Congress is preparing to pay closer attention to fintech in 2019. Areas with bipartisan support in the next Congress include modernization of regulatory laws, reducing burdens on new products, and supporting tech innovation. Stricter oversight of fintech will also be a focus of Democrats in control of the House of Representatives.
In January of 2019, Rep. Maxine Waters (D-CA) will become chair of the House Financial Services Committee (HFSC). Waters has said she plans to push consumer protection initiatives, support affordable housing, encourage financial innovation, promote diversity and hold the Trump Administration accountable. Rep. Patrick McHenry (R-NC) will serve as Ranking Member (the senior committee Republican in the minority). McHenry is bound to clash with Waters on most of her priorities, except for financial innovation.
Bipartisan Support for FinTech Reforms
Over the last several years, Rep. McHenry has drafted more fintech bills than any other member of Congress, in either party. McHenry was responsible for a section of the 2012 JOBS Act that created a legal option for small businesses to raise capital via online crowdfunding. In 2016, he was the lead sponsor of a bill that directed federal regulatory agencies to set up offices of innovation. In 2017, he filed legislative language to provide reg relief for fintech companies in the early stages of product development and marketing. Under the Republican-controlled House, only the 2012 section became law. In 2019, with Democrats in control of the House, fintech initiatives are more likely to pass.
Incoming Chairwoman Waters’ interest in fintech innovation is rooted in her drive to fight for lower-income consumers and underbanked populations in our country. Fintech has helped provide banking alternatives to the poor in developing countries so, the logic follows, why not in the US as well? Expect to see hearings on the topic.
New FinTech Task Force
It is rumored that Waters may create a new fintech task force within the House Financial Services Committee. This task force would identify fintech priorities and give fintech companies a separate lane for advancing their goals. If deemed successful, the task force would likely lead to the creation of an official fintech subcommittee in future congresses.
Data Protection Laws
New data protection laws will be a greater focus in the next congress. Some Members of Congress have said they will introduce bills similar to the EU’s General Data Protection Regulation (GDPR). Under Democratic control, the data rights and privacy debate is likely to be a higher priority than in previous congresses. In the Senate, Sen. Mike Crapo (R-ID), Chairman of the Banking Committee, has said he plans for “Big Data” and privacy issues to be a major focus next year. This means a bipartisan and bicameral data protection bill has a shot next year.
More Stringent Oversight
Since oversight and enforcement by the Consumer Financial Protection Bureau (CFPB) has decreased under the control of Trump appointees, Rep. Waters sees it as her job to fill that void. She will defend the need for the fully-functioning CFPB by pointing out areas where the CFPB should act.
More stringent oversight of bad actors in fintech will be a Waters priority. We’re likely to see increased oversight of multi-billion dollar fintech companies that mislead customers. This past week, for example, Robinhood was caught making false marketing statements about their new checking and savings account product, incorrectly claiming the accounts would be insured by the Securities Investor Protection Corp (SIPC). Under Chairwoman Waters, this sort of mistake could lead to a formal letter of inquiry or even an oversight hearing. More generally, the “do first, ask forgiveness later” strategy that has become synonymous with startups will be under greater scrutiny in the Democratic-controlled Congress.
Anti-Money Laundering (AML) Laws
The risk of fintechs being used for cleaning dirty money, including bringing questionable foreign capital into the US, is of increasing interest to federal regulators and members of congress. In March of 2018, the Financial Crimes Enforcement Network (FinCEN) sent a letter to the Senate Finance Committee clarifying that companies that facilitate the sale of virtual currencies, including Initial Coin Offerings (“ICOs”), must comply with AML laws. Congress appears to be aligned with FinCEN, indicating that issuers and exchangers of digital currencies will be liable if they are found to not be enforcing AML laws.
Bills have been introduced to further clarify the definition of a financial institution as including “[a]n issuer, redeemer, or cashier of prepaid access devices, digital currency, or any digital exchanger or tumbler of digital currency.” Such legislation is more likely to move in the Democratic-controlled House next year.
If you ask a random member of Congress what they think of distributed ledgers, private keys, or smart contracts, most would not know how to respond. A select few would reference recent SEC or IRS activity on cryptocurrencies. That's about to change.
In 2018, we saw the first comprehensive hearings on cryptocurrencies. the first in-depth legislative proposals for promoting blockchain tech, and the founding of a new Congressional Blockchain Caucus. In 2019, the flood of new members of Congress, action at the state level (including in California), and increased federal agency-level focus is likely to lead to more congressional oversight hearings and more serious prospects for passage of blockchain-specific legislation.
The House Finances Services Committee may also look at whether technology-first financial firms should have the option to become full-fledged banks or insurers. If they are granted this option, what due diligence should be conducted by the administration? SoFi and Square both applied for ILC charters in 2017, then withdrew after concerns were raised by banking trade associations and lawmakers (including Rep. Waters). Several "Unicorn” fintech firms are expected to file again in 2019.
Growth in FinTech Advocacy
In Washington, we’re seeing more fintech companies retaining government relations representation than ever before. Well-known companies such as Square, Intuit, Yodlee, Coinbase, and PayPal have retained consultants actively working the Hill, educating members of Congress on topics such as beneficiary identification, anti-money laundering laws, the blockchain, crowdfunding, SMB financial literacy, and consumer-permissioned financial data aggregation. Many lesser-known fintech companies and trades are active as well, either directly or through associations. Examples include Kabbage, Ripple, Sweetbridge, Shipchain, Goodbit, the Online Lenders Alliance, the National Venture Capital Association, the Blockchain Token Association, and Proseeder.
Unlike many policy areas in Congress, 2019 presents real opportunities for bipartisan action on fintech priorities.