FinTech in Focus
Greetings, FinTech in Focus readers. As I currently remain stranded on the beach (sigh!), I’ve realized two things – I can’t come close to looking like Brian Flanagan in the movie Cocktail, nor have I turned into Richard from The Beach. That being said, it’s 5 o’clock somewhere.
The United Kingdom’s Financial Conduct Authority released a call for input on the post-implementation review of crowdfunding rules that came into force in 2014. Given Brexit, the FCA notes that its request is “in the context of the existing UK and EU regulatory framework” and focuses on peer-to-peer lending and investment-based crowdfunding platforms. “Now that the UK market is more established and crowdfunding has become a more accepted form of raising capital, we are considering whether the rules need to be changed to reflect its current scale and status and the risks to investors, or whether the current regime deals adequately with the risks,” the agency said. The UK crowdfunding industry, the Peer-to-Peer Finance Association, and others issued statements following the release.
Speaking of reviewing crowdfunding regulations, the German Crowdfunding Association released a preliminary review of the Small Investor Protection Act, which went into force a year ago, with additional figures expected in September, when the University of Cambridge Centre for Alternative Finance releases its findings. In the United States, equity crowdfunding has started slowly, with fewer than 50 small businesses listing on authorized websites. (Small companies are also facing capital raising challenges under Reg A+.) And it doesn't help companies seeking to do a Title III offering to have to shell out between $50,000 and $150,000 in fees and expenses. Concerns about Title III crowdfunding have led to congressional efforts to enhance its viability as well as make it easier for entrepreneurs to access funding. These efforts culminated in the recent House passage of H.R. 4855 and H.R. 4854.
A recent report from Gust and Fundacity looks into accelerator programs (as defined in Miller and Bound's 2011 report The Startup Factories) operating worldwide. The report provides data from nearly 400 accelerators that invested nearly $200 million in 8,800 startups in 2015. The United States tops the list of countries in cash invested (~$80 million) and number of startups accelerated (more than 2,500). The top five seed accelerators globally: 500 Startups, Techstars US, Plug and Play, Start-Up Chile, and AngelPad. Interestingly, accelerator startup exits through IPO or M&A, as seen in the chart below, are much more prevalent in the U.S. and Canada than anywhere else. Accelerators in other regions have pivoted to a more diversified business model, including corporate sponsorships and partnerships.
Source: Global Accelerator Report 2015
European Union Developments
Brexit continues to dominate the discussion in Europe, where officials are warning the UK that “there can be no cherry-picking” when it comes to accessing the EU’s single market and where Berlin is trying to attract London’s FinTech sector. Separately, the European Commission adopted the proposed "Action Plan for Strengthening the Fight Against Terrorist Financing," which includes efforts to apply the EU's Anti-Money Laundering Directive to virtual currency exchange platforms and wallet providers. The proposal includes a definition of “virtual currencies”—the first under EU law. Separately, a new paper from Oxford, EU regulations on algorithmic decision-making and a "right to explanation," finds that the European Parliament’s adoption of the General Data Protection Regulation in its current form “could require a complete overhaul of standard and widely used algorithmic techniques.”
Upcoming Events of Importance
Here’s an update on a few FinTech-related events that will take place this month. First, U.S. lawmakers will hear from online marketplace lenders this week, the second such congressional hearing since 2015. Second, U.S. regulators, congressional leaders, and blockchain industry stakeholders are currently meeting in Bretton Woods, N.H., to potentially hash out guiding principles for the sector, with the final report expected at Money2020 in October. The event is intended to “develop guiding principles on consumer protection based on the input and expertise of representatives from relevant legislative, regulatory, and enforcement bodies, as well as a diverse array of fintech, traditional financial industry, and blockchain experts.” Meanwhile, an event in Silicon Valley this month will mark the sixth time that Bitcoin industry stakeholders come together to try to establish consensus on Bitcoin’s architecture.
Blockchain and Insurance
A new report from McKinsey & Co. finds that of the 200 companies offering blockchain solutions and services, roughly 10 percent are focused on applying the technology to the insurance industry. Blockchain, the consulting company says, "can address the competitive challenges many incumbents face, including poor customer engagement, limited growth in mature markets, and the trends of digitization." Yet the report notes that the exploitation of the technology "is still a long way off," and in application areas "that do not strongly rely on blockchain's distributed mechanisms, alternative solutions can provide similar benefits much sooner."