Laws and Regulations Laid Down by the U.S. for Fintech Companies
The U.S. government generally supports the Fintech companies and all their innovations. But it heavily regulates the financial products and services that are provided to its customers by Fintech companies. FinTech businesses in the U.S. are subjected to regulation both at the federal as well as state levels. Before understanding the laws and regulations laid down by the U.S for Fintech companies, let us know what Fintech companies are?
What are Fintech Companies?
FinTech refers to any kind of business that uses technology to enhance financial services and processes. Starting from mobile banking services, insurance to assisting with investment, Fintech companies continue to expand in the coming years.
Today, fintech companies are empowering consumers to take charge of their respective financial lives, leading to greater financial literacy. The growth of Fintech in the covid phase has been astonishing as it has given some good opportunities to the small players to compete with other traditional banks as well as financial institutions.
As Fintech companies are growing, so do the concerns regarding cybersecurity in the Fintech industry. This has led to many countries laying down several laws and regulations to protect the customers’ interests.
Laws and Regulations in the U.S. for Fintech Companies
The main goal of regulating fintech companies in the U.S. is to make the industry less vulnerable to attacks from malicious users. In most cases, the legal framework aims to calculate and prevent the use of financial technology tools for illegal activities, thus protecting service providers and users. Let us talk about laws and regulations in the U.S. for Fintech companies.
KYC Compliance
KYC requirement is being made mandatory to identify the counterplay before conducting any kind of financial transaction. The requirement involves obtaining complete information about the counter parties’ legal entities and any kind of individual business transactions. Such compliance has been introduced in order to prevent money fraud, tax evasion, and terrorist financing.
Digital Signature Certificate
Digital signature certificates are introduced by the U.S. legislation to identify, certify, and validate the certificate holder’s identity. It acts as a secure digital key and contains data about the user’s name, E-mail address, pin code, and the name of the certifying authority. It is being mandated as 90% of the public services happen online.
AML Compliance
The AML compliance involves the areas of counteraction to the legalization of crime and terrorist financing proceeds. It also includes developing documents and procedures that ensure compliance with the company’s activities with current legislation and tries to combat fraud and corruption. It has been made mandatory for companies that made partnerships with banks to perform due diligence before starting a fintech Partnership.
Formal I.P. Rights
Fintech companies not only take care of the delivery of the financial services but also sees the development, licensing, and deployment of the technology solutions. The Federal Government has made compliance to establish the I.P. rights and sees the licensing of intellectual property that usually involves a mixture of federal and state law.
Consumer Rights
The Consumer Financial Protection Bureau was created as a responsible body that will supervise the range of financial services to comply with the federal consumer financial laws. Fintech companies are issued regulations to implement these laws and take action to enforce them.
Federal Deposit Insurance Company
The FDIC or Federal Deposit Insurance Company ensures that all banking transactions, deposits, and services are safe. Any fintech company has to work with FDIC and comply with its regulations to operate in the U.S.
Custody of Crypto Assets
There have been many ongoing rules that are being made about the custody of crypto-assets. However, only a registered broker dealer is allowed or permitted under the U.S. regulations to carry deals regarding the crypto assets.
Licensing and Registration
Generally speaking, if any domestic or foreign entity seeks to carry out regulated activities in a U.S. jurisdiction, it must maintain the appropriate license or registration, even if the entity has been granted the same or similar license in another jurisdiction or country.
Digital Onboarding
Fintech companies have been able to achieve staggering growth in the number of customers they have in relatively short time frames. While digital onboarding poses numerous risks, regulators in the United States acknowledge the benefits of providing access to innovative products and services.
Licensing and Marketing
Federal and state regulatory agencies have made it clear in regulations, guidance, and enforcement actions that they pay less attention to the delivery channels of fintech services and pay more attention to core activities of Fintech companies, that is, payments to small businesses, international payments, etc.
Takeaway
Regulatory framework and a patchwork of evolving legal frameworks continue to impact the evolution of Fintech companies and other digital assets in the United States.
Though blockchain, digital payments, Robo advisors, digital banks, budgeting apps have opened the door to a more efficient financial world with reduced costs and improved transparency, fintech companies still need to comply with the laws and regulations laid down by the U.S.
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