to meet regulatory requirements.

Many in the industry are not yet contributing 0.1% of gross gambling yield to research, education and treatment of problem gambling. There was a clear message that this requirement is only likely to increase - and if the industry cannot deliver an appropriate level of funding via a voluntary scheme, a mandatory obligation will be imposed. Bill Moyes, Chair of the Gambling Commission, warned that the Government already has the necessary power to impose this and that the Commission believes a national levy would be fair, and it will continue to discuss with Government whether the time has come to use this power. The Commission does not believe that the EU General Data Protection Regulation (‘GDPR’) will prevent responsible use of aggregated data to protect consumers. Gareth Cameron from the Information Commissioner’s Office (‘ICO’) promised that more guidance on the GDPR will be forthcoming, though progress has been made more difficult because the UK Data Protection Bill is still being debated in Parliament. The industry will however need to look to the Gambling Commission for industry specific guidance. Gareth emphasised the importance of accountability - the industry needs to be able to demonstrate how it complies, and to document its decisions in relation to treatment of personal data and compliance.

Consent is not the only basis for processing, and the industry should consider all the options available which include compliance with legal obligations and pursuit of legitimate purposes. It is not yet clear whether compliance with LCCPs or self-exclusion schemes, or use in machine learning or the development of algorithms to flag problem gambling indicators, will constitute the necessary ‘legitimate purposes.’

However Gareth assured the audience that this is the sort of issue which the ICO and Gambling Commission are currently debating, and the ICO will provide further (general) guidance on what constitutes a ‘legitimate purpose.’ Data subjects have strengthened rights, and cyber security is a key concern for the ICO; the industry needs to be sure that it has processes in place to deal with requests and any breaches, including reporting within limited timeframes. The ICO will be encouraging reports of security breaches to be made by phone, so it can provide guidance and ensure that the ICO obtains all the necessary information.

While press and public concern has focused in particular on fixed odds betting terminals (‘FOBTs’), the Commission highlighted that it has also been looking at the online industry, and particularly at online casinos. There was a clear message to this sector that the Commission does not think their due diligence or consumer protection systems are adequate, and operators were expressly warned that the Commission will intervene if they do not remedy this.

So overall, a clear message from the Commission to the industry to “up its game” and to “show not (just) tell,” with consumer protection and problem gambling remaining priority areas, and immediate action points in some areas such as consumer terms, sharing learning, online casinos, use of technology and data, and the levy.

1. http://www.gamblingcommission.gov.uk/PDF/Strategy-2018-2021.pdf


This article was first published in the Online Gambling Lawyer on the 13th December

The Autumn 2017 Budget-driverless cars

TMT analysis: Andrew Joint, commercial technology partner at Kemp Little, explains the key announcements of the Autumn Budget relating to driverless cars.

Original news

Autumn Budget 2017: Tech and Innovation, LNB News 22/11/2017 72

The Chancellor of the Exchequer, Philip Hammond, has announced plans at Autumn Budget 2017 for a new advisory body—the Centre for Data Ethics—to enable and ensure safe and ethical innovation in artificial intelligence (AI) and data-driven technologies. The government also outlined its ambition to see fully self-driving cars, without a human operator, on UK roads by 2021.

What has been announced?

In his Autumn Budget the Chancellor stated that ‘the government wants to see fully self-driving cars, without a human operator, on UK roads by 2021’ and that he wanted to create ‘the most advanced regulatory framework for driverless cars in the world’.

Where specifically will the funds be invested?

Noting the stated figures that the driverless car industry has the potential to be worth £28bn to the UK and employ nearly 30,000 people, the investment in an ethical centre to deal with some of the wider issues raised by technologies such as driverless vehicles is a sensible but vital move by the government. However, considering the value/impact of driverless vehicles (according to the government’s own figures) this ‘R&D’ investment still seems low.

We can expect to see more charging points by our roads and electric car use following the announcement of a new £400m charging infrastructure fund, the investment of an extra £100m in Plug-In-Car Grant, and £40m in charging R&D.

What developments have happened so far?

In February 2015 the Department for Transport (DfT) published ‘A detailed review of regulations for automated vehicle technologies’, together with a ‘Summary report and action plan’, under the heading ‘The Pathway to Driverless Cars’.

These documents set out the UK government’s plan to update laws and regulations to permit the sale of automated vehicles to the public, and include plans to develop a code of practice for testing automated vehicles, while reviewing legislation to clarify liabilities in the event of a collision, and consider whether higher standards of safety are required (including dealing with cyber threats).

Additionally, a draft ‘Vehicle Technology and Aviation Bill’ was announced during the Queen’s Speech in February 2017, which included proposed automated vehicle specific legislation, relating to record-keeping, insurance and accidents relating to uninstalled software updates. The Bill passed a second reading in October 2017.

Is it realistic to expect driverless cars to be on the roads in Britain by 2021?

We can certainly expect driverless cars on public roads within the next decade. Whether we can realistically expect to see them by 2021 will depend on the passage of the legislation mentioned earlier.

The government certainly has the desire for this to be the case, but perhaps some of the broader ethical questions regarding the ‘personhood’ status of driving software will be thornier issues to resolve not only in the UK, but also elsewhere in the world.

