PaymentsCompliance: U.S. Regulator Defends Fintech Charter From State Hostility


U.S. federal authorities have defended plans to give fintechs an alternative to state-by-state regulation, despite mounting pressure from politicians, state lawmakers and industry insiders.

Kathy Oldenborg, director of payment systems policy at the Office of the Comptroller of the Currency (OCC), told a conference in Washington, D.C. that a limited-purpose charter for fintech companies would not mean non-banks are subject to a light-touch regulatory regime.

Speaking at the American Bankers Association’s (ABA) Payments Forum last week, Oldenborg emphasized that the proposals are about minimizing risk as well as supporting innovation.

The OCC’s broader initiative was “to signal banks that it’s okay to innovate,” she said.

“You can work with fintech companies, you can partner with fintech companies, you can buy one if you want,” she added. “There’s nothing that says you can’t work with fintech companies outside this whole chartering discussion.”

Oldenborg added that the national fintech charter proposal is about the federal agency’s support for innovation while minimizing risk.

The OCC announced its intention last year to allow fintech companies to apply for special purpose national bank charters, and in March, after reviewing public commentary, published a draft of its guide for evaluating such applications.

The non-depository charter would effectively allow non-bank companies offering bank-like services to operate under a similar national regime, subject to regulation and oversight by the OCC.

Currently, such firms would have to apply for individual licensing in every state where they wish to operate.

Rob Morgan, the ABA’s vice president of emerging technologies, said at last week’s event that the group supports the OCC’s efforts to hold chartered fintech companies to the same standards as banks.

However, the proposals have sparked outrage from regulators at state level, who fear the initiative will pre-empt their authority over non-banks headquartered in their jurisdiction.

Margaret Liu, senior vice president and deputy general counsel at the Conference of State Bank Supervisors (CSBS), said the organization believes that by proposing the limited-purpose charter, the OCC had overstepped its authority under the National Bank Act.

The CSBS and a group of state regulators filed a lawsuit in April trying to prevent the OCC from moving forward with its charter proposal.

Liu said that chartered banks have a well-developed set of rights and responsibilities, but that chartering fintech companies as banks will cause turmoil for those rights and responsibilities.

“A federal license to do business is the exception, not the rule,” Liu said.

Liu was not the only speaker to voice concerns about the OCC’s plans — which were made under former comptroller Thomas Curry — to issue national bank charters to fintech firms.

Illinois Republican Representative Randy Hultgren, who is co-chair of the House Fintech and Payments Caucus, argued there is a bigger role for Congress to play in the discussion about allowing fintech firms to operate as national banks.

“If a healthy debate in Congress leads to a change in the law specifying a new authority for the OCC to issue some sort of special-purpose charter, or fintech charter, then the people will have spoken at that point,” Hultgren said in a speech to the conference.

He said that he would welcome further debate on the OCC proposal, although added there are currently no hearings scheduled.

Jason Henrichs, co-founder of FinTech Forge, told attendees that he liked the intent of the fintech charter scheme but said the OCC risks stifling innovation.

Henrichs, who participated in a discussion on how to maximize bank and fintech partnerships, noted that fintech firms were “where all the innovation is happening.”

Oldenborg declined to comment on when the OCC will finalize its fintech charter plan or begin accepting applications.


GamblingCompliance: Cyberattacks A Risk To All Businesses, Expert Warns

The fact that the Iranian government successfully targeted a Las Vegas gaming company and Russians tried to manipulate the U.S. election system should have significant implications for all businesses, a leading U.S. terrorism expert warned last week.

Counter-terrorism specialist Reid Sawyer, a senior vice president of credit, political and security risks with risk consultancy JLT, said every company executive needs to understand that cyber risk is a global issue.

“What I mean is the geography is irrelevant these days. Doesn’t matter if it’s coming from Russia, Ukraine or China, or from a criminal organization in the United States,” Sawyer told attendees of the American Bankers Association’s (ABA) Payments Forum.

Criminals and foreign governments are targeting all industries, including the gaming and hospitality industry.

Gaming’s most high profiled cyberattack occurred in February 2014, when the Iranian government was behind an attack on Las Vegas Sands’ computer systems and stole credit card data, social security numbers and drivers’ license numbers.

