BACK TO BASICS: BLOCKCHAIN, FINTECH, INSURTECH AND PROPTECH

Transcription

1 BACK TO BASICS: BLOCKCHAIN, FINTECH, INSURTECH AND PROPTECH WIN In-House Counsel Day Melbourne 2018 Thursday 15 March Thursday 15 March

2 Our objectives today 1. An overview of key emerging areas of business and how lawyers are helping develop them 2. What do disruptive business models mean for the legal team and how is this playing out with regard to fintech, insurtech, proptech and blockchain? 3. How should in-house legal teams approach disruptive business models? Thursday 15 March

3 Fintech

4 Fintech - what is it? Neo-banking Alternative lending models Payments disruption Insurance disruption Internet, apps, robots, artificial intelligence and blockchain for financial functions Thursday 15 March

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6 How are legal teams responding - the Innovation Toolkit EXAMPLES IP licensing R&D Joint ventures and strategic alliances M&A Corporate Innovation CVC Fund Outside In Innovation Skunkworks and Spinouts Integrated Innovation Innovation M&A Corporate Venture Capital New Business Incubation & Commercial Piloting Innovation Center of Excellence Innovation Partnering Marketplaces and Crowd Sourcing Thursday 15 March

7 How are legal teams responding - the changing capital stack US listing ESIC Tax Incentives Equity Crowd Funding Trade Sale/ Joint Venture/ Partnership/ Licensing ICOs Various IPO motivations /strategies Innovation Funds, CSIRO Pre-IPO Rounds Venture Capital Private Equity Thursday 15 March

8 AI/machine learning is a key focus area for investment Source: Mark Suster/ Upfront Ventures Thursday 15 March

9 Insurtech

10 Insurtech What is insurtech and why has it evolved? The ecosystem: incumbents / insurers; startups; VC and CVC funds; incubators and accelerators; tech companies; industry associations Examples of insurtech startups Thursday 15 March

11 Insurtech The future: where are the opportunities? Distribution use of AI Pricing use of data analytics, IoT for accurate pricing Changing risk environment reducing risks through use of IoT Blockchain Legal issues Need to operate within the current regulatory framework Potential for laws and regulations to change Investing in startups; corporate partnerships Blockchain: digital identity; who pays; handling disputes Thursday 15 March

12 Proptech

13 Proptech Thursday 15 March

14 Proptech Disruption of real estate ownership, leasing, lending and transacting Smart cities Co-working, the sharing economy and flexible use Rise of ecommerce Telecoms and data infrastructure Thursday 15 March

15 Blockchain

16 What is blockchain? Blockchain is a distributed ledger technology a ledger maintained by the consensus of a network of unrelated parties who are rewarded for their efforts. Key features of blockchain technology are: Outsourced processing power each transaction (a block) is validated by third party nodes in the network before it is added to the ledger (the chain) in POW Transactions require consensus mechanism, no intermediaries ( trustless ) for permissionless chains and different mechanisms for permissioned chains Transactions are anonymous Highly secure complex cryptology, significant stake to be a validator or miner Transactions are immutable, irreversible once on the blockchain after certain number of blocks Thursday 15 March

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18 ICOs Sale of tokens Crowdsale primarily, but shifting to two phase sale Most are based on Ethereum blockchain On Ethereum blockchain, tokens use the ERC20 standard Thursday 15 March

19 ICO activity in 2017 Source: PitchBook US Venture Industry Report Thursday 15 March

20 What instrument is being sold? Tokens that are and will remain securities Token VC fund or tokens that mimic equity or debt Tokens that may qualify as non-security assets (if properly structured) Network is built, tokens have immediate and meaningful use in purchasers hands Locked tokens that may qualify as non-security assets (if properly structured) Network not built yet, but when it launches tokens will unlock and have meaningful use in purchasers hands Simple Agreements for Future Token ( SAFT ) Right to acquire tokens in the future following launch of the issuer s network SAFTs likely sold as a security, but underlying tokens are intended to be non-security assets following network launch Simple Agreement for Future Token or Equity ( SAFTE ) Basically a SAFT with an equity conversion feature if a priced equity round occurs prior to the network launch Thursday 15 March

21 Many complicated questions Securities Commodities Money transmission Tax IP AML/Sanctions Is the token a security under US securities law? Triggers issuer, broker-dealer, exchange, investment adviser, investment company, and other considerations. Financial reporting/disclosure how are tokens shown in financial statements? Is an AFSL required and is the token offer a managed investment scheme? Is the token a future, swap, or other contract subject to regulation? Triggers advisor, exchange, commodity pool compliance (exemption for sales to qualified eligible participants ), and other commodities issues Receiving value to be delivered to another location can trigger licensing obligations for administrators and exchanges Currency exchange regulations Is the token a security or an asset? Can its character switch? International structures (where to put IP, token issuer, etc.) Tax planning (NOLs from building network, tokens to be issued in future)? Anything to patent? Planning to open source any IP? Where to house IP? Data transfer issues user consents and data transfers Cybersecurity drafting smart contracts to avoid hacking ($50m hack of The DAO) KYC requirements, transactions with restricted persons BTC-e (2 nd largest token exchange) shut down by FinCEN, seized, $110m fine Corporate US corp, Singapore or Swiss foundation, or another entity to oversee public network? Fiduciary duty considerations associated with how blockchain is monetized Thursday 15 March

22 Key takeaways

23 Key takeaways Consider the future of your business What is your innovation strategy and how can the legal team best support it? What are the changing expectations of your customers / clients internally and externally? How is your industry changing and what lessons can you take from actions of others to address disruption? How does your business look in the future? Are you maximising the use of new technologies and of the innovation toolkit? What are the legal risks and challenges and how do they compare to the business risk and challenges? Thursday 15 March

24 The future of legal practice We believe that the legal profession and law firms are entering a period of rapid fundamental change. Law firms in the near future will look and operate very differently Pure law firms will be smaller Far more sector focussed Smaller specialised legal teams ("best of the best") Large contract work force with the ability to size up and down quickly Rise of Multi- Disciplinary Firms Law/Accounting/Engineering/Change Management/Management Consultancy/HR Consultancy firms Use of AI Rapid development of fully automated systems and technology for repetitive legal tasks and work Thursday 15 March

25 Drivers of change Client needs and expectations Super competitive market place Fixed fees and value based pricing Many quality law firms and lawyers Requirement that pricing is more certain and firm Service and innovation will be the discerning feature of law firms Driving the price down Entry of alternative suppliers of legal services using non traditional models Expectation of the use of "automation technology" and AI Rise of the big four Need for a "one stop shop" Thursday 15 March

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