Regulators have certainly kept a close eye on fintech upstarts.
Last month, the Financial Stability Board (FSB) – comprised of 20 world economies – came together in Tokyo to establish a framework and assess the potential of fintech startups “disrupting” traditional banking.
Many startups have learned the rule: Go to them, before they come after you.
So, how do you approach the regulators? Experts suggested a few tips during a panel at Empire Startups Fintech Conference earlier this week.
When is the right time to approach regulators?
Short answer, once you’ve done your homework.
“It’s important when you first show up in front of a regulator, to show that you have a clear understanding on where you fit in in the regulatory space, and what issues you may need to address with them,” said John Ramsay, chief market policy officer at IEX Group. “Your first visit is a start of a process of trying to establish a relationship over time, so you have to have questions prepared, and propose solutions.” Ramsay added, that the first and foremost, startups should identify the issues and begin a dialogue, which can be sustained over time.
Before the visit, however, startups should be prepared to “just listen,” said Stuart Lacey, CEO of Trunomi, Know Your Customer (KYC) data-sharing technology company. “It’s easy to get full of your own excitement, but if you do that you can get very quickly called out by the regulators,” he said. “So throwing words like ‘disruption,’ or ‘completely rethinking’ usually doesn’t go far with the regulators, it’s important to be humble and listen.”
What to expect from the visit
You should expect “open doors,” according to Adrienne Harris, special assistant to the President for economic policy. “Particularly in the space of fintech, regulators realize how new and quickly moving the space is,” she said. “For example, the CFPB established ‘office hours’ where startups and other enterprises can go in and find out what regulations may or may not apply and how they should be thinking about their product or service.” The Office of the Comptroller of the Currency is developing a similar system, Harris said.
Ramsay of IEX Group agreed, adding that regulators in the space are curious about what startups have to say. “A former SEC employee myself, at least from my stance, regulators want to find out about all the new and innovative things that you are working on,” he said. “So, you should certainly assume a friendly reaction, but just be very targeted and focused. You won’t have unlimited time there.”
At the Fiserv Forum in Las Vegas yesterday, Jim Marous, co-publisher of The Financial Brand, noted that regulators admitted in 2015 they are behind the banks in understanding fintech, and are playing catch-up.
Should you seek outside counsel?
It’s advisable to seek out an outside counsel, especially when you are not sure where your startup fits in the regulatory landscape, said Max Eliscu, chief executive at Viewpost, an invoicing and payment platform. “If you are not a bank, you may just be subject to certain laws, and in those cases it makes sense to approach regulators through a counsel,” he said. “Most people would suggest that if you are not regulated, approaching regulators with questions is probably not a good idea at all, so seek advisers who have direct relationships with regulators to help you understand if you are at risk.”
Once you define the issues, Ramsay added, you can form the questions and principles of your company, in order to present them to the regulators.1 - Reader Likes This Post