The law places a strong emphasis on ‘the person’, which drives concepts such as ownership and both civil and criminal liability. That concept initially attached to the human—people owning things, people committing crimes or entering into agreements. But we have seen our laws adapt and, in our modern world, we have stretched the concept of legal personality. We have created intangible entities, for example limited companies, PLCs, LLPs etc, which are all capable of ownership and liability in their own right. This means they can enter into contracts, incur debt and be held accountable for their actions, and they are distinct from the identities of their shareholders, directors, parent or subsidiary companies.

In 2017, for environmental protection reasons, we have seen the Whanganui River in New Zealand granted legal status and an attempt to do the same for the Ganges in India.

In October 2017 a robot called ‘Sophia’ was granted citizenship status by Saudi Arabia—triggering a wave of interesting discussions and repercussions, such as whether Saudi robots have more rights than women.

The law could be amended to give some form of legal status (and so responsibility/accountability) to driving technologies—as we already have a precedent for amending this legal concept.

Interviewed by Alex Heshmaty.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

This article was first published on Lexis®PSL TMT on 30 November 2017. Click for a free trial of Lexis®PSL

Egaming industry predictions for 2018 - including GDPR and lottery regulation

Kambi CCO Max Meltzer and Susan Biddle of Kemp Little reveal their top three industry predictions for 2018

Max Meltzer, chief commercial officer, Kambi​

  1.  New takes on the classic sportsbook – I think 2018 could well be the year that new entrants, or at least new brands, push the boundaries of what is a relatively standardised sportsbook product. While the likes of LeoVegas and Mr Green have already got the ball rolling using Kambi’s open platform, I expect to see more gamification, social elements, packaging of particular sports or bet types, unique bonusing and incentives for customer acquisition and retention come to the fore as operators look to exploit niche segments of the market.
  2. GDPR to cause a ‘shock’ – I say ‘shock’ as General Data Protection Regulation has been well flagged so shouldn’t really come as a surprise to anyone when it comes into force in May 2018. However, I’ve spoken to numerous operators, particularly possible future partners of ours, who don’t really have this on their radar, but with breaches of the new Act resulting in fines of up to 4% of global turnover, or as much as €20m, businesses must act quickly to ensure they have their regulatory ducks in a row. Thanks to the ISO 27001 accreditation Kambi gained in 2016, we’ve had a head start when it comes to being compliant with the new data rules and, as per our corporate probity strategy, have been busy helping our operators put in place the right procedures to avoid any potential pitfalls.
  3. Retail players to expect online quality– The retail punter is evolving to the point where we should no longer look at the industry as being multi-channel. Players now expect the same high standard in shop as they do online – whether that be pricing, bonusing, depth of offer, in-play and Instant Betting. People all over the world are walking into retail betting stores with smartphones in their pockets, or checking prices online ahead of placing an OTC bet – they are aware of a better experience available but are unable to access it. At the same time, operators must have the same flexibility to differentiate in-store as they have online, from customising Egaming industry predictions for 2018 – including GDPR and lottery regulation SSBTs, to having price differentiation, to tailoring football coupons, to targeted bonuses, etc. Furthermore, with a reduction in stakes on FOBTs coming in the UK, operators will be forced to improve and modernise the in-store betting experience.

Susan Biddle, legal consultant, Kemp Little LLP

  1. The need for socially responsible provision of gambling will be a key theme, underpinning a number of issues such as: the launch of GAMSTOP and how effective this is; continued debate about the dividing line between gambling and social gaming, and the extent to which social gaming should be regulated. There will be particular concern about children being exposed to gambling-style products; whether there should be a statutory levy to replace the current voluntary funding for research, education and treatment of problem gambling; and a drive towards more co-operation between operators on sharing experiences on what works (or does not work) in relation to identifying and helping problem gamblers and those at risk of becoming problem gamblers. The 5 Live investigation reported in mid-December is perhaps a taste of things to come. Operators will make – or will be under increasing pressure to make – more use of technology (including machine learning and other forms of artificial intelligence) to help them to identify actual/potential problem gamblers and the self-excluded, and to help these people to manage (and where appropriate stop) their gambling.
  2. A continued focus on consumer protection, with all operators needing to review their T&Cs to take account of the outputs from the current Competition & Markets Authority (CMA) investigation, and vigorous action by the CMA and Gambling Commission against any who do not make the necessary changes. We’ll also see continued active enforcement by the Commission and/or the ASA of the various codes on advertising. Egaming industry predictions for 2018 – including GDPR and lottery regulation
  3.  An increased regulatory focus on lotteries, in an attempt to shore up the revenue for good causes including: the introduction and enforcement of the bar on betting on non-UK EuroMillions; the need to make clear what proportion of lottery proceeds go to which good causes; requiring those offering bets on international lotteries to make very clear that this is betting, & not a lottery raising funds for good causes; the competition for the new National Lottery licence and follow-up of the National Audit Office’s report on Camelot’s profits and contribution to good causes; and close scrutiny (by the Gambling Commission and/or the ASA) of the various attempts to sell houses via free prize draws and skill competitions.
This article was first published on EGR December 2017

Is the rapid approach of driverless vehicles accelerating the need for legal change?

Legal regulatory changes on the horizon for driverless cars.

Governments in the UK do not typically have reputations as visionary thought-leaders, facing some of the most challenging political questions of a generation. British politicians are even less likely to be focused on challenging Musk and Hawking for the ‘World’s Leading Futurist’ crown.

So what did we learn when the Chancellor delivered his Autumn Budget, announcing that he wanted to create “the most advanced regulatory framework for driverless cars in the world” and “the government wants to see fully self-driving cars, without a human operator, on UK roads by 2021”?

