U.S. regulators have taken a greater interest over the last year in technology startups promising to reinvent finance. This newfound attention is compelling the biggest names in fintech to prioritize a part of their business that’s often ignored.
Several financial-technology companies are looking to staff up in regulatory compliance, according to job posting data reviewed by Bloomberg. Among them are Betterment LLC, Coinbase Inc., Robinhood Financial LLC, Social Finance Inc. and Wealthfront Corp., which each have openings in compliance-related roles of varying seniority.
Fintech companies tend to chase product growth above all else, as is common with many venture-backed businesses. But finance is one of the most heavily regulated parts of the economy, which leaves less room for creative interpretations of the rules — and a career opportunity for legal and compliance experts, said David Yermack, a finance professor at New York University’s Stern School of Business. “This should be a bonanza for lawyers for some time to come.”
Fintech’s recent high-profile run-ins with regulators are hard to ignore. Last summer, cryptocurrency exchange Coinbase said it got approval from the U.S. securities regulator for three planned acquisitions. It hadn’t, according to the Securities and Exchange Commission. The company corrected its statement in July. A few months later, the Federal Trade Commission said it reached a settlement with SoFi over allegations that the company made false claims about how much customers could save by refinancing student loans.
Robinhood, which makes a popular stock-trading app, was forced to retreat from a plan to offer a quasi-bank account in December after questions about whether deposits would be insured. A bipartisan group of U.S. senators expressed concern over the product, previously named Robinhood Checking & Savings, and asked the SEC to intervene. Around the same time, Wealthfront and a smaller roboadviser startup settled with the SEC over accusations of falsely advertising their investment products. None of the companies admitted or denied wrongdoing.
The SEC has been impaired by a partial U.S. government shutdown, which has been in effect since late December and became the longest of the modern era. Although President Donald Trump has expressed little willingness to budge unless Congress agrees to fund a wall on the U.S. border with Mexico, companies realize the government will reopen eventually. And regulators will likely return with a list of grievances for companies.
At a banking conference last year, Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said hardly any startups place “risk at the top of what they’re thinking about. And that makes me nervous.”
Most of the major fintech startups already employ some regulatory compliance representatives. For example, Coinbase has more than two dozen, according to job titles on LinkedIn. But in some cases, compliance staff is far outnumbered by other departments. SoFi has more than twice as many people who list roles in marketing than compliance, LinkedIn data show.
Venture capitalists who specialize in fintech are pushing their companies to take regulators seriously. “When we meet with companies, in addition to speaking about the product, market and team, we also spend time on how they will execute within a regulatory environment,” said Arjun Sethi, co-founder of venture firm Tribe Capital. “That means hiring the right type of people focused on compliance and best practices.”
Published Jan 17, 2019, 6:00:00 AM, by Julie Verhage (Bloomberg).