Fintech in 2024: Five trends to watch

While 2023 saw ongoing uncertainty and high-profile financial sector failures, it also brought regulatory progress around the world, including for landmark regulations on digital assets and AI. In 2024, we will see the next stage of pioneering regulation as blueprints and best practices begin to emerge, alongside compliance challenges.

From the next phases of market development for AI, payments, cryptoassets, tokenisation and digital bonds to operational resilience challenges, we look ahead, highlighting the five key legal trends for global fintech in 2024.

Laura Nixon, Knowledge Director for Fintech, says...

"2024 will be a pivotal year for the global fintech sector, as the regulatory landscape becomes more complex and diverse, but also more conducive to innovation and growth. Firms will need to navigate the opportunities and challenges of new technologies, such as AI and DLT, while ensuring operational resilience and compliance with existing and emerging laws."

Diego Ballon Ossio, Partner, says...

"I am looking forward to this exciting year where we will see inroads in the payment space and the implementation of sophisticated regulatory regimes for crypto and AI."

Where is Fintech heading in 2024?

Regulation of AI and uses in financial services

The regulatory frameworks that apply to the development and use of AI, including generative AI, are complex and multi-layered. The direction for a new, global phase of AI regulation is being set following publication of the G7 and Hiroshima principles, the Bletchley Declaration on AI safety signed by 28 jurisdictions, the creation of an AI Safety Institute, the Biden Administration's 2023 Executive Order on AI and AI Bill of Rights, and December 2023's historical political agreement on the EU's AI Act.

What's next?
In the US, President Biden's October 2023 Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence represents a meaningful step in the regulation of AI technologies as it aims to advance a comprehensive framework for safe, secure, and trustworthy AI. While it primarily focuses on requirements for government agencies, we expect to see follow-on activity as US regulators bring its mandates to life.

The EU's AI Act will set legally binding rules and requirements for AI systems and models, affecting actors across the entire AI value chain globally. This will move the dial on how the world will look at AI regulation and we can expect some legislators and regulators in other jurisdictions to follow suit.

The UK currently does not envisage a bespoke regulatory framework for AI. Instead, its policy approach will be guided by five cross-cutting principles. 2024 should see publication of a UK AI Regulation Roadmap and of guidance by key UK regulators on how these principles apply within their remit.

International collaboration will continue. Globally, there will be increased requirements for (and scrutiny of) internal risk assessments around AI and compliance with existing laws, particularly in relation to transparency with users and regulators, preserving and enforcing privacy and intellectual property rights, senior management accountability and assurance around the safety of frontier AI. Global organisations must begin or refine compliance processes, looking at existing and anticipated uses of AI, including any related third-party relationships, defining, and implementing or refining, their AI strategy and risk management frameworks, and creating or reinforcing effective systems for regulatory horizon scanning and ongoing stakeholder education.

Herbert Swaniker, Senior Associate says...

"There's a strikingly urgent opportunity for both fintechs and financial institutions to optimize their model risk management and oversight frameworks for responsible AI outcomes. Particularly as 2024 will see AI, cyber, data and operational resilience rules globally continue to coalesce and increase. Finding common ground and outlier requirements amongst these rules will help to empower teams to simplify and scale products for AI across markets."

Tokenisation and digital capital markets

In 2023, we saw continued exploration of how distributed ledger technology (DLT) might transform the financial and capital markets, including increased issuance, trading and settlement of digital debt securities, new collateral management solutions and the launch of enabling regulatory initiatives, including the EU Pilot Regime and the UK's digital securities sandbox. As prudential requirements become clearer, we expect to see further development of DLT-based financial market infrastructures enabling financial institutions to tokenise conventional assets or issue natively digital assets whilst expanding secondary market trading.

What's next?
Many of the digital bond issuances and related regulatory initiatives so far have been focused around Europe. During 2024, we will see more global activity with APAC in particular likely to see more issuance activity. For issuers keen to launch digital bonds, there are existing routes to market internationally.

