The FinTech Revolution: An Introduction to Financial Technology
This article is the first in a series of articles on this topic by the authors.
“FinTech” has become a buzzword of the decade. The term, which is a moniker for “financial technology,” captures all manner of technological innovation in personal and commercial finance; innovations that are increasingly gaining the attention of regulators seeking to prevent money laundering and financial frauds. FinTech includes applications that support and enable financial and banking services, such as mobile banking apps, credit card strip readers that attach to mobile devices and tablets, and software that allows companies to process payments from customers. It also encompasses technology that has changed the way money is exchanged, such as through peer-to-peer lending apps, programs that permit monetary transfers online or through mobile devices, and financial advisory and online wealth management services that provide automated, algorithm-based portfolio management advice. Additionally, FinTech includes cryptocurrencies like Bitcoin, which are “virtual currencies” that exist in databases and are transacted through online networks, but, unlike physical currencies, have no intrinsic value, no physical form, and are not regulated through a central bank.
The products and services that fall under the FinTech umbrella have led to a significant disruption of the financial services industry. Part of this disturbance is attributable to the fact that FinTech is designed to make financial transactions more accessible. Accordingly, companies like Square, PayPal, and Venmo offer mobile payment services, which permit business customers to pay for products and services in new ways; companies like Prosper, Funding Circle, and Lending Club provide loan options not offered by banks; and other companies like TransferWise and World Remit provide online money transfer services as alternatives to visiting the local Western Union or MoneyGram outlet. FinTech has provided a channel for startup companies to challenge an industry that historically has been dominated by big banks, which, as with many blue chip companies, are generally more resistant to change.
In challenging the status quo, FinTech companies have raised a variety of legal issues, including whether the regulatory framework that, until now, primarily has applied to large financial institutions, applies to these startup companies and is suitable for a rapidly changing industry. As white collar practitioners, we are well-positioned to advise FinTech companies and their customers so that they have an understanding of the tools that are available to law enforcement authorities in regulating FinTech, the enforcement actions that already have been pursued, and whether new regulations might be on the horizon. Over the course of the next several editions of this newsletter, we will examine these issues, including, for example:
- How are FinTech companies subject to Anti-Money Laundering/Bank Secrecy Act Requirements?
- What enforcement actions have been brought against cryptocurrencies to ensure that they do not proliferate as a vehicle for malfeasance?
- What steps are government agencies proactively taking to address FinTech?
We look forward to sharing our insights and to exploring this exciting young industry in future issues of this newsletter.
© 2017, Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.