Financial Regulatory Considerations for FinTech and Emerging Tech Firms Presented by: Conor French, General Counsel, Funding Circle Christopher Steelman, DLA Piper LLP (US) August 23, 2017

Presenters Conor French leads US legal, regulatory and government affairs for Funding Circle Co-founded the Marketplace Lending Association (supporting the responsible growth of marketplace lending) and the Responsible Business Lending Coalition (which authored the Small Business Borrowers’ Bill of Rights) Previously served as CEO of Indego Africa – a social enterprise and lifestyle brand that supports artisan women through economic empowerment and education Started out as a Capital Markets lawyer at Latham & Watkins Conor French leads US legal, regulatory and government affairs for Funding Circle Co-founded the Marketplace Lending Association (supporting the responsible growth of marketplace lending) and the Responsible Business Lending Coalition (which authored the Small Business Borrowers’ Bill of Rights) Previously served as CEO of Indego Africa – a social enterprise and lifestyle brand that supports artisan women through economic empowerment and education Started out as a Capital Markets lawyer at Latham & Watkins

Presenters Chris Steelman is a partner in the Financial Services Regulatory Group in the Washington, DC office of the global law firm, DLA Piper He specializes in payments, money services businesses, and standard banking regulation His practice involves representation of clients in front of state and federal banking agencies Chris Steelman is a partner in the Financial Services Regulatory Group in the Washington, DC office of the global law firm, DLA Piper He specializes in payments, money services businesses, and standard banking regulation His practice involves representation of clients in front of state and federal banking agencies

Topics 1. Current Regulatory Framework 2. OCC FinTech Charter 3. CSBS Vision 2020 4. Other Key Relevant Regulatory Considerations for Fintech 5. Conversation and Questions

Current Regulatory Framework Most Fintech companies already operate in a complex, extensive regulatory environment There is a commonality of activities that typically occur which trigger regulatory considerations in the FinTech space: Eg, money movement activities involving the receipt and transmission of funds Eg, advancing money, lending or otherwise extending credit There is no unified, direct regulator or licensing scheme Elements of state and federal oversight Contrast with other countries Funding Circle example

Current Regulatory Framework The current state regulatory regime for Fintech activities generally includes licensing or registration Lender – engaging in lending and related activities Money services business – as a money transmitter, issuer or seller of stored value, or issuer of payment instruments License requirements include, among other things: Minimum net worth requirements Background checks for principals Audited financial statements Bonding Compliance programs

Fintech approaches to the current state regulatory regime For certain Fintech business models, obtaining applicable state licenses may work For other Fintech companies, a consistent, uniform nationwide footprint has required other approaches Partnerships with an issuing bank or another licensed entity Choice-of-law provisions Recharacterizing a financial product or service (eg, non-lending transactions)

An overview of the OCC FinTech Charter What’s a “charter”? A federal form of corporate organization that authorizes a bank to conduct business on a nationwide basis and subjects the bank to uniform standards and rigorous federal oversight Who could seek a charter? Companies engaged in any 1 (or more) of 3 core banking activities: Taking deposits Lending money Payments

Responses & reactions to the OCC Fintech Charter The OCC’s white paper on exploring a Fintech Charter elicited 100+ written comment letters Significant points of view spanned a wide array of financial services stakeholders State regulators Banks Consumer advocates Legislators Industry

Key uncertainties in the OCC Fintech Charter Initially, how would charter requirements apply to Fintech? Capital and/or liquidity ratios Safety & soundness Public benefit and/or financial inclusion Eg, Community Reinvestment Act Preemption of state law Other business model considerations Eg, change oversight, corporate structure, etc.

Key uncertainties in the OCC Fintech Charter (cont’d) Recently, does the OCC have authority to grant a Fintech charter? The OCC (and OTS in the past) has a long history of establishing special-purpose charters that did not accept deposits (eg, trust-only, credit card, CEBA nonbank banks) History supports a “dual-banking” system of both federal and state regulatory regimes State regulator lawsuits Eg, Conference of State Bank Supervisors (CSBS) and NY Dep’t of Financial Services

Three key takeaways on the OCC Fintech Charter (as of today) 1. We don’t know if or when the OCC fintech charter will move forward Eg, the OCC’s response brief in its CSBS lawsuit Wider scope of the OCC’s responsible innovation initiative 2. If and when it does, many key aspects of the OCC fintech charter will still need to be defined 3. Finding an efficient nationwide framework for Fintech companies isn’t an issue that will go away Eg, Industrial Loan Company applications, legislation, etc.

An overview of CSBS Vision 2020 Vision 2020 is a series of initiatives to modernize regulation of non-banks (eg, Fintech companies) The full Vision 2020 policy statement: “CSBS, the states and territories will create consistent and data‑driven solutions that support innovation by minimizing friction in the state regulatory system. By 2020, state regulators will adopt an integrated, 50‑state licensing and supervisory system, leveraging technology and smart regulatory policy to transform the interaction between industry, regulators and consumers”

How CSBS expects to achieve its Vision 2020 goals Vision 2020 is expected to include the following initiatives: Overhaul the National Multistate Licensing System (NMLS) Harmonize state standards – note that statutory requirements may still differ Create a Fintech Industry Advisory Panel Assist state regulators to identify weakness and needs for expertise Ease the provision of services by banks to non-banks Make supervision of 3rd party service providers more efficient

Pros and cons of state regulatory regimes More consistent with “community bank” smaller institution consistent with start ups Flexibility in reacting to regulatory environment on a local basis Cons Costs of multi-jurisdictional compliance Lack of insights to react on a multi-jurisdictional basis to reflect national operations

Other key relevant regulatory considerations for Fintech There are many other overarching regulatory implications based on the activities of Fintech companies Capital formation OFAC and BSA/AML compliance Vendor management – particularly in the context of partnerships with banks Same-day settlement Privacy & data security Effective controls likely also may require attention to critical quasi-regulatory company policies Eg, conduct risk management

Conversation and Questions