We will see the focus on debt and fixed income DLT products complemented by funds, equity and asset tokenisation. For example, Singapore has recently launched five industry pilots under Project Guardian to test promising asset and fund tokenisation use cases (including in asset servicing and trade reporting), and is partnering with regulators in Japan, Switzerland and the UK. Keeping ahead of the rapidly evolving global regulatory landscape will be crucial to the success of these projects.

Boika Deleva, Senior Associate, says...

"Digital capital markets are maturing with a number of high-profile digital bond issuances expected in 2024. While corporate issuers' involvement has at this stage remained marginal, we should see more market movement and investor engagement with the launch of digital financial markets infrastructures, increased interoperability and standardisation as well as the availability of plethora of payment solutions. Tokenisation of funds and other assets should take off following the examples and lessons learnt in the debt capital markets space and the launch of industry pilots globally."

Continued innovation in payments methods and systems

The global payments landscape is rapidly evolving as more jurisdictions consider the introduction of central bank digital currencies (CBDCs), and private-sector initiatives for the creation of stablecoins and other interoperable and efficient payment products develop at pace for both retail and wholesale use. In the US, the Federal Reserve launched its long-awaited instant payments service – FedNow – in July 2023, the first new Federal Reserve payment rail launched in more than 50 years. These developments are driving significant regulatory change globally.

What's next?
Retail CBDCs offer new ways of payment that, in some cases, may ultimately present an alternative to card payments. Models for public-private collaboration for distributing CBDCs are becoming clearer and we anticipate further development throughout 2024. These models will build on 2023 proposals by the Bank of England as well as the ground-breaking Project Sela led by the Bank for International Settlements (BIS) Innovation Hub. This aimed to reduce financial exposure for retail CBDC intermediaries by developing an approach where they are not required to hold client assets and CBDCs are almost treated as physical cash.

While many CBDC projects are domestic, international bodies such as the BIS are focussing on CBDCs for cross-border payments. Building on lessons learned in Project mBridge (a DLT platform for multicurrency cross-border payments in CBDCs) and the Monetary Authority of Singapore's Project Ubin+, we will see more use cases establishing payment corridors for cross-border wholesale market transactions.

For stablecoins, the era of regulation has come, with the EU's market in cryptoassets regulation (MiCA) coming into effect, as well as extensive new regimes in the UK, Singapore and Hong Kong, among others, expected during 2024. Regulation will bring greater credibility and stability to the global market but will also mean closer monitoring and increased enforcement activity. It is crucial that jurisdictions get the territorial scope of new rules right to ensure that the growth of new payment models is not stifled.

We will see a surge of interest in new forms of payment, including deposit tokens (or tokenised deposits) - programmable ledger-based versions of existing client deposits held by commercial banks. These will increasingly be seen as a key tool for settlement of digital transactions. Interoperability - allowing for settlement between proprietary platforms of different banks - will be crucial and we expect to see the launch of some high-profile pilots to help solve for this. The ECB trials for wholesale central bank money settlement will provide useful insights.

Lena Ng, Partner, says...

"Tech will continue to pay a large role in payment services, with more developments on the regulatory side facilitating this. Interoperability will be a key factor for the success of the various new forms of payments and digital money."

Operational resilience

Ensuring continuity of key business services remains a global regulatory focus. Growing digitisation of customer experiences, greater automation, increased use of third-party providers and increasingly sophisticated cybersecurity risks all make firms susceptible to technology disruption.

What's next?
The EU's wide-reaching Digital Operational Resilience Act (DORA) will become enforceable from January 2025, with detailed guidance expected to be finalised during 2024. However, compliance will require a significant uplift for many firms with policies based around existing EBA, EIOPA and domestic requirements and it will impact global groups that include EU operations. Firms should begin their scoping, impact and gap analyses now to be ready in time.

DORA also introduces a pioneering regime for critical ICT third-party service providers, which, for the first time, will cause technology providers to fall within the financial services regulatory perimeter. Similar frameworks will also apply outside the EU with a new UK regime for critical third parties expected during 2024.

