More than a couple of people have mentioned the relative low profile of the SEC in the nation’s fintech debates. The OCC, for example, has released its fintech charter program; the CFTC in turn has its new LabCFTC initiative; even the CFPB has a credible and very interesting innovation program for new technologies helping to promote financial inclusion. The SEC’s boldest announcement, by contrast, has been its (well received, though not unexpected) announcement that initial coin offerings are securities.
Still, I think it’s worth watching out for two sneaker issues that could come to the fore over the next twelve months if the frothy bitcoin market continues. First, I would not be entirely surprised to see a trend towards greater harmonization of state blue sky laws for Reg A+. Under the current regime, Tier 1 offerings (which notably do not require full blown audits) are not preempted from state law. By contrast, Tier 2 offerings do offer preemption, plus issuers can raise even more money, up to $50 million. So not surprisingly, Tier 2 issuances tend to be more attractive in the mini IPO space, which is poised to many initial coin offerings. This will translate in a loss in fees and influence for US state regulators, who are facing increasing pressure to respond to the new “market” in Reg A offerings—possibly by synching their registration requirements.
Second, more fintech firms unimpressed with fintech charters, and the uncertain timetable by which it may be available, could move in a different direction by seeking broker-dealer status. Sure, it is a different business model and they wouldn’t have access to the federal payments system, but plenty of firms have business models that, even where banking licenses could prove more profitable, ultimately engage in capital markets transactions. Taking on a broker dealer license would give the firms enhanced powers with regards to accepting commissions, offering incidental investment advice, and participating in ICOs of stocks and bonds. And it is here where, at least possibly, the agency may exercise some ingenuity in applying its regulatory oversight.