Sawyer said that cyber espionage — both state-based and criminal actors — poses significant risks that must be understood across the breadth of an organization. He described it as the new battlefield in terms of business risk.

“We need to stop talking about cyber risk in terms of cyber,” Sawyer said. “Cyber is just a means to get into your organization … to disrupt business to consumer or business to business activities, or disrupt your overall organization.”

When you put it in those terms, Sawyer said, “it is no longer a cyber risk, it is a business risk.”

He added that most businesses fail to understand the risks to their organizations, even though they have cyber directives. Sawyer criticized businesses for only looking at replacement costs.

“It’s a completely insufficient way to look at it,” Sawyer said. “You need to understand the financial risks. Why aren’t we talking about the P&L (profit and loss) risks or your earnings per share?”

He added that if you flip the way a company views the risk, then “you can recognize the problem in a different way.”

Sawyer was the keynote speaker on Thursday at the ABA’s inaugural Payments Forum, a two-day conference exploring the future of financial transactions in Washington, D.C.

“The greatest cyber threat we face is from our own actors,” Sawyer said. “John Podesta here in Washington clicked on malware and opened up the DNC’s (Democratic National Committee) emails.”

The DNC cyberattacks took place in 2015 and 2016, in which computer hackers infiltrated the DNC computer network, leading to a data breach. Cybersecurity experts say the espionage was the work of Russian intelligence agencies.

The attack allowed internal communications to stream into public view during the 2016 presidential election between former Secretary of State Hillary Clinton and current President Donald Trump.

Sawyer said the majority of cyber breaches come from willing or unwilling employees within corporations.

The gaming business and casino regulators have already acknowledged that the industry faces a mounting cybersecurity challenge.

In July 2016, the Hard Rock Hotel & Casino in Las Vegas suffered a second data breach which provided hackers with access to payment card data, including name, card number, expiration date and internal verification codes. Hard Rock faced a similar breach in May 2015.

The Las Vegas Sands-owned Venetian and Palazzo in Las Vegas and Sands Bethlehem in Pennsylvania were hit be a significant cyberattack in 2014, which was later linked to the Iranian government.

The FireKeepers and Four Winds tribal casinos in Michigan, as well as the Peppermill Casino in Reno, Nevada, and Casino Rama in Ontario, Canada, have also all been victims of cyber crimes.

The attacks range from malware software being placed on a payment card system, to email viruses being opened by employees that infect a company’s computer system.

Both New Jersey and Massachusetts have increased their cybersecurity rules, with New Jersey now requiring casinos’ heads of information security to be afforded the same level of responsibility as heads of audit or other departments.

In terms of cyber threats, Sawyer urged companies to move from the notion of whether they are appropriately protected to asking: “What is the enemy doing to us?”

“We don’t get that this is a business risk,” Sawyer said, citing an EY survey that found 68 percent of company executives would not change their IT spending if the supplier was breached.

Sawyer also said he was shocked at the amount of commercial espionage activity.

“The FBI will tell you the activity we are seeing from state to commercial is exceeding our ability to respond to it,” Sawyer told some 200 attendees during his 45-minute presentation.

“What we are seeing now is private warfare. States are no longer seeing state to state warfare as a legitimate target.”

He said that the government believes they can attack U.S. businesses with the idea “of destruction or damage.”

“That does far more damage to the U.S. in the long run,” Sawyer said. “It is the economy that is being targeted.”

Sawyer cited Iran’s response to Stuxnet, a computer worm that destroyed centrifuges inside the country’s Natanz uranium enrichment site. The cyberattack plan also targeted Iran’s air defenses, communications systems and key parts of its power grid.

“Iran’s response wasn’t against the Pentagon … it was against 50 financial institutions in the United States,” Sawyer said. “Data integrity is the payments industry’s greatest risk.”

GamblingCompliance: New Jersey Tracks Eye Historical Racing As Revenue Boost


Horseracing in New Jersey has fallen on hard times, and to help boost revenues, purses and attendance at the state’s three racetracks, track executives and lobbyists believe historical racing is key to their survival.

Representatives from the racing industry recently appeared in Trenton before members of the New Jersey legislature calling on lawmakers to approve a measure to legalize the games.

