White paper shows extensive regulatory requirements for new marketplace entrants
Financial Innovation Now, a public policy coalition comprised of Amazon, Apple, Google, Intuit and PayPal, today released a report titled, “Examining the Extensive Regulation of Financial Technologies.” The report details current state and federal regulatory compliance requirements for new marketplace innovators in financial services.
“Technology companies and startups today are rapidly changing the financial services landscape and consumers and small businesses are benefiting from innovation and new competition,” said Brian Peters, Executive Director and Financial Innovation Now and Partner at Franklin Square Group. “New technology now offers consumers more secure payment options and more control over their financial lives, and it enables small businesses to quickly access new sources of working capital. These new financial services and products are heavily regulated and everyone in this sector, old and new, must run a gauntlet of legal duties. But these compliance requirements constitute a significant market barrier, particularly for new entrants, and can sometimes serve to protect incumbent providers from new competition. Our hope is that this report helps policymakers understand the regulatory landscape for financial technology and contributes to the discussion about how to modernize financial services policy.”
To illustrate the extensive state and federal regulatory compliance requirements for new entrants, the report describes two hypothetical innovators: a payments security technology and an alternative small business lending service. For both innovators, the report narrates the significant regulatory hurdles confronting these products before they are brought to market, while also providing an overview of the comprehensive regulatory scheme covering data security, and the laws governing consumer protection and anti-money laundering that apply to these new entrants.
The analysis shows innovators in financial services must devote significant time and resources to regulatory compliance that can chill investment and innovation or slow time to market – ultimately harming consumers and businesses that benefit from easier access and more affordable services.
While many of the regulations are necessary to protect consumers, small businesses and the economy, some regulations are redundant, conflicting or antiquated. Further, new technologies may themselves solve regulatory policy goals and obviate the need for some regulations. In other cases, modernizing regulations may enable maximum benefit from modern technology, the internet and mobility.
“As we continue to see new technologies emerge in financial services, policymakers should work to ensure the industry’s regulatory framework can adapt to new innovations and new market participants to bolster competition,” said Peters.