Challenges For FinTechs In The United States Of America


In uniformity with the rest of the world, the United States of America (USA) suffers from a deficit of laws and regulations constructed for FinTech. Consequently, the laws and regulations in place do not apply neatly. The untailored legal instruments are neither a single nor sterile factor haunting the FinTech industry. In the USA, the mechanism used to combat this shortcoming is that FinTech is regulated at federal and state levels. One can only begin to imagine the impediments this creates for the stakeholders.

Legal instruments regulating FinTech in the USA

The USA comprises of fifty-two states which means fifty-two variants of the applicable laws on the same type of FinTech, in addition to the federal regulations. It is pertinent to remind the reader that even these law variants are not specific for FinTech but may apply to financial services and providers. Therefore, it creates a fundamental challenge for U.S. FinTech firms to navigate, from this complex web, the rules and regulations that shall govern their business. In case of conflicting laws, a simple rule is that federal law shall prevail over the state’s law. However, due to the absence of FinTech specific laws, in many scenarios,the possible applicable federal law may not address all aspects of FinTech. Therefore, both federal and state law shall operate simultaneously. A FinTech further is likely to undergo challenges in acquiring a license to practice its business. A FinTech that does not fall under a federal law provision most typically obtain state licenses. The government accountability office estimates that obtaining all state licenses generally costs FinTech payments firms and lenders $1-$30 million, including legal fees, state bonds, and direct regulatory costs. Overlooking the possible applicable laws in these cases can cause significant setbacks to FinTech firms, such as the online lender fined and paid $ 2 million by the Massachusetts Division of banks for functioning without acquiring a proper state license. In addition, the Fintech firm operating in more than one state is likely to be subjected to multiple examinations by different state regulatory agencies within a year. These examinations also impose costs on FinTech firms by way of time and resources. Consequently, this exercise minimizes development funds for the FinTech firm.


While one may be willing to untangle the applicable rules and regulations, they shall be interrupted by another difficulty: many of these overlaps. The wide range of laws causes multiple authorities to interfere in a single business’s practices; for example, some agencies might come into play because their function is to regulate specific entities, some deal with specific financial services, and some might be in it for the protection of the consumer.


Money transmission laws govern cryptocurrency transactions and businesses facilitating such transfers. The “convertible virtual currency” is regulated by FinCEN under the Bank Secrecy Act. Each state has demonstrated a varying temperament towards adopting the laws addressing cryptocurrency, states such as New York are more liberal that introduced the New York BitLicense. However, many states are still considering adopting the Uniform Regulation of Virtual Currency Business Act for a cryptocurrency licensing framework. Another group of states has decided to treat cryptocurrency activities as money transmission. Yet, another has chosen not to regulate cryptocurrency under their money transmitter laws or virtual currency-specific laws.

Office of the Comptroller of the Currency, Interpretive Letter# 1170 in July 2020 stated that national banks and federal savings associations may provide cryptocurrency custody services and hold cryptographic keys on behalf of customers. Furthermore, in September 2020, the state of Wyoming issued its first special purpose of depository institution charter to Kraken, the cryptocurrency exchange, allowing it to take deposits and provide custody for digital assets. In more recent developments, the Federal Reserve is exploring the implications of a central bank digital currency. There, however, has been no verdict by the Securities and Exchange Commission (SEC) on the status of Initial Coin Offerings (ICO). This uncertainty in the U.S. regulatory laws of FinTech has caused legal problems and difficulty in comprehending the laws that the FinTech firms are to abide by.


The unfortunate collision of the inclination of stakeholders towards the FinTech industry and the absence of FinTech specific laws in the U.S.have coerced the FinTech firms to partner with or be acquired by a traditional financial institution. To practice as a FinTech firm circumventing any legal charges or irregularities in the presence of the above-discussed complex maze of laws,it must engage experts capable of cautious and extensive perusal of all applicable laws.

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