1. 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

2. 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

3. 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

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

5. 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

6. 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

7. 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)

8. 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

9. 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

10. 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.

11. 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

12. 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.

13. 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”

14. 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

15. 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

16. 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

17. Conversation and Questions