In 2018, United States venture capital firms invested over $10.5 billion in FinTech firms across 1,042 deals. And of the 48 FinTech ‘unicorns’ valued at over $1 billion, the US is home to 28 of them, spanning the gamut of financial services including payments, online lending, robo-advice, insurance and digital asset financial products, with many services being provided on mobile platforms.
As the largest financial services market in the world, budding FinTech businesses looking to expand its footprint to the United States may find that the move comes with many benefits, including support for capital raising, access to one of the world’s deepest talent pools and significant market opportunities. However, international businesses entering the US market can find it daunting due in large part to the country’s complex, developing regulatory framework.
FinTech firms in the US are not subject to a FinTech-specific regulatory framework by any single federal or state regulator. FinTech firms may be subject to a number of federal and state laws and regulations, as well as licensing and registration requirements based on their activities. As a result, a single FinTech business may be subject to oversight from a multitude of federal and state regulators, which can lead to regulatory uncertainty and significant compliance burdens. Although state and federal regulators have taken steps to clarify how their respective regulatory regimes may apply to certain FinTech activities, entities should be aware of all the regulatory frameworks they are subject to in order to avoid potential pitfalls as they expand.
Beyond financial regulations, there are other pertinent legal questions that FinTech businesses with their eye on the US market should also be asking. Will the company have a physical presence in the US and where will their headquarters be based? Will the company be fundraising in the United States? What types of activities will the new entity be performing? How will this entity be governed? What is more important for the entity—flexibility or certainty? How many and what type of employees does the entity expect to have over time? Such questions will be helpful in determining the entity’s structure and state of incorporation—two key requirements for setting up in the US.
Our new guide, ‘Entering the US Market: A Guide for FinTech Firms’ provides a comprehensive overview of the many legal and regulatory questions that FinTech businesses need to navigate. It spans from immigration and employment law considerations to digital asset regulations, data privacy, intellectual property protections and tax guidelines. Among other things, the guide covers:
- The various regulatory frameworks applicable to FinTech firms and their related activities;
- Threshold questions for setting up in the US;
- Immigration and work status requirements for employees;
- Recruiting, human resources and US employment law;
- Types of insurance that a FinTech firm may need to acquire;
- Various government support programs available to FinTech firms;
- Accelerator programs and innovation labs;
- Coworking spaces and office leasing;
- US tax law considerations for international corporations;
- Types of financing available to FinTech firms and types of investors;
- Digital banking oversight and regulation of nonbank financial services business activities;
- Regulatory frameworks applicable to digital assets and tokenization;
- Areas of focus in US data protection laws;
- Methods for protecting intellectual property;
- Broker-dealer registration requirements; and
- Regulation of investment advisers.
This post comes to us from Shearman & Sterling.