Prediction is very difficult, especially about the future

We can safely presume that within the next decade, we will see driverless vehicles on public roads, unleashed from their test environments. Uber recently announced plans to buy 24,000 autonomous cars from Volvo, while Google affiliated ‘Waymo’, announced that their fully driverless cars have been driving around Arizona, without a safety driver at the controls, for months. This is industry validation that we’re approaching the event horizon for publicly available driverless vehicles.

The focus is rapidly shifting from validating the capability of the driverless vehicle tech to scrutinising the suitability of existing legislation to deal with this technology. The US and UK have seen plenty of theoretical ‘thought pieces’ on holistic issues raised by driverless vehicles (and artificial intelligence more generally). However, it is only recently that legislators have begun to fully recognise that the topics have evolved from abstract sci-fi debates to practical real-world issues.

Regulatory approach to date

So, where are we with the UK regulator’s approach to automated vehicles? Here we mean both fully autonomous vehicles, capable of being operated with little or no input by a driver, as well as automated technologies which support the operation of a vehicle by a driver.

In February 2015, the DfT published ‘A detailed review of regulations for automated vehicle technologies’, together with a ‘Summary report and action plan’, under the heading “The Pathway to Driverless Cars“. These documents set out the UK government’s plan to update laws and regulations to permit the sale of automated vehicles to the public, and included plans to develop a code of practice for testing automated vehicles, while reviewing legislation to clarify liabilities in the event of a collision, and consider whether higher standards of safety are required (including dealing with cyber threats).

Additionally, a draft ‘Vehicle Technology and Aviation Bill’ was announced during the Queen’s Speech in February 2017, which included proposed automated vehicle specific legislation, relating to record keeping, insurance and accidents relating to uninstalled software updates. The Bill passed a second reading in October 2017.

Is driving software likely to become a ‘person’?

The automated vehicle is often cited as a practical example in a legal debate surrounding artificial intelligence more broadly.  Discussion on AI also focusses on issues around ethics and the concept of legal personality. The question was asked by the EU Commission in the January 2017, following a recommendation by their Legal Affairs Committee on whether robots and indeed other AI technology, should be granted ‘personhood’ status.

The law places a strong emphasis on ‘the person’, which drives concepts such as ownership and both civil and criminal liability. That concept initially attached to the human – people owning things, people committing crimes or entering into agreements. But we have seen our laws adapt, and in our modern world, we have stretched the concept of legal personality. We have created intangible entities – limited companies, PLCs, LLPs etc., which are all capable of ownership and liability in their own right.

This means they can enter into contracts, incur debt and be held accountable for their actions, and they are distinct from the identities of their shareholders, directors, parent or subsidiary companies. In 2017, for environmental protection reasons, we have seen the Whanganui River in New Zealand granted legal status and an attempt to do the same for the Ganges in India. In October 2017 a robot called “Sophia” was granted citizenship status by Saudi Arabia – triggering a wave of interesting discussions and repercussions, such as whether Saudi robots have more rights than women.

The law could be amended to give some form of legal status (and so responsibility/accountability) to driving technologies – as we already have a precedent for amending this legal concept. However, a key question is what are we trying to achieve in doing this?

This question forms the other current focus of regulators regarding automated vehicles and artificial intelligence – the underlying ethical principles, which govern the operation of the tools.

Both the UK and EU and approach has been to flag that reaching conclusions on the various ethical debates on AI and robots is fundamentally important. Indeed, in his November budget, the UK Chancellor provided the further investment required to progress ethical think-tanks and their recommendations.

Questions such as “should the driverless vehicle choose the elderly pedestrian or the young family to crash into?” are now being debated in the public domain. Reaching conclusions on these questions, which should involve factoring in both public opinion, and ongoing Government supported research – will allow us to shape the next phase of legislation. Clearly, with this revolutionary technology so close to being publicly available, we cannot wait too long for the legislation to catch-up.

This artlice was first published on Computer Business Review December 2017

Update on extension of SMCR to FCA FSMA-authorised firms and insurers

Following on from the consultation papers published in the summer regarding the extension of the Senior Managers and Certification regime (see our client alert: here), the FCA have published proposals on how firms and individuals (including insurers) will transition to the extended Senior Managers and Certification Regime (SMCR). In addition, the FCA has published two Consultation papers on the duty of responsibility and also on Industry Codes of Conduct.

Key points:

  • It is likely now that implementation of the extension of SMCR will apply firstly to insurance firms, in late 2018
  • For other firms, implementation is likely to be in mid-to-late 2019
  • Other than for Enhanced firms, the FCA is proposing to automatically transfer existing approved persons into Senior Management Functions
  • Enhanced firms will need to make specific applications for individuals to be approved as Senior Managers
  • The Duty of Responsibility will extend to all SMFs in the extended regime
  • The FCA is seeking feedback on its approach to supervising conduct, and its suggestion that it publicly recognise appropriate industry codes of practice

Consultation paper (CP17/40) on the transitional arrangements for solo regulated firms SMCR

View the consultation paper.

Who is affected by these changes?

All FCA solo regulated firms, as well as EEA and third country branches (not insurers, these firms should read CP17/41).

