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Mueller Jackson
Jackson Mueller
Associate Director, Center for Financial Markets
Jackson Mueller is an associate director at the Milken Institute's Center for Financial Markets. He focuses on fintech, capital formation policy and financial markets education initiatives. Prior to joining the Institute, Mueller was an assistant vice president at the Securities Industry and Financial Markets Association (SIFMA), where he focused on...
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FinTech in Focus

By: Jackson Mueller
March 08, 2017
   
   

LendIt USA: Quick Recap

Hello, FinTech in Focus readers! Yours truly attended LendIt USA this week and focused, unsurprisingly, on the policy and regulatory track, including moderating a panel on the regulatory landscape for small-business lending. A couple of things to note: Rep. Patrick McHenry (R-N.C.), Comptroller of the Currency Tom Curry, and Consumer Financial Protection Bureau Director Richard Cordray spoke on financial innovation. In particular, McHenry discussed a handful of bills he’s introduced, Cordray focused on Project Catalyst and recent requests for information regarding data access and credit underwriting, and Curry focused on his office’s approach to financial innovation. No earth-shattering announcements, though both Curry and McHenry cited the Madden vs. Midland case. McHenry called the 2nd Circuit’s decision “unprecedented,” while Curry said his office views the concept of “valid when made” as very important. In other announcements of interest, the Innovative Lending Platform Association and the Coalition for Responsible Business Finance joined forces and will operate under the ILPA banner, the Marketplace Lending Association expanded its membership further, LendUp announced another $100 million credit facility with Victory Park Capital, Upstart raised $32.5 million in funding, Lendio unveiled a franchise program, and PeerIQ partnered with 1010data.

Regulation Crowdfunding

The Securities and Exchange Commission released a report in late February (my apologies for missing this) covering securities-based crowdfunding under Title III of the Jumpstart Our Business Startups (JOBS) Act. According to the Division of Economic and Risk Analysis, between May 16 and December 31, 2016, “there were 163 unique offerings by 156 issuers, seeking a total of $18 million based on the target amount, excluding withdrawn offerings.” The median and average offering amounts totaled $53,000 and $110,000, respectively. “The median offering involved an issuer with three employees and approximately $43,000 in assets, with one-quarter of offerings by issuers reporting zero assets,” the report says. “The average issuer had five employees and assets of approximately $327,000. Median cash holdings were about $5,000 and average cash holdings were about $64,000.” The results “suggest that crowdfunding is attracting issuers that have not extensively used other private offering exemptions, such as Regulation D, which is otherwise a very popular private offering exemption among similarly sized issuers as those initially availing themselves of the crowdfunding market.”

Issuer characteristics and financials

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Source: SEC

Global Developments 

U.K.: The House of Lords held a series of votes on amendments to the government’s Brexit legislation over the past week. By a vote of 229 to 136, it defeated a measure demanding that the U.K. remain in the European single market, but the government lost on measures guaranteeing the rights of EU citizens living in the U.K. and on a vote by Parliament on a final Brexit deal. Meanwhile, the government released its digital strategy report covering digital infrastructure, skills, policy frameworks supportive of digital innovation and startups, cybersecurity, and data. Coverage relating to FinTech can be read here. In other news, Yielders became the first U.K. FinTech startup to receive Sharia compliance certification, while the Financial Conduct Authority (FCA) sent letters to loan-based crowdfunding platforms saying that some platforms are breaking the rules by acting more like banks. The FCA “is writing to firms that operate loan-based crowdfunding platforms to highlight that if a lending business borrows through a platform and then lends that money to others, it may be  ‘accepting deposits’ within the meaning,” the letter says.

Kenya: The U.S. State Department released a report saying that certain services, including those used to send or receive remittances, M-PESA, and M-Shwari, “remain vulnerable to money-laundering activities.” The “International Narcotics Control Strategy Report: Volume II”also says that Kenya “is a transit point for international drug traffickers, and [trade-based money laundering] continues to be a problem.”

