Financial Institutions

The emergence of online, non-traditional financial service platforms creates additional avenues for terrorist groups to receive and transfer funds outside of the traditional banking system.  One consequence of this trend is the potential for increased litigation against these providers under U.S. statutes that create civil liability for provision of material support to terrorists: the Anti-Terrorism Act (the “ATA”), 18 U.S.C. § 2333(a), and the Justice Against Sponsors of Terrorism Act (“JASTA”), 18 U.S.C. § 2333(d)(2).

Civil claims for damages under the ATA and JASTA have historically been brought against large banks for providing financial services to entities with alleged terrorist links.  Typically in such cases, victims of a terrorist attack and/or their family members allege that the bank supported the attack by processing U.S. dollar denominated transactions to an entity with links to terrorism (often through a chain of intermediaries).  In recent years, the range of entities against which ATA and JASTA claims have been brought has increasingly expanded to include companies outside of the banking sector, such as pharmaceutical companies, government contractors, and social media platforms.  As terrorist groups increase their use of non-traditional financial service platforms, cryptocurrency exchanges, decentralized fintech platforms, and other similar businesses may begin to face ATA and JASTA claims.
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In 2019, boards and senior management across a range of industries continued to cite cybersecurity as one of the most significant risks facing their companies.

At the same time, comprehensive data privacy regulation became a new reality in the United States as many companies implemented major revisions to their privacy policies and data systems to

On October 11, 2019, the leaders of the Commodity Futures Trading Commission, Financial Crimes Enforcement Network, and Securities and Exchange Commission issued a joint statement to remind businesses that engage in digital asset activities of their anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) obligations under the Bank Secrecy Act (“BSA”).

As market

In late July 2019, U.S. federal and state regulators announced three headline‑grabbing data privacy and cybersecurity enforcement actions against Equifax and Facebook.  Although coverage of these cases has focused largely on their striking financial penalties, as important are the terms the settlements imposed on the companies’ operations as well as their officers, directors, and compliance professionals—and what they signal about potential future enforcement activity to come.
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On April 3, 2019, staff of the Securities and Exchange Commission released (1) a framework providing principles for analyzing whether a digital asset constitutes an investment contract, and thus a security, as defined in SEC v. W.J. Howey Co. and (2) a no-action letter permitting TurnKey Jet, Inc., without satisfying registration requirements under the Securities

On January 24 2019, Canada’s Office of the Superintendent of Financial Institutions (“OSFI”) released an Advisory detailing new requirements for Canadian federally regulated financial institutions (“FRFIs”) to report cyber incidents within 72 hours.  FRFIs include banks, trust companies, loan companies, life insurance companies, property and casualty insurance companies, and fraternal benefit societies.

The new reporting requirements become effective on March 31, 2019.
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On November 16, 2018, the U.S. Securities and Exchange Commission (“SEC”) Division of Corporation Finance (“Corp. Fin.”), Division of Investment Management, and Division of Trading and Markets issued a joint public statement on “Digital Asset Securities Issuance and Trading.”  The public statement is the latest in the Divisions’—and the Commission’s—steady efforts to publicly outline and develop its analysis on the application of the federal securities laws to initial coin offerings (“ICOs”) and certain digital tokens.  These efforts have combined a series of enforcement proceedings with public statements by Chairman Jay Clayton and staff, including a more detailed statement of the SEC’s analytical approach in Corp. Fin. Director William Hinman’s speech on digital assets in June 2018.
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On September 26, 2018, a federal court in the District of Massachusetts found that virtual currencies are a commodity under the Commodity Exchange Act, 7 U.S.C. § 1 et seq, (“CEA”). This marks the second time that a court has accepted the Commodity Futures Trading Commission’s (“CFTC”) position and upheld the agency’s authority to regulate unleveraged and unmargined spot transactions in virtual currency under the agency’s anti-fraud and manipulation enforcement authority.  Most notably, however, the reasoning behind its decision potentially expands the scope of the CFTC’s oversight of the market.
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On Tuesday, September 11, 2018, Judge Raymond J. Dearie of the Eastern District of New York issued a decision holding that Initial Coin Offerings (“ICO”) may qualify as securities offerings and therefore be subject to the criminal federal securities laws.  This ruling came as two U.S. regulators—the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”)—announced separate actions under securities laws against companies engaged in the cryptocurrency marketplace, including the sale of digital tokens.  As the popularity of cryptocurrencies grows and businesses and entrepreneurs increasingly turn to ICOs to raise capital, these developments may serve as guideposts for how cryptocurrencies and ICOs will be viewed by courts and federal regulators in cases to follow.
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On June 27, 2018, Equifax Inc., the credit reporting agency, agreed to implement stronger data security measures under a consent order with the New York State Department of Financial Services (“NYDFS”) and seven other state banking regulators.[1] The order imposes detailed duties on Equifax’s Board of Directors in response to criticisms raised by the regulators during an examination of Equifax’s cybersecurity and internal audit functions.  The examination followed the company’s massive 2017 data breach, which exposed sensitive personal information of nearly 148 million customers.  Equifax agreed to the order without admitting or denying any charges of “unsafe or unsound information security practices.”

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