Tech Policy Unit Horizon Scanner
05 February 2021
Welcome to our Tech Policy Unit Horizon Scanner. It is our monthly dive into the key tech policy and legislative developments around the world.
Sometimes the sagas of big tech vs governments vs each other feel like the complex, season-by-season unfolding of a rich Netflix / Amazon Prime / Apple+ drama.
As 2021 hits its stride, the storylines that defined last year's season continue to develop. One of the most dramatic confrontations, between Google and Australia, is coming to a head. We will soon know whether Google will withdraw services from an entire country in response to Australian legislation on payment for news content. "We don’t respond to threats" said Scott Morrison, Australia's prime minister.
Regulation of Big Tech and social media companies took a big step forward in the EU with the publication of a draft Digital Services Act and Digital Markets Act, and US Senator Amy Klobuchar wants to put legislation targeting large technology firms at the forefront of her agenda as chair of the Senate Judiciary Committee's antitrust subcommittee, saying "we really are not as sophisticated as the companies that we should be regulating…"
Klobuchar summed up the new reality in the USA. "With a new administration, new leadership at the antitrust agencies, and Democratic majorities in the Senate and the House, we’re well positioned to make competition policy a priority for the first time in decades." We will see.
We also take a look at a range of US crypto regulatory developments.
Both China and the EU took steps towards the increasing digitisation of their currencies. The global trend towards open banking continued with Saudi Arabia as the latest country to announce plans to move in that direction. It's shaping up to be an interesting season.
Kenya implements digital services tax
From 1 January 2021, the Kenyan Government has implemented a digital services tax, payable on certain services that are supplied through the digital marketplace. The digital services tax rate is set at 1.5 per cent of the gross transaction value (calculated as the total consideration for the provision of the digital service). The tax will apply to a broad range of digital services, including e-books, movies, music, games, theatre and event tickets, news platforms, magazines and other digital content. The Kenyan Government aims to tax up to 1,000 companies and individuals under the new regime which, it claims, could generate up to $45 million in revenue by June 2021. The Kenyan Revenue Authority has stated that resident and non-resident businesses offering services in Kenya have started to register.
Algerian decree in relation to mobile phone number portability close to finalisation
In mid-January 2021, the Algerian government revealed that a draft decree in relation to mobile portability, allowing users to keep their mobile number but switch providers, is currently with the Algerian regulator Authority of Post and Electronic Communications and in the process of being finalised.
This could be a significant move in pushing for telecoms improvements across Algeria. Historically, a number of financial sanctions have been imposed upon Algerian telecoms operators but this has had little effect on the quality of services offered. It is hoped that in giving customers the ability to move freely between providers, competition between them will be increased and the quality of the services offered may increase too. This is in line with the strategic orientation in the government's plan for a digital transformation in Algeria through increasing connectivity and is hoped to come into effect before the end of 2021.
Apple and Facebook advance different philosophies – and business models – on privacy
Speaking virtually at the International Conference on Computers, Privacy and Data Protection on January 28th, Apple CEO Tim Cook took a series of veiled shots at Facebook, saying it is time to "stop pretending" that social media sites don't create polarization, lost trust, and violence by utilizing business models built on targeted advertising. Mark Zuckerberg told investors during a conference call that Apple had every incentive to utilize its dominant platform position to interfere with other apps functionality to their own app's benefit. Facebook is reportedly preparing an antitrust lawsuit against Apple, accusing it of abusing control of its App Store to the detriment of outside app developers.