In the US, following adoption of the final rule on Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, the Securities and Exchange Commission (SEC) will continue to prioritise cybersecurity compliance and disclosure to investors of "decision-useful information" about cyber risk management.

The New York State Department of Financial Services' November 2023 amendment to its cybersecurity requirements will have compliance repercussions for impacted firms in 2024 and may lead other state regulators to follow. We also expect to see continued focus by federal and state regulators on third-party oversight, building on 2023 developments.

Ahead of new regimes taking effect, we expect to see an increase in enforcement actions relating to operational disruptions internationally with regulators seeking to hold firms accountable in the face of increasing ICT risk and growing challenges from implementing digital strategies and fintech use cases. The same tech disruptions (and regulator criticism) may give rise to civil claims.

Kikun Alo, Senior Associate, says...

"With recent and ongoing conflicts and other geopolitical events, supply chain challenges, a growth in cyber attacks, economic shocks caused by rising inflation and interest rates and technological innovations that are making it easier for customers to vote with their feet, the need for firms to ensure that their business critical services can withstand both expected and unexpected disruptions has never been higher on the agenda.

We're assisting clients around the globe build robust and compliant operational resilience frameworks, drawing on expertise from multidisciplinary teams, covering legal, regulatory, data, systems, communications, governance, customer experience, procurement and third-party management."

Cryptoassets – the post-regulation era

There were highs and lows for the crypto industry in 2023, from the conviction of Sam Bankman-Fried of FTX, Binance's historic settlements with multiple US regulators, and Binance founder Changpeng Zhao's guilty plea to criminal charges to the end-of-year market rally in anticipation of approval by the SEC of the US's first regulated spot Bitcoin exchange-traded funds (ETFs). As the first comprehensive regulatory regimes begin to take effect in key financial centres, it is clear that both the market and the regulation governing it are maturing.

What's next?
We will see the next phase of implementation of crypto regulation and firms working through their authorisation processes. This includes MICA coming into effect in the EU and details of the UK's cryptoassets framework anticipated to be finalised and to start applying, in part, during 2024. Following publication of the Financial Stability Board's global regulatory framework for cryptoasset activities to promote consistent international regulatory and supervisory approaches in July 2023, we can expect more jurisdictions to follow. While there will be local nuances, the FSB recommendations and these first comprehensive regimes will serve as a blueprint and we should begin to see more consistency between global requirements in line with more established financial products.

In the US, the SEC's January 2024 approval of 11 applications for spot Bitcoin ETFs (including from BlackRock, VanEck, Fidelity, and Grayscale) marked a watershed for US regulation of cryptoassets. In parallel, the SEC's "regulation by enforcement" program will continue with its cases against large crypto exchanges over alleged registration failures under US securities laws, with courts and perhaps Congress expected to weigh in.

Another area to watch is a potential clarification by courts of the scope of the US government's authority to sanction crypto mixing services such as Tornado Cash and otherwise address convertible virtual currency (CVC) mixing as a primary money laundering concern under PATRIOT Act authorities. Regulatory structures for stablecoins, anti-money laundering and illicit finance may gain traction in 2024 as lawmakers make strides to consensus.

We will also see a continued revolution of insolvency and bankruptcy processes. We anticipate seeing more crypto settlement agreements and schemes of arrangement following recent market firsts. These will be buoyed by growing market knowledge and experience of insolvency practitioners and further legal certainty (for example, in the UK with the UK Jurisdiction Taskforce's upcoming report on digital assets and insolvency law). Ahead of new regimes taking effect, we will begin to see the most sophisticated market players taking the commercial decision to introduce their own resolution planning requirements - foreshadowing some of what new regulated client asset regimes are expected to require (similar to those that apply to banks holding client assets today).

Jesse Overall, Associate, says...

