Cryptocurrencies have captured the imaginations of individuals and emerging businesses drawn to their potential to serve as alternative stores of value, to reduce transaction costs by eliminating intermediaries, and―most notably in popular culture and media―to provide eye-catching opportunities for speculative investing. Coin valuations for well-established players Bitcoin and Ethereum have fallen sharply since late 2017/early 2018, and new players continue to enter and leave the marketplace. As noted previously in this blog, regulators are taking interest.

Much less appreciated and often overlooked is the business potential for the distributed-ledger, or blockchain, architecture that makes cryptocurrencies possible. Distributed-ledger systems present enormous opportunities for businesses to operate more efficiently and mitigate risks. The financial-services industry in particular stands to gain from the adoption of blockchain technology due to the significant variation and complexity of products, business processes, and relationships among industry participants. We have seen great interest in blockchain technology in the banking and securities industries in particular.  Continue Reading Brave New Wheels? Potential Uses for Blockchain Technology in Auto Finance

On July 31, 2018, the U.S. Department of the Treasury (“Treasury”) released a report on “Nonbank Financials, Fintech, and Innovation,” its fourth and final report on the U.S. financial system pursuant to Executive Order 13772 (the “Report”). At over 200 pages long, with 80 separate recommendations, the Report addresses products and services ranging from payments and marketplace lending to debt collection and wealth management. While many of Treasury’s recommendations would have a positive impact on creating a national and state regulatory environment to foster innovation in financial services, the Report is ambitious, and implementing many of its recommendations will be a massive effort in legislation, policy-making and regulatory oversight.  Continue Reading Fintech-Forward: U.S. Treasury Department’s Report on Nonbank Financials, Fintech, and Innovation

Anyone interested in charters from the Office of the Comptroller of the Currency should be following Lusnak vs. Bank of America, 883 F.3d 1185 (9th Cir. 2018), which is being appealed from the Ninth Circuit to the United States Supreme Court. OCC charters are of course a hot topic—now that the OCC is accepting applications from FinTech companies for national bank charters, the power of federal regulators to excuse federally chartered entities from compliance with state regulations may be more important than ever. After all, the key benefit offered by a national bank charter for many FinTech companies is exemption from state-level money transmission licensing and regulation… in theory.

In reality, many state-vs-federal constitutional questions remain unanswered. Federal courts are still defining the extent of the power of federal financial regulators to exempt federally regulated institutions from state laws. The Supreme Court could help clarify these important issues in the next year or two if it grants the recent request to consider LusnakContinue Reading Supreme Court Asked to Clarify Applicability of State Laws to OCC-Chartered Entities in Lusnak v. Bank of America

The recent flurry of activity and press coverage, over the past 18 months in particular, concerning “initial coin offerings” (also referred to as a “digital token sale”) has created confusion regarding their relationship to cryptocurrencies. While certainly connected in both concept and actuation, those with an interest in this burgeoning marketplace will be wise to note that both the risk and the regulatory landscape for existing cryptocurrencies (also referred to as “virtual currencies”) differ from ICOs/tokens. Those who forge ahead, uninformed, stand to learn an expensive lesson. We hope to illuminate certain fundamental concepts here. Continue Reading Cryptocurrency vs. Initial Coin Offerings (ICO): Different Animals, Different Regulatory Concerns

Not long ago, financial technology (FinTech) startups were all seeking to disrupt the market for financial services and compete directly with financial institutions (FIs) for customers. But as these startups have grown into more mature companies, cooperation with FIs has come to replace disruption for many FinTech firms. These companies have realized that FIs can help scale their technology to larger bases of potential users, and can also help FinTechs raise capital by showing strong partnerships and FI distribution channels.

In turn, FIs now recognize that FinTech firms offer more than competition, representing potentially valuable partnerships with better technology and an improved user experience. By collaborating with FinTechs, FIs can improve product offerings and increase efficiency, all without the FIs committing significant resources to create new solutions themselves. Continue Reading Access vs. Security: Takeaways For U.S. Financial Institutions from the European PSD2 Open API Framework

2018 has a tough act to follow, after a 2017 full of momentous developments—starting with a new Administration and wrapping up with a showdown over the right to serve as Acting Director of the Consumer Financial Protection Bureau (CFPB) (a fight that continues as of this writing, as discussed below).

But 2018 is unlikely to be a quiet year. In addition to developments in the CFPB leadership battle and other litigation, the year is expected to bring developments such as effective and compliance dates for major regulations on data protection, Bank Secrecy Act/anti-money-laundering (BSA/AML), mortgage servicing, and other topics, and could bring changes in supervisory focus at multiple federal agencies.  Continue Reading Fasten Your Seatbelts: Are You Ready for Another Eventful Year?

As the battle over the Office of the Comptroller of the Currency (OCC)’s proposed financial technology (“fintech”) charter continues, investors in fintech companies should consider what it would mean for their business strategies if fintech companies actually did become banks. From an investor’s perspective, is there upside or downside to a fintech company becoming a bank?

Potentially, both.

First, there are advantages to status as a bank. In particular, it could liberate fintech companies from certain onerous state-by-state requirements, such as licensing requirements and interest rate limits. Especially for fintech companies whose businesses center on money transmission or consumer lending—activities that are particularly affected by these state laws—this could be a huge advantage.   Continue Reading What Investors in Fintech Companies Need to Know About ‘Fintech Banks’

Does a national bank have to take deposits in order to be a national bank?

That question is at the center of a federal lawsuit filed April 26 against the Office of the Comptroller of the Currency (OCC) by the Conference of State Bank Supervisors (CSBS), the nationwide organization of state financial regulators. The action, filed in U.S. District Court for the District of Columbia, aims to block the OCC’s ability to offer its proposed national bank charter for non-deposit-taking financial technology (“fintech”) companies. CSBS alleges, among other things, that the OCC’s statutory authority allows it to charter only banks that engage in the traditional banking activity of taking deposits, and that any authority to charter non-deposit-taking national banks is limited to such banks specifically authorized by Congress. Continue Reading States’ Lawsuit Over OCC Authority to Create New Charter Creates Bumps in the Road for Fintech Firms

For nonbank providers of consumer financial services, one of the most challenging parts of doing business is the need to comply with the laws of multiple states. Entities like money transmitters and consumer lenders typically must obtain licenses in the states in which they do business, and comply with an array of varying state laws. And for entities that are online or mobile in nature, the “states in which they do business” can mean all fifty states—plus the District of Columbia and U.S. territories. This has been the source of many operational challenges and frustrations for fintech companies and startups in recent years. Continue Reading OCC’s Fintech Charter Proposal: The End of State Licensing As We Know It? Comments Due April 14

As financial services innovators and financial technology (“FinTech”) have expanded over the last several years, a point of industry consensus is that the U.S. regulatory landscape in particular is challenging to, and in some cases poses a barrier to, innovation and new competition within the FinTech arena. Critics of the U.S. regulatory regime point to a confusing web of multiple federal functional regulators and state money transmission regulators. The sheer number of potential laws, rules, regulations and regulatory entities that can be involved in regulating a particular FinTech startup based upon the product and services provided are subject to increased scrutiny and criticism from the FinTech industry. Continue Reading U.S. FinTech Regulatory Landscape for 2017