Facebook's annual Securities and Exchange Commission 10-K filing also makes for interesting reading – here is an extract: "These developments [possible antitrust action and Apple's changes to iOS 14] have limited our ability to target and measure the effectiveness of ads on our platform, and negatively impacted our advertising revenue, and if we are unable to mitigate these developments as they take further effect in the future, our targeting and measurement capabilities will be materially and adversely affected, which would in turn significantly impact our future advertising revenue growth…"
Klobuchar focusses in on regulating Big Tech
As Senator Amy Klobuchar prepares to take control of the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, she has placed passing legislation targeting large technology firms at the forefront of her agenda. During a keynote address at the annual State of the Net Conference, Senator Klobuchar said "[t]his concentration of power has raised troubling questions about personal privacy, the security of our elections, and the spread of toxic disinformation." Stating that the antitrust enforcement agencies are not as sophisticated as the companies they should be regulating, Senator Klobuchar hopes to pass sweeping changes to the current antitrust laws while also increasing the budgets for the Federal Trade Commission and the Justice Department. Senator Klobuchar has also indicated her intent to call hearings on antitrust in her role on the Judiciary Subcommittee.
US crypto regulatory developments
The end of 2020 and the beginning of 2021 witnessed an unprecedented wave of activity by US financial regulatory agencies in respect of digital assets and virtual currencies.
In December, the Securities and Exchange Commission released a statement taking a conditional no-action position with respect to Rule 15c3-3 under the Securities Exchange Act of 1934 (also known as the Customer Protection Rule) for certain broker-dealers providing custody of digital asset securities who meet specified conditions. Also in December, the Commodity Futures Trading Commission published a Digital Assets Primer authored by its innovation division, LabCFTC. The CFTC had previously provided guidance to registered entities at the end of October on custody and reporting requirements for digital assets received in connection with customers' physically-delivered futures contracts or swaps.
On 23 December, the US Treasury Financial Crimes Enforcement Network (“FinCEN”) proposed a rule (the “Unhosted Wallet Rulemaking”) to require banks and Money Services Businesses to comply with certain recordkeeping, verification, and reporting requirements in connection with virtual currency transactions involving unhosted wallets. On 1 January, the US Senate voted to override President Trump’s veto and enacted the Anti-Money Laundering Act of 2020 which amends the Bank Secrecy Act to expressly cover virtual currency, effectively codifying prior administrative guidance from FinCEN. Our briefing on the Act is available here. On 15 January, FinCEN extended the comment period for the Unhosted Wallet Rulemaking.
In late December, the President's Working Group on Financial Markets, chaired by the Secretary of the Treasury and composed of the chairs of the SEC, CFTC, and the Federal Reserve Board of Governors, published a statement regarding key regulatory and supervisory considerations relating to certain stablecoin arrangements.
On 4 January, the Office of the Comptroller of the Currency published an interpretive letter confirming that national banks and federal savings associations can conduct payment-related activities using new technologies such as Independent Node Verification Networks (including distributed ledgers) and stablecoins, and one week later conditionally approved the conversion to a national bank of, and the granting of a national bank charter to, a state-chartered trust company, Anchorage Digital Bank, offering cryptocurrency custody services.
Finally, on 30 December, the US Department of the Treasury's Office of Foreign Assets Control announced a settlement of apparent US sanctions violations by BitGo, Inc. involving its provision of non-custodial digital wallet management services for digital currency private keys to customers in Crimea, Cuba, Iran, Sudan and Syria. Our briefing is available here.
Google vs Australia?
Google has threatened to withdraw its search services in Australia if the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020 makes it onto the statue book. Neither Australia nor Google looks ready to back down. For a introduction to the issues, see our August 2020 briefing here.
China extends digital RMB trial
In January 2021, the People's Bank of China's pilot programme for its CBDC (the digital Renminbi) has been extended to more cities including Beijing and Shanghai, following trials in Shenzhen and Suzhou.
On the data security side, the China Banking and Insurance Regulatory Commission issued the Administrative Measures on the Security of Supervisory Data (For Trial Implementation) (2021) with an aim to establish a coordinated management mechanism under the cybersecurity law framework for protection of supervisory data (which refers to data which is regularly collected, recorded, generated and stored by the regulatory data systems when CBIRC exercises its duty). Although the Measures mainly govern CBIRC, it has reflected CBIRC's overall approach to implement the PRC Cybersecurity Law (2016).