Conversion of individuals from the APR to the SMCR:

The FCA want to make the transition from the Approved Persons Regime (APR) to the SMCR as simple, clear and proportionate as possible. The FCA proposes to

  • Automatically convert most of the existing approved persons at Core and Limited Scope firms into the corresponding new Senior Management Functions (SMF). A table in the CP (at page 16) sets out which roles will automatically transfer.
  • The CP also includes proposals for dealing with new and in-flight applications by Core and Limited Scope firms.
  • Although statements of responsibility will not be required on the conversion, firms must have statements available for the FCA on request.
  • Enhanced firms will need to submit a conversion notification (Form K) and accompanying documents (statements of responsibilities and responsibilities map).

Certified Staff

Individuals who are not SMFs but who fall under the Certification Regime instead will need to have been identified by the start of the regime, and will be required to comply with Conduct Rules from this date. However, firms will have 12 months thereafter in which to certify them as ‘fit and proper’.

Conduct Rules

Firms will be given 12 months from the implementation date to train all staff (other than SMFs and CFs) covered by the Conduct Rule regime.

Changes for banking firms

The CP also makes clear that the FCA are proposing to introduce the new Prescribed Responsibility for training staff in Conduct Rules before the implementation of the extended regime, and firms will therefore be required to amend existing statements of responsibility, Responsibility Maps and notify the FCA accordingly.

Appointed Representatives (ARs)

The extension of the SMCR does not affect Approved Persons (APs) working at ARs. Principal firms will remain responsible for their ARs.

The Financial Services (FS) Register

The FCA proposed in CP17/25 and CP17/26 that for firms subject to SMCR, only details of people holding SMFs will remain on the register, with employees in Certification Functions (CFs) therefore no longer appearing on the register. This is being reviewed by the FCA as concerns have been raised regarding the impact of this on individuals currently holding CFs.

When will this be implemented?

The new rules will be implemented once the Treasury sets the dates. The FCA presumes that the rules will apply to insurers in late 2018 and solo-regulated firms in mid-to-late 2019. The actual commencement dates will be announced and set by the Treasury in due course.

Consultation paper CP17/41 on transitioning insurers and individuals to the SMCR

View the consultation paper.

Who is affected by these changes?

Solvency II firms, Non-Directive firms or NDFs, small run-off firms.

Transition arrangements

As firms are of different sizes and nature, the FCA does not find it appropriate to move individuals into the SMCR in the same way for all insurers. The FCA propose to:

  • automatically convert most of the APs at the small NDFs, small run-off firms and ISPVs into the corresponding new Senior Management Functions (SMFs);
  • allow Solvency II firms and larger NDFs to submit a conversion notification (Form K) and accompanying documents.

Certified Staff

Individuals who are not SMFs but who fall under the Certification Regime instead will need to have been identified by the start of the regime, and will be required to comply with Conduct Rules from this date. However, firms will have 12 months thereafter in which to certify them as ‘fit and proper’.

Conduct Rules

Firms will be given 12 months from the implementation date to train all staff (other than SMFs and CFs) covered by the Conduct Rule regime.

Consultation Paper CP17/42 – The Duty of Responsibility for insurers and FCA solo-regulated firms

View the consultation paper.

Who is affected by this paper?

Insurers, FCA solo-regulated firms and the senior management of both.

This consultation paper focuses on the extension of the ‘Duty of Responsibility’ to Senior Managers in all firms covered by the extension of SMCR. The FCA has produced guidance on the duty, and seeks feedback from firms affected by the extension.

Responses to these three consultation papers are due by 21 February 2018.

Consultation Paper CP17/37 - Consultation Paper on Industry Codes of Conduct and Discussion Paper on FCA Principle 5


Who is affected by this paper?

All authorised firms, including those already subject to SMCR.

What does the paper say?

The FCA is proposing:

  • a “general approach” to supervising and enforcing SMCR rules for unregulated markets and activities, including those covered by industry-written codes of conduct.
  • to publicly recognise particular industry codes that set out proper

In addition, it is seeking comments on extending the application of FCA Principle for Businesses 5 regarding proper market conduct.

Responses to this paper should be sent by 5 February 2018

What should you do now?

Firms who wish to comment on the various consultation papers should take the opportunity to do so, as past experience has shown that it is possible to inform and shape the Final Rules through consultation responses.

Separately, firms should still be considering who is caught internally by the regime requirements, and which roles will transfer automatically (or on application) to SMFs. Governance structures and reporting lines will need to be considered in light of the extension of the regime and of the duty of responsibility for SMFs.

To discuss how Kemp Little can help you implement these changes, please see our note or contact a member of our SMCR team:

PSD2 - European Commission adopts Delegated Regulation regarding regulatory technical standards on strong customer authentication and on common and secure open standards of communication

What has happened?

Firms who are within scope of the second Payment Services Directive ((EU) 2015/2366) (“PSD2”) now have – at long last – some clarity around PSD2’s strong customer authentication (“SCA”) requirements, following the European Commission’s adoption on 27 November 2017 of a Delegated Regulation and Annex with regard to the regulatory technical standards (“RTS”) on SCA and common and secure open standards of communication (“CSC”) (C(2017) 7782). 

What are the key points?

The key points relate to continuing access by payment service providers to payment service users’ payment account information held by banks and an optional corporate exemption from certain SCA requirements. 

Some detail

The journey to this point has not been easy and it is not clear whether the final RTS will answer all outstanding questions around SCA. The RTS were drafted initially by the European Banking Authority (“EBA”) further to its mandate under PSD2 to specify the requirements for SCA (under Article 98) and related exemptions, security measures for payment service users’ credentials and CSC for payment service providers. 

