USA Law and Practice Contributed by: Margo H. K. Tank, Michael Fluhr, Deborah Meshulam, Kristin Boggiano, David Stier, Liz S. M. Caires, Adam Dubin, Emily Honsa Hicks, Meghan Carey, Kathleen Birrane and Eric Hall, DLA Piper LLP
State-Level Regulation Individual states and the District of Columbia can establish their own statutes and regulations that address licensing or chartering of banks, non-banks, brokers and dealers, and product regulation. These state rules are not the same in all jurisdictions, and sometimes conflict with each other. Relevant regulators may include state banking departments, consumer protec - tion agencies, money transmitter regulators, and securities commissions. States also adopted a commercial law frame - work known as the Uniform Commercial Code (UCC) that addresses electronic payments and lending, and the custody and transfer of letters of credit, “financial assets” in digital form, elec - tronic chattel paper, and “controllable electronic records” . Transferable records (ie, electronic negotiable promissory notes) are governed by the federal Electronic Signatures in Global and National Commerce Act (ESIGN) or the applicable state Uniform Electronic Transactions Act (UETA). See 6. Marketplaces, Exchanges and Trading Direct consumer compensation models for fin - techs in the US include those based on sub - scriptions, transactions, payment processing, funds transfers, trading, management, or com - missions. Direct fees may be required to be dis - closed based upon the regulations applicable to the underlying transaction. Platforms and 10. Blockchain . 2.3 Compensation Models Certain fintech services are offered to consum - ers without fees. Consumer resistance to fees for certain services, such as peer-to-peer (P2P) payments, has been significant in the US. “Free-
mium” or tiered pricing models often include a basic level of service without direct cost and a premium level available for a fee. Indirect fees include interchange fees, referral or lead-generation compensation, spread-based fees, advertising revenue, interest generation, payment for order flow, data monetisation, and contractual profit-split arrangements. Indirect fees may also require disclosure or be restricted in certain jurisdictions. 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, including 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 individual or a business. Whether the product or service is delivered through an online or mobile channel or utilises innovative technology is also relevant.
968 CHAMBERS.COM
Powered by FlippingBook