US shutdown impacts fintech market

US shutdown impacts fintech market

The ongoing shutdown of the US government, sparked by a disagreement over funding for border security, is starting to impinge on the US fintech industry, according to reports.

Chris Brummer, a professor at Georgetown Law, states that the federal budget impasse is slowing down dealmaking and fundraising, impairing supervision and could even threaten the pre-eminence of the US as a fintech superpower. 

The IPO market is currently the most affected thanks to a partial closure of the Securities and Exchanges Commission (SEC) which has been forced to furlough thousands of employees and stop reviewing corporate registration documents and applications.

High profile IPOs planned for this quarter from the likes of Uber, AirBnB and Lyft will likely be postponed but it is also affecting some of the smaller flotations from fintech startups via Regulation A+ that are often dubbed 'mini-IPOs' . As of last year the SEC is also repsonsible for overseeing intial coin offerings (ICO), a fundraising process favoured by technology startups and especially any crypto-related ventures. 

Brummer also states that online lenders have been adversely affected by the reduced manpower at the SEC given that they are unable to get permission from the agency to repackage their loans and sell them to investors on the open market. Ironically, states Brummer, these alternative lenders could have served as an emergency source of funds for furloughed federal employees who are likely to miss their next monthly paycheck. 

The licencing of online platforms trading digital assets as registered broker/dealers - a requirement under US regulations - is also on hold at present leaving many of these alternative trading platforms and intermediaries unsure of their legal status as market participants. Similar issues affect robo-advisers and bitcoin-rleated exchange traded funds.

Fintech policy is also on hold, states Brummer, due to the partical closure of the Commodity Futures Trading Commission. Among the postponed projects is a study of the use of the Ethereum network on virtual currencies. Meanwhile an advisory committee mandated to discuss cybersecurity and virtual currency policy has cancelled meetings. 

Not all parts of the market are affected though. Any body connected to the Federal Reserve is not subject to congressional funding and are therefore able to function as normal, as can the Financial Industry Regulatory Authority, the self-regulatory body for the crowdfunding market.

The shutdown is now into its 21st day making it the joint longest in US history. And while the various government agencies responsible for supervising many areas of the fintech market will face a sizeable administrative backlog once the government does reopen, the gretaer concern, writes Brummer, is the impact on the US standing in the highly competitive race to be the hub of choice for international fintechs. 

"With other regimes in Europe, and even Asia, working actively to add clarity and stronger protections, a prolonged halt to government functions could spell trouble for America’s competitiveness in the sector," states Brummer. 

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Comments: (2)

Doug Daggett
Doug Daggett - None at this time - MINNEAPOLIS 11 January, 2019, 19:01Be the first to give this comment the thumbs up 0 likes

I believe the professor has it wrong.  It's not the U.S. government shutdown that threatens the pre-eminence of the US as a fintech superpower.  Rather, it's the decades-long growing "over-reach" of government (i.e. "nanny-state) into nearly every aspect of American life.  It's time that ends. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 14 January, 2019, 15:06Be the first to give this comment the thumbs up 0 likes

For someone who lives outside the USA, USA seems least affected by government overreach, especially when it comes to payments, a major area of fintech e.g. no 2FA mandate for online payments, which is mandated by regulator in India and tends to kill conversion and thwart the adoption of digital payments. I guess the grass is always green on the other side!