The RTS met with initial disapproval from the European Commission, which drafted a letter in May 2017 setting out its intention to make a number of amendments. The most controversial of these was the Commission’s proposed requirement that Account Servicing Payment Service Providers (“ASPSPs”) (banks typically) provide access to the customer interface for Account Information Service Providers (“AISPs”) and Payment Initiation Service Providers (“PISPs”) if the dedicated interface is not available. In other words, screen-scraping would still need to be provided even if a bank’s dedicated interface for AISPS and PISPs fails; this is in order to ensure continuity to payment service users (end customers) of the services provided by AISPs and PISPs. In June 2017, the EBA responded with an Opinion letter, setting out its objections, including its objection to permitting screen-scraping in this way. 

The Commission’s adoption of the RTS includes some substantive amendments reflecting the Commission’s original position. The first is the addition of a further exemption from SCA to cover electronic payment transactions that are performed through dedicated payment processes used by corporates, where the appropriate level of security is achieved through other means than the authentication of a particular individual. This exemption would be subject to the approval of each national competent authority. 

The Commission’s second amendment to the RTS relates to “screen-scraping”. Here, the Commission promotes a compromise position (or perhaps a punt). The Commission maintains that banks should permit a fall-back mechanism if the dedicated interface fails: “it is necessary  to  provide,  subject  to  strict  conditions,  a  fall-back  mechanism  that  will  allow  such  providers  to  use  the  interface  that  the  account  servicing   payment   service   provider   maintains   for   the   identification   of,   and  communication   with,   its  own  payment  service   users.” (C(2017) 7782 final (Recital 24))

Having said that, the Commission has also decided that national competent authorities may exempt banks from being required to provide such a fall-back mechanism, provided the dedicated interface meets certain criteria. In other words, it’s back to the FCA. This means that ASPSPs, AISPs and PISPs could face different SCA requirements depending upon which Member State they are operating in.

What happens next?

Although PSD2 applies from 13 January 2018, the RTS apply 18 months after the date that the Delegated Regulation enters into force, which will be the date of its publication in the Official Journal of the EU. This means that the RTS should apply from around Q3/Q4 2019, assuming the necessary approval by the European Parliament and the Council is granted.

The Commission’s adoption of the RTS has several implications for payment service providers. Payment service providers now know they have until around Q3/Q4 2019 to ensure that their systems comply with the security measures in Articles 65, 67 and 97 of PSD2 (transposed in the UK under Part 7 of the Payment Services Regulations 2017) concerning SCA, bearing in mind that those provisions in Articles 65, 67 and 97 that do not relate to SCA will apply from the implementation of PSD2 13 January 2018. 

The Basel Committee on Banking Supervision reports on the implications of fintech for banks

The growth of the fintech industry in recent years has caused regulators globally to consider their approach to supervision of players in this space. The attitude of regulators to fintech is of equal importance to firms operating in the financial industry. Focusing on the banking industry, the Basel Committee on Banking Supervision (‘BCBS’) has set up a task force to provide insight into this development, and more specifically to explore the implications for supervisors and banks’ business models. It has also published a consultation paper on the implications of fintech developments for banks and banking supervisors. The paper summarises the BCBS’s main findings and conclusions, as Jacob Ghanty, a Solicitor specialising in fintech and emerging payment technologies, explains.

The BCBS’ paper looks at a number of scenarios (possible models that the banking industry will adopt as a result of fintech developments) and assesses their potential future impact on the banking industry. A common theme across the various scenarios appears to be that banks will find it increasingly difficult to maintain their current operating models, given technological change and customer expectations. There seem to be indications that the future of banking will increasingly involve a battle for the customer relationship. In the paper, the BCBS looks at the extent to which banks or new fintech companies will own the customer relationship in each scenario. However, the BCBS indicates that the current position of incumbent banks will be challenged in almost every scenario.

The paper has some historical perspective: the BCBS recognises that the emergence of fintech is only the latest wave of innovation to affect the banking industry. It notes that banks have undergone various technology enabled innovation phases before (an example would be the trend towards online banking services in the last decade). However, its view seems to be that factors including the rapid adoption of new technologies along with their effect on lowering barriers to entry in the financial services market may prove to be more disruptive than previous changes in the banking industry. The paper is recommended reading not least as it draws together a number of concepts relevant to fintech in a perhaps more coherent and less hyped way than some other material available on this subject (see for instance the sectors for innovative services graph within the BCBS paper).

In the paper, the BCBS has identified ten key observations and related recommendations on supervisory issues for consideration by banks and bank supervisors, which are considered below.

BCBS’ observations and recommendations

Observation 1: The nature and the scope of banking risks as traditionally understood may significantly change over time with the growing adoption of fintech, in the form of both new technologies and business models. While these changes may result in new risks, they can also open up new opportunities for consumers, banks, the banking system and bank supervisors.

Observation 2: For banks, the key risks associated with the emergence of fintech include strategic risk, operational risk, cyber risk and compliance risk. These risks were identified for both incumbent banks and new fintech entrants into the financial industry.