In 2024 we expect the maturation of the cryptoasset sector to continue, with the legal and regulatory framework for cryptoassets remaining in focus. Legislators, courts, and regulators around the world are grappling with how the underlying characteristics of different cryptoassets and related activities should affect their local legal and regulatory treatment, though there is widespread recognition across jurisdictions that facts and circumstances bear on the analysis and a one-size-fits-all approach to cryptoasset classification may not be appropriate. Work continues on MiCA in the EU and similar frameworks in other regions, while the recent approval of spot bitcoin ETFs in the US may contribute to the introduction of similar products elsewhere.

Meet our Fintech experts around the globe

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Paul Landless

Partner
London

+442070062368

Paul

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Paul Landless specialises in structured finance, derivatives and financial markets products, including securitisations, repackagings, structured notes, securities lending and repo.

Marian Scheele

Senior Counsel
Amsterdam

+31207119524

Marian

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Marian Scheele specialises in the financial regulatory and legal aspects of financial institutions, with a focus on Fintechs (incl. banks, EMIs, PSPs, platforms, crypto and blockchain companies). She leads the Fintech Team and co-leads the Tech Team of Clifford Chance Amsterdam. Her expertise includes advising on licensing and registration, governance, structure and organisation and other ongoing license requirements. She is frequently involved in corporate restructurings and M&A transactions including IPOs. She contributes to the implementation of EU financial regulatory law in Dutch national law.

Marian is a member of the Public Affairs Committee of INREV. She is ranked in the leading legal directories such as Chambers and Legal 500.

Steven Gatti

Partner
Washington D.C.

+12029125095

Steven

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Steven Gatti specializes in regulatory enforcement proceedings before the U.S. Securities and Exchange Commission and other securities regulators, and in other regulatory matters within the financial services sector, including internal investigations.

Steve advises multi-national broker-dealers, asset managers, and other financial services companies with respect to financial markets and trading regulation, compliance, the development of new products, and financial institution mergers and acquisitions.

Jennifer Chimanga

Partner, Co-Head of the Technology, Media & Telecommunications Sector
London

+44 207006 2932

Jennifer

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Jennifer Chimanga specialises in M&A and related commercial transactions in the Telecoms, Media and Technology sectors, and has a focus on emerging markets (particularly Africa).

Simon Crown

Partner
London

+442070062944

Simon

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Simon Crown specialises in financial regulation, with particular focus on funds and asset management and M&A and reorganisations involving financial institutions.

Simon also has expertise in the areas of regulatory capital, client assets, transaction services (such as the regulation of payments) and European Directives relating to financial services.

Jack Hardman

Partner
Dubai

+97145032712

Jack

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Jack Hardman specialises in technology and financial services, having significant experience in our London and Dubai teams, focusing the majority of his work on M&A for financial institutions and technology companies.

Jack also leads the financial services regulatory and fintech practices for Clifford Chance in the Middle East, having advised local and international financial services and technology companies, as well as regional regulators, for several years, including on UAE, DIFC and ADGM regulations.

Jack has acted on many of the leading regional transactions in the financial and technology sector in recent years. He has also been involved in the establishment of prominent fintech platforms and operations. His broad practice spans M&A, restructuring, regulatory, licensing tech contracting, data and general advisory work across the FIG/tech sectors.

Jack is the Africa Practice Leader for Tech.

Lena Ng

Partner
Singapore

+6564102215

Lena

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Lena Ng leads the financial regulatory practice in our Singapore office and advises on the full range of financial regulatory issues relating to financial services and market products, including banking services, securities, futures, derivatives, funds and payment services.

Lena advises banks, financial institutions, corporates (including commodities houses), funds and payment service providers on licensing requirements, exemptions, conduct of business and other regulatory requirements. In addition, she advises on custody, collateral, netting and clearing issues, as well as cash and credit risk management.

Lena's practice extends to advising on bank secrecy, confidentiality and data privacy. She is also part of the firm's Tech Group and advises on fintech, cryptocurrency and blockchain related matters.

Originally from Singapore, she joined Clifford Chance in 2001 after receiving her LLM from University College London. She is admitted to practice law in multiple jurisdictions including as a solicitor in England & Wales and Hong Kong, and as an advocate & solicitor in Singapore.