TFU | January 14-20, 2017

Leading Off

The White House published a white paper outlining its fintech policy objectives; more state regulators and national banking groups expressed concerns to the OCC about its decision to consider granting “fintech charters;” payments and money transfer firm Dwolla raised nearly $7 million in new funding; Bitfury and Credit China Fintech founded a new global blockchain advocacy organization; and Gene Ludwig shared his thoughts on AI and the future of finance in a podcast interview with Arthur Levitt.

The Big Idea

Regulation in fintech is complicated and uncertain.

The story: The beginning of 2017 has highlighted the uncertainty surrounding fintech-related regulation. Building on last week’s Big Idea, the OCC’s new “fintech charter” has continued to garner opposition from state regulators (e.g., New York and Pennsylvania) and bank advocacy groups (e.g., the ABA and ICBA); more states have waded into the fray, publishing (and even earning praise for) fintech-related regulations; and the new administration has been unclear about its financial regulatory policies.

Why we care:  Regulatory policy may not be the sexiest of topics, but it’s highly important. Done well, regulation helps level the playing field and allows businesses to operate efficiently within the bounds of public policy. Done poorly, regulation can tilt the playing field, inhibit innovation, and constrain growth. Most everyone agrees that some regulation is necessary; the debate is about where policy turns from good to bad and regulation turns from necessary turns to overburdensome.

What we think:  Part of the problem is the fractured nature of “fintech” itself, which includes a variety of financial services (e.g., lending, money transmission, wealth management, etc.) and therefore implicates a variety of regulators. Other issues include the relative youth of fintech as a regulatory concern and the particular uncertainty of this election cycle.

However, with President Trump officially in power, it seems likely that we will begin seeing clearer signals about the immediate future fintech regulation as the fates of the CFPB and major financial regulatory reforms are decided. It seems likely that the OCC will  move forward with considering applications for special-purpose charters from fintech firms, and the resulting federal regulation of “fintech banks” would help reduce some of the regulatory burden created by the existing patchwork of state regulations. On the other hand, given the president’s populist agenda, he may be unlikely to support too many initiatives that would take power – explicitly or effectively – from the states.

Consequently, we’ll be looking for more state initiatives like New York’s BitLicense as well as efforts by states to tweak existing laws to account for new technologies (like North Carolina and Illinois have done for digital currencies with their money transmittal laws), as well as the marginalization of certain federal regulations governed by the agencies most anathema to the Republican platform (i.e., the CFPB). Stay tuned!

In Other News…

White House publishes “Framework for FinTech.”  Last week, the White House released a white paper [full text] outlining the Obama Administration’s “policy objectives . . . [for] innovation and entrepreneurship, generally, and fintech in particular.” The Framework includes input gathered from industry and government officials as part of the White House’s fintech summit in June.

New DLT organization created at Davos.  At the World Economic Forum’s 2017 Annual Meeting, blockchain firm Bitfury announced the creation of the Global Blockchain Business Council (GBBC), in partnership with Credit China Fintech and Covington & Burling. The GBBC aims to “[raise] awareness of the potential of Blockchain . . . [and engage] businesses interested in [it].”

Northwestern Mutual creates fintech investment fund.  The bank announced a new $50 million fund to invest in fintech startups, seeking partners to help it “create a better digital experience for clients.” Northwestern Mutual previously invested in wealth manager Betterment.

Gene Ludwig discusses AI and the future of finance.  In a podcast interview with former SEC Chairman Arthur Levitt, Gene Ludwig, former Comptroller of the Currency and current CEO of Promontory Financial Group, said that financial institutions must be “increasingly savvy about [using] technology.” Part 1 of the interview is already online; and Part 2 will be posted tomorrow.

New research report on global fintech marketplace.  A new research paper [full text] published on Oxford University’s business law blog provides a “comprehensive overview of [fintech] market developments in 64 different countries” across “the value chain of a traditional bank—financing, asset management, payment, and other business activities.”


Have a great weekend!
Joe Oehmke and Austin Tuell

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