Recommendation 1: Banks and bank supervisors should consider how they balance ensuring the safety and soundness of the banking system with minimising the risk of inadvertently inhibiting beneficial innovation in the financial sector. Such a balanced approach would promote the safety and soundness of banks, financial stability, consumer protection and compliance with applicable laws and regulations, including anti-money laundering (‘AML’) and countering financing of terrorism (‘CFT’) regulations, without unnecessarily hampering beneficial innovations in financial services, including those aimed at financial inclusion.

Recommendation 2: Banks should ensure that they have effective governance structures and risk management processes in order to identify, manage and monitor risks associated with the use of enabling technologies and the emergence of new business models and
entrants into the banking system brought about by fintech developments. These structures and processes should include:

  • robust strategic and business planning processes that allow banks to adapt revenue and profitability plans in view of the potential impact of new technologies and market entrants;
  • sound new product approval and change management processes to appropriately address changes not only in technology, but also in business processes;
  • implementation of the Basel Committee’s Principles for Sound Management of Operational Risk (‘PSMOR’) with due consideration of fintech developments; and
  •  monitoring and reviewing of compliance with applicable regulatory requirements, including those related to consumer protection, data protection and AML/CFT when introducing new products, services or channels.

Comment: It seems that the BCBS, perhaps unsurprisingly, perceives the risks and opportunities of fintech very much in the framework of existing regulatory requirements. This may come from a view that fintech is a development that should be treated like any other development, that is, within the structure of existing regulatory requirements and laws. I have sympathy for this approach and it is the normal state of affairs from an English legal perspective, but regulators should be mindful of the need to ensure that laws and regulations remain fit-for-purpose and look to develop these around fintech developments - after all the law should itself develop to deal with issues as they emerge. It is encouraging to see that this point is recognised in Observation 9 (see below).

Observation 3: Banks, service providers and fintech firms are increasingly adopting and leveraging advanced technologies to deliver innovative financial products and services. These enabling technologies, such as artificial intelligence (‘AI’)/machine learning (‘ML’)/ advanced data analytics, distributed ledger technology (‘DLT’), cloud computing and application programming interfaces (‘APIs’), present opportunities, but also pose their own inherent risks.

Recommendation 3: Banks should ensure they have effective IT and other risk management processes that address the risks of the new technologies and implement effective control environments needed to properly support key innovations.

Comment: It is difficult to argue with the BCBS’ findings here. It would be useful to see in due course some guidance with some specifics on addressing the risks of new technologies.

Observation 4: Banks are increasingly partnering with and/or outsourcing operational support for technology based financial services to third party service providers, including fintech firms, causing the delivery of financial services to become more modular and commoditised. While these partnerships can arise for a multitude of reasons, outsourcing typically occurs for reasons of cost reduction, operational flexibility and/or increased security and operational resilience. While operations can be outsourced, the associated risks and liabilities for those operations and delivery of the financial services remain with the banks.

Observation 5: fintech developments are expected to raise issues that go beyond the scope of prudential supervision, as other public policy objectives may also be at stake, such as safeguarding data privacy, data and IT security, consumer protection, fostering competition
and compliance with AML/CFT.

Observation 6: While many fintech firms and their products - in particular, businesses focused on lending and investing activities - are currently focused at the national or regional level, some fintech firms already operate in multiple jurisdictions, especially in the payments and cross border remittance businesses. The potential for these firms to expand their cross border operations is high, especially in the area of wholesale payments.

Recommendation 4: Banks should ensure they have appropriate processes for due diligence, risk management and ongoing monitoring of any operation outsourced to a third party, including fintech firms. Contracts should outline the responsibilities of each party, agreed service levels and audit rights. Banks should maintain controls for outsourced services to the same standard as the operations conducted within the bank itself.

Recommendation 5: Bank supervisors should cooperate with other public authorities responsible for oversight of regulatory functions related to fintech, such as conduct authorities, data protection authorities, competition authorities and financial intelligence units,
with the objective of, where appropriate, developing standards and regulatory oversight of the provision of banking services, whether or not the service is provided by a bank or fintech firms.

Comment: It is welcome to see financial regulators recognising the need for cooperation with other types of regulators (notably data protection). With growing recognition of the importance of the use of customers’ data in financial services, it is possible that data protection regulations will become at least as important to banks as traditional financial regulations.

Observation 7: Fintech has the potentialmodels, structures and operations. As the delivery of financial services becomes increasingly technology driven, reassessment of current supervision models in response to these changes could help bank supervisors adapt to fintech-related developments and ensure continued effective oversight and supervision of the banking system.

Observation 8: The same technologies that offer efficiencies and opportunities for fintech firms and banks, such as AI/ML/advanced data analytics, DLT, cloud computing and APIs, may also improve supervisory efficiency and effectiveness.

Recommendation 6: Given the current and potential global growth of fintech companies, international cooperation between supervisors is essential. Supervisors should coordinate supervisory activities for cross border fintech operations, where appropriate.

Recommendation 7: Bank supervisors should assess their current staffing and training models to ensure that the knowledge, skills and tools of their staff remain relevant and effective in supervising new technologies and innovative business models. Supervisors should also consider whether additional specialised skills are needed to complement existing expertise.

Recommendation 8: Supervisors should consider investigating and exploring the potential of new technologies to improve their methods and processes. Information on policies and practices should be shared among supervisors.

Comment: It is vital that regulators keep up with the firms that they are supervising and developments in the industry to avoid the risk of being unable to supervise effectively. How regulators do this is clearly a challenge given that many people with the relevant technological expertise naturally prefer to work in the industry itself rather than for the regulator. One method of tackling this issue has been the use of ‘regulatory sandboxes,’ which enable regulators to monitor emerging financial technologies first hand (see Observation 10 below).

