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Bank regulation is older than you think. The ancient Code of Hammurabi, which predates Moses and the Biblical legal code of the Pentateuch, includes rules for interest-bearing loans (not more than 30% interest for past due loan repayments!) Since then, review of the history of banking shows that regulation of financial services has become more and more complex and extensive.
In conversation yesterday with Bryan Cave regulatory lawyer Dan Wheeler, it struck me that many FinTech startups may be underestimating the value of hiring regulatory counsel. This is understandable. Lawyers aren’t cheap and they’re not generally quick – we all know the jokes.
When I was running a commercial mortgage company a few years back, I worked with all sorts of lawyers – litigation, bankruptcy, contract, employment, etc. But the most important long-term relationship was with our primary regulatory attorney. He knew all the regulations we were subject to (and there were many), was aware of changes, interpreted case law implications, and helped us when we were in disputes with investors, borrowers and regulators. He wasn’t cheap. But he was invaluable (and remains a good friend).
Banks know this of course. They all have internal and external counsel, and extensive budgets. They also know what happens when they don’t follow regulations – massive fines, reputational damage, and sometimes restrictions on their ongoing business (such as cease-and-desist orders).
But this applies to FinTech companies as well, particularly those that are offering services in competition with, or complementary to, the banks. For example, although Dodd-Frank is considered primarily to be banking regulation, marketplace lenders are now also under the purview of the Consumer Finance Protection Bureau. Prominent FinTech companies been recently been fined for misleading advertising, poor security practices, and failure to register as an MSB, among others.
But even FinTech companies looking to partner with banks need to be clear about the regulatory environment they are touching and playing in. Their bank customers expect it of them. And their investors should expect it too, since there are often regulatory risks for the FinTech itself.
What do regulatory attorneys do for FinTech companies?
For some FinTech companies the need may be as little as a confirmation that they are not directly impacted by regulation, and that they are not partnering with banks in highly regulated activities. At the other extreme, it may be worth hiring a regulatory expert on a fractional basis to join the team. But for most FinTech firms, consulting with and retaining regulatory counsel now will have several benefits:
Worth checking out, surely?
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Kathiravan Rajendran Associate Director of Marketing Operations at Macro Global
25 November
Vitaliy Shtyrkin Chief Product Officer at B2BINPAY
22 November
Kunal Jhunjhunwala Founder at airpay payment services
Shiv Nanda Content Strategist at https://www.financialexpress.com/
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