“Based on models in other states, purses would be increased significantly so as to enable us to be more competitive with surrounding states, which have slot or casino revenue,” said Dennis Drazin, an advisor to the New Jersey Thoroughbred Horsemen’s Association.

“We do believe historical racing will increase attendance,” Drazin told GamblingCompliance in an email.

Historical racing, also known as instant racing, is a form of electronic gambling machine that allows players to bet on replays of horse races or dog races that have already run.

The machines are marketed and sold as a legal form of pari-mutuel wagering, with outcomes determined by pooled bets on previously run horse races.

“Customers bet on historical racing because it’s fast, simple and similar to slot machine play, but based on a pari-mutuel model,” Drazin said. “Fans are given past performance data, but can’t identify the race.”

Historical racing is already offered in Arkansas, Kentucky, Wyoming and Oregon with $1.1bn bet on the product in four states last year.

Idaho and Texas had approved historical racing, but then pulled the plug on the machines.

The Idaho legislature, for example, approved the machines in 2013 but then in 2015 lawmakers banned historical horseracing after concerns were raised the machines resembled illegal slot machines.

New Jersey Assemblyman Ralph Caputo, a Democrat and chairman of the Assembly Tourism, Gaming and the Arts Committee, said his committee was “very interested in learning about this new concept … that has been established in some other states and has been very, very profitable and also very successful.”

“The horseracing industry has deteriorated over the last number of years due to a lack of state support and also because of changing demographics,” Caputo said.

“Obviously, the state needs revenue, the horseracing industry needs revenue,” Caputo said. “So, we are very interested in any new concept that would help the racing industry, but also the general state of the economy of New Jersey.”

Chris McErlean, vice president at Penn National Gaming, owner of Freehold Raceway, agreed the New Jersey racing industry was struggling.

McErlean on Tuesday praised Caputo for holding a hearing on the issue, and was hopeful that historical racing gets some momentum in the legislature.

In 2011, Republican Governor Chris Christie ended a $30m annual subsidy for purses that Atlantic City casinos paid the racing industry to compensate them for a prohibition on slot machines.

The Assembly committee discussed historical racing at a June 1 hearing, but as of Tuesday had not scheduled a hearing to vote on Assembly Concurrent Resolution 196.

Senate Bill 2886 introduced in January also would permit historical racing in New Jersey.

As the results are based on actual pari-mutual races that took place in the past, supporters believe the format does not require voter approval.

Marshall Spevak, chief of staff for Assemblyman Vince Mazzeo, a Democrat who represents Atlantic City and is vice chairman of the Tourism, Gaming and the Arts Committee, said Tuesday that if historical racing is gambling then “there is a constitutional question.”

Under New Jersey’s constitution, new forms of gambling are prohibited unless they have been approved by state-wide referendum.

Spevak said his boss was “very protective of the casino business in Atlantic City.”

“That’s really the point, making sure we are not expanding gambling beyond Atlantic City,” said Spevak, adding that there needs to be “a lot more research and thought that goes into this.”

However, racing supporters insist historical racing machines simply give tracks a chance to sell their product in a new way.

Scott Wells, president and general manager of Remington Park and Lone Star Park, told attendees at last month’s Pan American Conference in Washington that historical racing was the next step in the evolution of pari-mutuel wagering.

“Not to allow racetracks to have historical racings … is a restriction of fair trade,” Wells said. “It keeps the industry in handcuffs.”

GamblingCompliance: New Jersey To Continue Sports-Betting Battle As NBA Favors Federal Solution


The U.S. Solicitor General’s Office may have dealt a knockout blow to New Jersey’s six-year battle to legalize sports betting, but the state’s top gaming regulator says efforts will continue.

“We are still on hold,” David Rebuck, director of New Jersey’s Division on Gaming Enforcement (DGE), said Wednesday. “Right now, the long legal history of this case, we continue to fight the good fight.”

The solicitor general last week recommended that the Supreme Court not hear New Jersey’s case challenging the scope of the 1992 Professional and Amateur Sports Protection Act (PASPA).

PASPA bans legal sports betting in all states expect Nevada, Delaware, Oregon and Montana.