Observation 9: Current bank regulatory, supervisory and licensing frameworks generally pre-date the technologies and new business models of fintech firms. This may create the risk of unintended regulatory gaps when new business models move critical banking activities outside regulated environments or, conversely, result in unintended barriers to entry for new business models and entrants.

Observation 10: The common aim of jurisdictions is to strike the right balance between safeguarding financial stability and consumer protection while leaving room for innovation. Some agencies have put in place approaches to improve interaction with innovative financial players and to facilitate innovative technologies and business models in financial services (e.g. innovation hubs, accelerators, regulatory sandboxes and other forms of interaction) with distinct differences.

Recommendation 9: Supervisors should review their current regulatory, supervisory and licensing frameworks in light of new and evolving risks arising from innovative products and business models. Within applicable statutory authorities and jurisdictions, supervisors should consider whether these frameworks are sufficiently proportionate and adaptive to appropriately balance ensuring safety and soundness and consumer protection expectations with mitigating the risk of inadvertently raising barriers to entry for new firms or new business models.

Recommendation 10: Supervisors should learn from each other’s approaches and practices, and consider whether it would be appropriate to implement similar approaches or practices.

Comment: It is reassuring to see that the BCBS is encouraging banking supervisors internationally to address potential knowledge gaps in the fintech area. One wonders with the explosion in fintech developments that is occurring whether governments may in future look at forms of industry self regulation in appropriate circumstances to help manage the burden of actually regulating this dynamic and fast changing industry. In the UK that is how financial regulation developed originally, but the pendulum had swung against self regulation by the time of the Financial Services and Markets Act 2000. Arguably, however, with the sheer pace and volume of new entrants and developments in fintech, some form of self regulation may become necessary, perhaps via some of the fintech hubs or incubators that have grown up to support the fintech industry. 


This article was first published in Payments & Fintech Lawyer November 2017 


Take care when submitting an application for EIS or SEIS relief

The Seed Enterprise Investment Scheme (SEIS) encourages individuals to invest in start-up companies by offering certain tax reliefs. An investor may be able to reduce their income tax liability by 50% of the funds used to subscribe for shares, up to an annual investment limit of £100,000 and on disposal of such shares be exempt from capital gains tax (after a minimum holding period). 

The Enterprise Investment Scheme (EIS) is similar but aimed at small, high-risk companies and investors can expect up to 30% of the cost of the shares to be offset against their income tax bill (up to an annual limit of £1 million). 

A company cannot apply for SEIS certification, if an EIS investment has already been made. 

In Innovate Commissioning Services Ltd v HMRC [2017] UKFTT 0741 (TC), Innovate sought SEIS certification. However, it inadvertently submitted the wrong form with HMRC, using Form EIS1 rather than Form SEIS1. On receiving the Form EIS1, HMRC wrote to Innovate checking whether it had intended to submit Form SEIS1 and noting that, if Form EIS1 was authorised, Innovate could not then correct the position. Innovate did not respond; as it had moved address and did not receive the letter. HMRC therefore gave authority for Innovate to issue compliance certificates under the EIS regime. Once Innovate realised the error, they submitted a SEIS1 and asked to withdraw the EIS1. HMRC refused stating that once it had certified Innovate under EIS, it did not have the power to accept a substitute Form SEIS1. The effect of this was the denial of superior tax reliefs under SEIS. 

Innovate brought proceedings against HMRC but the First Tier Tribunal agreed with HMRC and held that a company could not substitute a SEIS compliance statement for an incorrectly submitted EIS compliance statement after HMRC’s authorisation of the compliance statement (this followed previous decisions in X-Wind Power Limited v HMRC and GDR Food Technology Limited v HMRC). HMRC’s authorisation of the compliance statement was ‘the point of no return’. It is important to note that the Tribunal Judge remarked that the legislation provided that the provision of the compliance statement by the Company itself would be sufficient to prevent further filings being made. 

This case highlights the need to be careful in filing the correct compliance statement for EIS or SEIS relief and the consequences of failing to do so. Once HMRC authorise the compliance statement, it will be too late to reverse any mistakes. 

Implying terms into a professionally drafted contract

In the recent case of Takeda Pharmaceutical Company Limited v Fougera Sweden Holding 2 AB [2017] EWHC 1995 (Ch), the High Court had to consider whether a term for parties to co-operate following completion was to be implied into a share purchase agreement.


The case arouse out of the sale of a Danish company (the “Target”) by Fougera Sweden Holding 2 AB (“Fougera”) to Takeda Pharmaceutical Company Limited (“Takeda”) on 30 September 2011.  Fougera was a subsidiary of an investment fund which was structured through a Luxembourg limited partnership.  Fougera had loaned certain monies to the Target prior to the sale. At the time of the sale, the Target was involved in an ongoing issue with the Danish tax authorities as to whether the Target was liable to any Danish withholding tax on the interest accrued on this loan was outstanding at the time of the sale. The share purchase agreement (the “SPA”) therefore contained an indemnity provision pursuant to which Fougera would indemnify the Target any withholding tax paid by the Target to the Danish authorities in relation to the outstanding issue. The indemnity was capped and expired on 30 September 2017. 