South Korea: The head of the country’s central bank urged financial services firms to pay attention to risk management as they develop or adopt digital technologies.

Canada: The Ontario Securities Commission published a white paper offering insights into the regulator’s November “hackathon,” which covered RegTech, Know-Your-Customer requirements, financial literacy, and transparency. As the paper describes in some detail, several themes emerged from the event, including the importance of open access to data in advancing FinTech solutions and the need for openness from regulators toward new ways of conducting business.

India: The State Bank of India has formed a FinTech team to explore opportunities within the space. Meanwhile, the government will soon set certain targets that banks and payment firms are expected to meet in an effort to enhance the country’s digital efforts. The measures include requiring banks to provide mobile banking capabilities by the end of March. Meanwhile, the Unique Identification Authority of India (UIDAI) released a statement to address concerns about the misuse of biometrics. It said an incident of misuse was an “isolated case” and that there have been no reports of breaches or a leak of residents’ data out of UIDAI. 

U.S.: Federal Reserve Gov. Jerome Powell discussed innovation and the payments system at a Yale Law School event. According to his prepared remarks on permissioned blockchains, “this approach seems more likely than fully open systems to provide the needed governance and management to address operational, security, and financial risks.” On the topic of digital currencies issued by central banks, Powell said there are technical and privacy issues that need to be considered and addressed: “We should have serious reservations about our ability to keep a generally circulating digital currency safe and secure over the long run. A digital currency issued by a central bank would be a global target for cyberattacks, cybercounterfeiting, and cybertheft. The threats could significantly exceed historical experience with paper currency.” Meanwhile, digital currency exchange Coinbase has ceased operations in Hawaii due to heightened regulatory requirements. The company, in a blog post, explained that the Division of Financial Institutions requirement that digital currency businesses maintain cash reserves “in an amount equal to the aggregate face value of digital currency funds held on behalf of customers” is “untenable.” 

Thailand: The national stock exchange is expected to launch a blockchain-based marketplace for startups in the third quarter, according to reports.

Switzerland: A government-backed virtual currency and blockchain group called the Crypto Valley Association was launched last week. Its mission is to “develop the world’s best ecosystem for blockchain and other cryptographic technologies and businesses.”

UAE: Dubai-based Beehive became the first peer-to-peer lender to be regulated by the Dubai Financial Services Authority (DFSA). Separately, the DFSA released a consultation paper setting out the agency’s approach to regulating FinTech. It proposed an innovation testing license and included the proposed process for FinTech firms to obtain a license.

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Iran: FinTech firms have formed FinTech A, a trade association representing the country’s FinTech community.

Australia: Standards Australia, “the nation’s peak nongovernment, not-for-profit Standards organization,” has published a road map for blockchain standards. It’s designed to “identify the various technical issues associated with developing, governing, and utilizing blockchains and distributed ledger technologies (DLT); identify blockchain and DLT use-cases relevant to Australia; and prioritize the order of standards development activities that could be undertaken in the development of blockchain standards by ISO/TC 307 blockchain and electronic distributed ledger technologies.” Development of the road map took four months and included a survey and standards workshop.03 08 17c

Even More Headlines

A new blockchain alliance, called the Enterprise Ethereum Alliance, was launched by JPMorgan Chase, BBVA, Santander, Accenture, CME Group, Microsoft, Intel, and others. Speaking of Ethereum, Grayscale Investments is planning to launch the first private fund focused on Ethereum Classic. Meanwhile, the 120-member Hyperledger group is close to releasing its first production-ready distributed ledger. India payments firm Paytm crossed 200 million wallet users last month as the company grew to unicorn status with a $200 million funding round led by Alibaba. Wells Fargo plans to unveil its robo-advisor, Intuitive Investor, later this year after initially rolling it out to employees in the first half of 2017. The announcement comes as JPMorgan Chase has expressed doubt concerning the robo-advisory space. And lastly, Accion Frontier Inclusion Fund has raised more than $140 million, becoming “the first global FinTech fund for the underserved.”


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