In the court brief, solicitor general Jeffrey B. Hall wrote that the case did not deserve the attention of the Supreme Court, as New Jersey had not raised valid constitutional problems and other states had yet to pursue similar legislation.

Still, sports-betting advocates remain unbowed.

“Hope springs eternal,” Joe Asher, CEO of William Hill US, said Wednesday about the prospects of rolling back the federal sports-betting ban.

“I think it was expected the solicitor general would weigh in against the court taking the case.”

But Asher predicted that if the Supreme Court allows PASPA to stand, there will be other litigation to follow in other jurisdictions. He put the chances at just 20 percent that the Supreme Court would hear the case following the solicitor general’s opinion.

Both Rebuck and Asher participated in a panel discussion at the IAGA International Gaming Summit in New York City.

Asher described PASPA as a “really obsolete law,” which has “created a large black market for illegal sports betting.”

The American Gaming Association (AGA) has estimated illegal sports betting to be a $150bn business in the United States. Others have estimated the value to be around $400bn annually.

“Clearly there is activity that is widespread throughout the United States,” Asher said.

There seemed to be division among the IAGA panelists as to who should regulate sports betting if and when it expands beyond Nevada.

Dan Spillane, senior vice president and assistant general counsel with the National Basketball Association (NBA), said there was no division about whether sports gambling should be legalized; the only disagreement is how you get there — state or federal regulation?

“The NBA endorses a federal solution,” Spillane said.

That position appears to go against the AGA’s and Rebuck’s preferred solution of states being able to choose the terms upon which they want to regulate sports betting.

Rebuck said that he was not against some federal minimum standards, but he believed there should be a state-by-state model to oversee “this type of wager in the future.”

The NBA, National Hockey League (NHL), Major League Baseball (MLB) and the National Football League (NFL) have all softened their traditional opposition to gambling in the last few years.

The NHL approved the Vegas Golden Knights as its 31st franchise that will take to the ice in September. Meanwhile, NFL owners voted 31-1 in March to allow the Oakland Raiders to move to Las Vegas, and gambling was not even an issue.

Asher said the one owner who voted against the move was concerned about teams moving, and not about any issues dealing with gambling.

Spillane admitted that the NBA helped drive the passage of PASPA out of concern over the integrity of their games.

But its position on sports betting has evolved since then.

“We have a global business,” Spillane said. “That global perspective shows us how they do it.”

As New Jersey waits for a decision from the Supreme Court, advocates are known to be lining up a further test of PASPA’s scope via a move to repeal the state’s prohibitions on sports betting and effectively permit the activity without any system of regulation.

A bill is expected to be introduced in the New Jersey House and Senate if the Supreme Court, as expected, rejects the state’s plea for a hearing on its sports-betting appeal.

Asher said that it is a “possibility that could happen.”

But Rebuck told GamblingCompliance after the panel that it was too early to discuss the possibility of New Jersey repealing its prohibition on sports gambling.

He expects a decision on whether the Supreme Court will hear the case by the end of June.

If you look at the state of gaming in the United States, it has “increased massively” since 1992 when PASPA became law, Rebuck said.

“Forty-nine states have some sort of legalized gambling,” the regulator said. “It used to be 48 states … I now call Utah in the box of legalized gambling. They don’t know it but they authorized daily fantasy sports (DFS) play.”

Rebuck added that most regulators believe DFS is “sports betting and if it is not sports gambling then it’s very close.”

He said DFS has raised the issue of sports betting with the general population.

“We love fantasy sports in the state of New Jersey for that reason,” Rebuck said.

Rebuck’s comments also came about a week after New Jersey Congressman Frank Pallone published draft legislation to overturn PASPA and establish a federal regulatory scheme for sports betting overseen by the Federal Trade Commission.

The proposed bill, known as the Gaming Accountability and Modernization Enhancement (GAME) Act, would also clarify the legality of online poker and casinos.

“Only Congress could come up with the GAME Act,” Rebuck said. “Whether it becomes legislation … it’s in its very early stages. It’s a start.”

Spillane said the NBA was looking at Pallone’s bill, but had no comment on the potential of the GAME Act becoming law.

“I appreciate it as another step forward,” Spillane said.