On April 28, 2020, the US Congressional Research Service (CRS) published a report covering Fintech: Overview of Innovative Financial Technology and Selected Policy Issues. This report is in-depth coverage on all Fintech, including blockchain and ICOs, discussing concerns on existing legal and regulatory frameworks.
With a recent Nasdaq rule update tightening restrictions on IPOs to a minimum of $25 million, posted on Reuters. The following areas discussed review potential benefits and challenges associated with FinTech innovation, and potential regulatory frameworks as the House and Senate make sense of new products and technologies.
Currently facing unique challenges during the COVID-19 response — such as being in short supply, shrinking the availability of credit, lending innovations will be in higher demand as cash strapped small businesses seek credit. With the increased use of quantitative analysis of new data sources, this technology expands credit availability in a safe and less costly way; increasing credit access. However, “consumer advocates argue that inexperienced fintech lenders with a relative lack of federal regulatory supervision could inadvertently violate customer protection regulations.”
An area that will require further debate based on the underlying technology, lending platforms and services will need to ensure that consumers are first in mind, promoting compliance with federal laws intending for fair lending practices.
Operational risk management is shifting front and center as more institutions and platforms manage their risk of loss related to failed internal controls, people, systems, or from external events. Decentralized banking options may offer a solution to ensuring additional protection forming information security programs and assessments of risks ensuring oversight of digital assets.
Likely first to be regulatory, by depository regulators such as the Federal Reserve and FDIC, decentralized banking platforms will need to offer how their underlying technology ensures efficiency and safety when interacting with customers or other (non-) bank fintech companies.
Covered in previous DeFi Ventures publishing, cryptocurrencies offer a faster and less costly method of moving money. The CRS report states that “the largest potential for increase payment efficiency in cryptocurrencies is promising enough that certain central banks have investigated the possibility of issuing government-backed currencies, or central bank digital currencies (CBDCs), potentially raising questions about central banks’ appropriate role in the entire financial system and the economy.
Regulation mainly focused on fraud and illegal activities, an increase in monitoring regulations will ensure how cryptocurrencies are sold, exchanged, or marketed meet minimum regulatory compliance.
Capital Formation: Crowdfunding and ICOs
Currently meeting the legal definition of a securities offering and subjected to securities law and regulation by the Securities and Exchange Commission (SEC), ICOs including digital assets can expect additional transactional oversight to halt allegedly fraudulent ICOs. Further exploration in the regulatory tech space will ensure decentralized oversight as the digital capital markets continue to expand.
The level of government which regulations will cover is still unclear, but what is clear is the application of particular regulatory treatments of FinTech products at marketed platforms. Traditionally slow to respond, regulatory oversight will aim at this moving target current accelerating since the start of the pandemic.
Explore your options within the FinTech space contributing to a not only growing space, but a regulatory space that will be determined by investors, funders, and individuals like you.