Fintech Boom Creates Legal Job Opportunities

Firms that marry hi-tech and financial services are proliferating all over the world. These “fintech” businesses offer online lending, wealth management, tech-enabled payments, crowdfunding, currency exchange, and other digital services involving money. They compete with traditional retail banking and financial services firms.

While it is difficult to estimate their actual numbers, industry sources say that approximately 6,500 such companies have emerged in just the past two years, spurred by a huge flow of investment funds that amounts to more than $24 billion and climbing rapidly.

The credit crisis of the Great Recession combined with increasing regulation of financial services via the Dodd-Frank Act and its implementing regulations created the perfect storm for the emergence of the fintech sector. These firms’ business models avoid many of the formalities required of banks (e.g., capital requirements) while, at the same time, provide more efficient means of meeting customer needs.

Fintech entrepreneurs are typically  people who have worked in banks and have come to fintech with strong knowledge and understanding of financial services processes and problems.

Challenges

Fintech startups face some daunting obstacles. If they want to be serious players in money transfer and mobile payment platforms, they need to establish themselves globally, and that means compliance with multiple regulatory schemes beyond just the U.S., which alone has ten regulatory bodies overseeing different aspects of the financial sector, not to mention that each state has its own rules and regulatory entities.

Here is what negotiating this regulatory morass could require of an online lender or digital currency or payments company that wants to do business nationwide in the U.S.:

  • Establish a corporate entity.
  • Register with the Treasury Department’s Financial Crimes Enforcement Network.
  • Request Certificates of Authority from each state.
  • Obtaining separate business licenses and register with local taxation and/or labor boards).
  • Apply for individual state licenses (with different requirements in each state).
  • Obtain and post a surety bond in each state.

Once approved, each state has an annual renewal requirement of both corporate existence and license accompanied by a fee, in addition to annual, semi-annual, quarterly, or monthly state financial and other reporting requirements and compliance examinations.

The Solution

The U.S. government’s Office of the Comptroller of the Currency (OCC) is in the process of creating a Special Purpose National Bank Charter for fintech companies that will allow for the preemption of state laws that national banks currently enjoy. This will include authority to conduct business in every state without jumping through all the hoops listed above. Once in place, expect this rapidly-growing business sector to open the door to several thousand additional firms that will need to hire legal talent.

OCC has established a new Office of Innovation to handle applications for Special Purpose Charters.

More Information

New York Law School has sponsored an annual fintech conference for the past two years. You can join the school’s Center for Business and Financial Law mailing list by clicking here.