Fintech, or financial technology, is a widely used term to describe technological innovations in various finance sectors including spending, investing, lending and cryptocurrencies. On the other hand, Regtech is a new term used to describe the technological solutions proposed to help firms, in the Fintech sector, cope with various financial legislations and regulations over the past few years. According to Reuters, Regtech represents various companies who produce technology to help banks and investors in the Fintech sector cope with post-financial crisis legislations and regulations and avoid inappropriately high fines. A study from Celent predicted that spending on Regtech technologies is to increase from $50.1 billion in the year 2015 to around $72 billion in 2019.
The current cryptocurrency, and Fintech in general, regulations exaggerate the problems of unbanked individuals in the United States, which is driving the poor out of the mainstream financial system. Furthermore, this even aggravates poverty and downgrades the quality of life, especially of women and children, in developing parts of Africa.
A recently published paper by the Competitive Enterprise Institute, introduced 5 key points that can reform the regulations and legislations governing cryptocurrencies and Fintech solutions in general. Those 5 key points are:
1- Interchange Fees’ Price Controls Via The Durbin Amendment:
The first amendment for imposing price controls of debit cards was appended by Richard Durbin in 2010. The amendment’s price controls are not reflective of the overall costs of debit card transactions’ processing, due to the fact that the Federal Reserve can impose only “incremental costs”. In other words, the costs of utilized software and hardware should be fully paid by consumers. However, the cost of debit card transactions’ processing, including protection against hacking and identity theft, were not magically omitted after the Durbin Amendment. Alternatively, they were shifted to debit card users, of whom some are extremely poor, via higher bank fees.
Accordingly, reform necessitates a full appeal of Durbin’s Amendment to provide individuals, with low and middle income, with financial relief.
2- The Unaccountable Structure of CFPB:
The Consumer Financial Protection Bureau (CFPB) was created to protect users of various Fintech products. It functions as the government’s fourth branch which is unauthorized by the US constitution. Credit unions, as well as community banks, have criticized CFPB’s regulations, in addition to the pace of its relevant regulatory activities.
If reform is to be achieved, the US Congress should work on CFPB’s framework, regulations and democratic accountability.
3- Sarbanes Oxley’s “Internal Control” Mandates:
The Sarbanes Oxley Act was passed by the US Congress in 2002 and since then, it made it extremely hard for US companies to go public. After 2002, the number of Initial Public Offerings (IPOs) on US stock exchanges dropped markedly, as the act’s section 404 mandated companies to audit a defined group of “internal controls”. This led to skyrocketing of auditing costs.
Financial reform necessitates eliminating Sarbanes Oxley’s section 404, to make it easier for entrepreneurs to make their companies public and raise capital.
4- Barriers Hurdling Crowdfunding:
Crowdfunding it taking the world by storm and it opened the door for many businesses to prosper during the past few years. However, the US entrepreneur cannot provide contributors of his/her crowdfunding campaign profit shares without going through securities’ laws that have not changed since the 1930s. Due to the application of this “security ” definition to the crowdfunding process, the US is losing out on the process of crowdfunding as a Fintech tool for economic growth. This has to change.
5- Harmful “Conflict Mineral” Disclosure Mandates:
Section 1502 made it a requirement for all public companies to disclose usage of any of the four minerals; tungsten, tin, tantalum and gold, that might have been extracted from zones of conflict in the Democratic Republic of Congo and nearby countries. Despite the moral issue underlying this, it can catalyze the next financial crisis. Even more, this started to hurt those it was intended to help, as entrepreneurs started avoiding doing business in these countries, especially when they could provide the required minerals from other countries.
Reform necessitates repealing the “conflict minerals” mandate as a humanitarian measure.
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