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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 22, 2016
   
   

FinTech in Focus is available via e-mail, arriving in your inbox every Tuesday. If you would prefer to receive our weekly highlights in your inbox rather than wait for us to tweet out the post, please sign up today by selecting the “FinTech in Focus Weekly E-Newsletter”. As always, please contact Jackson Mueller with any questions.

Domestic and International FinTech Developments
There was a flurry of policy and regulatory activity in Washington, D.C. recently. First, House Majority Leader Kevin McCarthy (R-CA) and Chief Deputy Whip Patrick McHenry (R-NC) launched an Innovation Initiative in Congress to remove government obstacles to innovation and bring government into the 21st century. “In Washington, we continue to force FinTech companies into regulatory categories that do not fit and burden them with regulations that make no sense,” McHenry said in prepared remarks. Second, the U.S. House Energy & Commerce Committee held a hearing as part of its continuing “Disruptor Series” focused on digital currency and blockchain technology. The hearing comes at a time when only a handful of lawmakers “have a working knowledge” of these subject matters, according to Rep. David Schweikert (R-AZ). Separately, the U.S. Comptroller Thomas Curry gave prepared remarks before the National Community Reinvestment Coalition focused on FinTech and the Community Reinvestment Act. Curry underscored his belief “that technology may not be a substitute for a physical presence in low- and moderate-income communities,” but also added that innovation “can help banks thrive by increasing branch efficiency and improving financial products and services.”

A Transatlantic Policy Working Group has been established “in order to foster an open, collaborative, and inclusive dialogue with respect to FinTech policy approaches and frameworks in the UK, U.S., and around the world.” The working group will be led by Innovate Finance and OnDeck, which, together with Financial Innovation Now, held a joint policy event on March 17 where Rep. Patrick McHenry (R-NC) and Alastair Lukies, chairman of Innovate Finance, gave opening remarks prior to a panel discussion covering the U.S. and UK’s approach to innovation in financial services, which the Milken Institute moderated. Separately, roughly a month after EY published a report on Switzerland as a FinTech hub, UBS, Credit Suisse, Swisscom, EY and others joined together last week to launch an international FinTech accelerator program to put Switzerland on the FinTech map. The launch comes around the same time that the Swiss Financial Market Supervisory Authority announced efforts to reduce regulatory burdens on FinTech firms. And speaking of efforts to promote FinTech, the Australian government has published a report, Backing Australian FinTech, which highlights a number of steps the government is taking to support the FinTech economy in the country, including the creation of a regulatory sandbox and the formation of a FinTech Advisory Group. The Australian Securities and Investments Commission also issued guidance covering robo-advice and marketplace lending.

To Keep an Ear Out For
The U.S. Comptroller of the Currency has indicated that it intends to publish a white paper covering FinTech firms and their relationships with banks in the near future. The U.S. Supreme Court has invited the Solicitor General to file a brief outlining U.S. views in the Madden vs. Midland Funding LLC case. This invitation does not mean that the court has accepted the case for review, but it does suggest that at least some of the justices are interested in the case which leads to a higher likelihood that the court will end up reviewing the case — good news for certain online marketplace lenders and broader securitization markets in general.

Update on Digital Currency and Blockchain Tech
R3 CEV has apparently opened up a new round of partnerships, with Japan-based SBI Holdings, becoming the first partner since the blockchain consortium closed its opening round back in December. The consortium now includes 43 partners. In other news, Overstock is reportedly planning to issue its own stock on the tØ blockchain platform. According to the press release, the offering “will allow Overstock.com shareholders to purchase Overstock.com blockchain or traditional preferred stock. The blockchain preferred stock will trade and settle exclusively through the t0.com platform and its alternative trading system (ATS).” Meanwhile, Ethereum has released Homestead — “the first production release of its software” — resulting in a “hard fork” to the Ethereum protocol and the introduction of Mist, an Ethereum wallet product. And finally, Bitfury Group released a white paper covering public blockchains, in particular, and the use of the technology in storing digital assets.

Online Finance Update
The first comprehensive study of the online alternative finance market in the Asia-Pacific region was released last week. The market grew by 323 percent over the last year, surpassing $100 billion. The report finds that China dominates the online alternative finance market, representing 99 percent of the total transaction volume — an incredible growth rate when three years ago the total volume of China’s market was less than $6 billion. The top three markets: China, Japan and Australia. While China may celebrate the findings, the China Banking Regulatory Commission (CBRC) continues in its efforts to reign in internet finance with Shang Fulin, Chairman of the CBRC, stating that the Commission “will strengthen regulation, intensify on-site inspections and step up administrative penalties. The CBRC will also step up oversight of P2P lending and launch special projects along with other government departments to address problems arisen from Internet finance.” Beyond the Asia Pacific region, Funding Circle’s SME Income Fund, originally reported on back in September, will begin making investments in small business loans in Germany, Spain and the Netherlands; the London Stock Exchange made Syndicate Room Ltd. a member of the exchange bringing with it a democratized process to investing in IPOs and private share placements; the U.S.-based Orchard Platform published a white paper covering stress testing of marketplace lenders; and the U.S. Financial Industry Regulatory Authority published a report covering effective practices for digital investment advice and “to remind broker-dealers of their obligations under FINRA rules as well as to share effective practices related to digital investment advice, including with respect to technology management, portfolio development and conflicts of interest mitigation.”

Incumbents Under Threat
A PWC report has found that global investment in FinTech could exceed $150 billion over the next three to five years, placing existing market players in jeopardy of losing business. More than 80 percent of respondents from traditional financial institutions “believe they are at risk of losing some of their business to stand-alone FinTech firms.” In fact, 95 percent of respondents from banks reported that part of their business “is at risk of being lost to standalone FinTech companies.” The fund transfer and payments industry will see the most pressure from FinTech firms, according to the report, with current incumbents of the view that they could lose up to 28 percent of their market share to FinTech firms. The report also focused on the importance of collaboration, with joint partnerships “the most widespread form of collaboration.” That said, nearly a quarter of survey respondents “do not liaise with FinTech companies at all.”

FinF 3.22.16

 

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