USA LAW AND PRACTICE Contributed by: Margo H.K. Tank, Michael Fluhr, Era Anagnosti, Kristin Boggiano, David Stier, Liz S. M. Caires, Adam Dubin, Emily Honsa Hicks, Kathleen Birrane and Chezelle McDade, DLA Piper LLP
Indirect fees include interchange fees, referral or lead- generation compensation, API fees, spread-based fees, advertising revenue, interest generation, pay - ment for order flow, data monetisation, and contrac - tual profit-split arrangements. Indirect fees may also require disclosure or be restricted in certain jurisdic - tions. Applicable laws and regulations often require fees to be disclosed clearly and conspicuously, without mis - representation (including the omission of mandatory fees) and may include requirements to disclose con - flicts of interest. 2.4 Variations Between the Regulation of Fintech and Legacy Players US regulation of fintechs is layered; regulators rely on established laws and regulations that were developed for traditional financial services models in conjunction with new, often licence-based, federal and state laws and regulations. Legacy players in financial services rely upon traditional exemptions from some state licence-based requirements but are subject to well- established frameworks with requirements for capital reserves, liquidity, and risk management. Regulation of fintechs differs significantly from that of legacy players. Fintech regulatory oversight can vary significantly by jurisdiction. Whether a fintech is subject to federal and/or state regulation, includ - ing licensure, will depend on the fintech’s activities, the flow and exchange of value and the nature of the specific product or service being offered. Regulators also focus on the location of the fintech, the location of the customer, and whether the customer is an indi - vidual or a business. It is also relevant as to whether the product or service is delivered through an online or mobile channel or utilises innovative technology. Consumer protection, anti-money laundering and privacy laws for banks are well established. Fintechs have less clarity, with less centralised regulatory over - sight, but they remain subject to these laws. 2.5 Regulatory Sandbox No US regulator has established a true regulatory sandbox for fintech, instead opting for “innovation hubs” – dedicated points of contact for fintech firms to
raise enquiries and seek non-binding regulatory guid - ance. For example, SEC has established the Crypto Taskforce to help SEC provide clarity on the applica - tion of the federal securities laws to the crypto-asset market, and recommend practical policy measures that aim to foster innovation and protect investors, and CFTC’s fintech hub is the “CFTC Office of Technology Innovation”. The administration issued an Executive Order “Ensuring a National Policy Framework for Arti - ficial Intelligence”, promoting AI innovation and reduc - ing the state regulatory burden. Congress is consider - ing AI sandbox legislation, but, to date, no laws have been enacted. Some states have provided a limited-term regulatory sandbox for fintechs in some areas, such as money transmission. 2.6 Jurisdiction of Regulators Fintechs often face conflicting regulatory require - ments when operating nationwide in the USA. All fin - tech verticals are subject to a patchwork of laws and regulations at both the state and federal level, and of varying degrees of overlap and clarity. Additionally, non-governmental entities may also issue rules that are quasi-regulatory. Some of the many regulators and their jurisdictions include: • FDIC: insured depository institutions, including dig - ital asset activities and partnerships with fintechs; • FinCEN: money transmission, money laundering, and the financing of terrorist activities; and regu - lates digital currency exchanges, including anti- money laundering (AML) and know-your-customer (KYC) compliance; • OCC: national banks, including digital asset activi - ties and collaborations with fintech; • OFAC: economic and trade sanctions; • IRS: tax matters; • SEC: activities in securities markets; • CFTC: commodities and derivatives; and • state level: licensing laws and regulations for secu - rities, lending, and money transmission. See 6. Marketplaces, Exchanges and Trading Plat- forms and 10. Blockchain .
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