European Parliament and Member States begin work on draft Digital Services Act and Digital Markets Act
The European Parliament's Internal Market Committee has held a first exchange of views on the draft Digital Services Act (DSA) and Digital Markets Act (DMA). At a meeting on 11 January 2021, Members of the Committee discussed, amongst other things, the political context of the proposals and the role of social media, the need for greater clarity in articles 5 and 6 of the DMA, and whether the proposals should go further in particular on unbundling.
In the Council, Portugal took over the six-month rotating Presidency on 1 January 2021 and has made the DSA and DMA political priorities of its time at the helm. Work is underway in the relevant working parties.
By way of reminder, the DSA and DMA must be adopted according to the ordinary legislative procedure, where the European Parliament and Council can amend the Commission's proposals but must jointly agree a joint text before it can become law.
If you would like to view our client webinar on the DSA and DMA held on 14 January 2021, please get in touch. We have also published new analysis which is available to download: "EU Digital Services Act and Digital Markets Act: What are the implications?".
Digital euro: ECB and European Commission intensify work
The European Central Bank (ECB) announced on 19 January that it was intensifying work on a digital euro with the European Commission. This follows a public consultation run last year by the ECB in which it considered the possibility of issuing a digital euro, as a complement to cash and other payment systems. The ECB will consider whether to start a digital euro project towards mid-2021. The project would look at key design and technical questions to prepare the ECB for issuing a digital euro if the decision to proceed is taken.
Digital tax: European Commission launches consultation
The European Commission has launched a public consultation on a digital levy. The Commission stated: "while we should promote and encourage digitalisation as it can increase productivity and benefit consumers, digital companies should also contribute their fair share to society". The Commission is consulting on both the roadmap for introducing a new digital tax, for which the deadline is 11 February and more generally on the form and content of the new legislation, the deadline for which is 12 April. According to current plans, a formal proposal for a directive introducing a digital levy will be published by the Commission in the second quarter of 2021.
The UK: stuck in the middle with EU (and the US)?
In the UK, Mike Walker, the chief economist of the UK Competition and Markets Authority found himself considering the new realities of the UK's position outside of the EU. "I don't think it's in anyone's interest to have substantial regulatory divergence within Europe, so I think we all have an incentive to avoid that … and not just within Europe but also across the Atlantic" he said. The CMA is striking down a path of a more "firm specific" approach, and he warms against allowing antitrust to do all the heavy lifting in the regulatory space – he says it's necessary to, "include mergers in your regulatory regime. There has been historic underenforcement… we do need a different standard of merger control, a standard that allows us to intervene perhaps in a more precautionary approach and so that is part of what we're going to be doing in the UK…"
Dubai took a step towards the wider tokenization of digital assets through the use of blockchain technology with the creation of a sandbox run by the UAE Centre for the Fourth Industrial Revolution ("C4IR UAE"). Mobile banking usage has also increased by over 65 per centv in the UAE during the pandemic according to a BCG report, evidence of the continued shift to digital experiences throughout the pandemic.
Another interesting trend which could equally go in our 'Europe' section is the increasing links between the UK's fintech start-up scene and Islamic fintech products coming out of the Gulf such as sharia compliant e-money platform Ahmed, and Islamic peer-to-peer ending platform Qardus.
In Saudi Arabia, the fintech industry is continuing to see rapid growth, with Zaywa reporting 18 per cent growth each year over the past three years. It is also embarking on a path towards open banking, part of an increasing global trend; the Saudi Arabian Monetary Authority (SAMA) plans to go live with open banking during the first half of 2022.
The food-tech industry is seeing growth and investment in the Middle East. VC firms such as KBW are looking to buy into plant-based, cell-based developments. Their CEO and founder Prince Khaled bin Alwaleed bin Talal Al Saud made an interesting and explicit link to the pandemic, referring to increased awareness of the "proliferation of zoonotic disease" which is another reason such ventures may be successful in the future in a recent interview.
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This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. Clifford Chance is not responsible for third party content. Please note that English language translations may not be available for some content.