The Danish tax authorities issued an assessment in 2015 levying significant sums as withholding tax on the Target. The Target wished to challenge this assessment, but it required certain sensitive information about the ultimate investors of Fougera, which Fougera refused to provide. Takeda argued that Fougera was under an obligation to provide this information either (1) pursuant to the further assurance clause of the SPA; or (2) there were implied terms to this effect.

Court’s findings:

The court noted that the SPA was professionally drafted on behalf of sophisticated and well-resourced parties engaged in a very substantial transaction. It clarified that there was no dispute as to the principles to be applied in interpreting the SPA.  They were considered by the House of Lords and the Supreme Court in a series of cases culminating in the recent decisions of the Supreme Court in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 WLR 1095. The court’s task was to ascertain the objective meaning of the language which the parties have chosen to express their agreement when read in the context of the factual background known or reasonably available to the parties at the time of the agreement, excluding prior negotiations. 

Takeda accepted that the obligations on Fougera to provide the required information was not spelled out in any of the express terms contained in the SPA, but rather the obligations were “reasonably necessary to give full effect to” the SPA. The court rejected this claim. It held that implying a duty to cooperate was not necessary to make the SPA workable.

Takeda also argued that the further assurance clause imposed an obligation on Fougera to provide the required information. The court rejected Takeda’s arguments stating that on a proper interpretation of the SPA, there was nothing that required Fougera to provide the requested information and as such there was nothing for the covenant of further assurance clause to bite on.


This case clearly demonstrates the difficulty in persuading a court to imply terms into an SPA that is professionally drafted on behalf of sophisticated and well-resourced parties. The prudent approach therefore seems to be for each party to consider carefully circumstances in which they might want to rely on clauses such as further assurance clause, and to include clear express terms setting out each party’s obligations in such circumstances.

Potential implications (government review) UK M&A deals

The Department for Business, Energy & Industrial Strategy (BEIS) of the UK government has published a Green Paper seeking consultation responses on proposals for reforming the provisions of the Enterprise Act 2002 (EA 2002) which deal with scrutiny of investments for the purposes of national security. 

The Green Paper acknowledges the key role that foreign direct investment plays in the UK economy, bringing multiple benefits including foreign capital, new jobs, ideas, talent and leadership. However, the Green Paper questions whether the current provisions of the EA 2002 are adequate for assessing the potential national security implications of proposed transactions, illustrated by the Hinkley Point C decision last year. The UK needs to be alert to the risk that having ownership or control of critical businesses or infrastructure could provide opportunities to undertake espionage, sabotage or exert inappropriate leverage, and also have a regime in place to assess and mitigate such a risk. The Green Paper mentions that part of the objective is parity with other developed and open countries in their equivalent regimes. 

BEIS proposes a set of short-term and long-term reforms, with the stated objective of seeking measures which only involve necessary and proportionate steps to protect national security. 

Short-term steps – change to thresholds for specific sectors

In the short-term, the government proposes to amend the turnover threshold and share of supply tests in the EA 2002. This will allow the government to review and, if necessary, intervene in mergers which exceed the amended threshold. The amended threshold would apply in two areas: (i) the dual use and military use sector; and (ii) advanced technology. For these areas, the government proposes to lower the turnover threshold from £70 million to £1 million and remove the current requirement for the merger to increase the share of supply to, or over, 25%. 

In relation to the dual use/military use sector, the government intends to use some of the Strategic Export Control Lists as the basis for which businesses will be subject to the amended thresholds. The lists include goods which have been agreed pose a risk to national security or human rights, or because of internal obligations or foreign policy commitments, and for which UK businesses must currently secure a licence before exporting.

In relation to advanced technology, the Green Paper provides some guidance on what this term is intended to cover. The Green Paper specifically mentions the following key areas to which it is proposed the amended thresholds will apply:

  • Multi-purpose computing hardware – the proposed definition is “Enterprises that: (i) own or create intellectual property rights in the functional capability of multi-purpose computing hardware; or (ii) design, maintain or support the secure provisioning or management of roots of trust of multi-purpose computing hardware”; and
  • Quantum-based technology -  proposed definition is: “Enterprises that research, develop, design or manufacture goods for use in, or supply services based on, quantum computing or quantum communications technologies. This would include the creation of relevant intellectual property or components”.

BEIS has made clear that it welcomes respondent’s views on these proposed definitions. The Green Paper requested consultation responses on the short-term steps by 14 November 2017.

Long-term reforms

In the longer term, the government intends to make more substantive changes to how it scrutinises the national security implications of foreign investment. The proposed reforms will focus on ensuring adequate scrutiny of whether foreign investment in critical businesses raises any national security concerns and providing the ability to act where this is the case. The potential reforms include:

  • an expanded version of the call-in power, based on the existing power in the EA 2002, which will allow government to scrutinise a broader range of transactions for national security concerns within a voluntary notification regime; and/or
  • mandatory notification for foreign investment into: (i) the provision of essential functions in key parts of the economy; or (ii) new projects that could reasonably be expected in the future to provide essential functions and/or foreign investment in specific businesses or assets. 

The government proposes that mandatory notification may apply, as a minimum, to civil nuclear, defence, telecommunications and the transport sector. The government is also minded to include the types of business identified in relation to the short-terms steps, i.e. the manufacture of military and dual-use items and advanced technology. 

Responses to the long-term reforms are sought by 9 January 2018, with further consultation on proposed reforms to be included in a white paper.

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