A Cry for Regulation
by: Lea Veran
“The easiest way to start a business to work within the finance sector is to look for a regulation that is coming down the pipe and develop a solution for that thing,” said Kirk Wylie, co-founder of Open Gamma, an open-source analytics and risk management platform for the financial services industry. “Anywhere you see new regulation is always a way for startups to make money.”
Regulation: here is a scary word for any startuper or growthhacker these years.
Except for the Fintech sector — gathering the emerging group of peer-to-peer lending, online currency exchanges, SMEs funding, etc. — in which the lack of regulation represents a major obstacle to scalability.
Unclear regulation, combined with a lengthy and costly approval process, have meant that many start-ups have employed a shoot-first, field-questions-from-regulators-later approach that risks confusing consumers and drawing harsher regulatory scrutiny down the road.
“Our view was…we’d better fix the problem now rather than wait for problems in the future” - Renaud Laplanche, Lending Club’s CEO and founder
With Renaud Laplanche at the helm, Lending Club, this country’s dominant peer-to-peer lending facilitator, just crossed the $4 billion mark in loans made. This long haul to success has though been filled with obstacles.
In 2008, the SEC determined that the interests that Lending Club was issuing to investors were “securities” which needed to be registered with the SEC, and required a temporary shut down of Lending Club while they underwent the registration process.
At this point, knowing that every individual loan would need to be registered with the SEC, many would have closed up shop and marked it a good effort.
Renaud Laplanche, confident in his agility, even to automate the SEC filing process, persevered and constructed the current model, which uses a shelf registration statement and files supplements for each loan that is madeThis model now allows ordinary investors and not only accredited investors to participate in the loans.
Fintech firms can dominate their piece of the regulatory puzzle by specialising in providing scalable solutions and leveraging agencies such as incubators, VCs and advisory institutions to assist their penetration of the market.
Editors Notes: This entry has been submitted to the FINTECH Book, the world’s 1st globally crowd-sourced book on FINTECH. Readers that enjoyed this innitial abstract are invited to share and like it so that it may be featured in a longer version that will published in the FINTECH Book due to be released November 2015.