August 10, 2020

Volume X, Number 223

August 10, 2020

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Financial Services Innovation Act: The U.S. Wants a Sandbox Too

On September 22, 2016, Republican Congressman Patrick McHenry from North Carolina announced the introduction of H.R. 6118, the Financial Services Innovation Act of 2016 (the “Bill”). McHenry is the chief deputy whip and vice chairman of the House Financial Services Committee. According to the press release, the bill was introduced as part of the “Innovation Initiative” that McHenry co-launched earlier this year with House Majority Leader Kevin McCarthy, a fellow Republican from California. On October 19, 2016, the Bill was referred to the Subcommittee on Commodity Exchanges, Energy, and Credit. Before the Bill becomes law in the United States, it must be past by both chambers of Congress and signed by the President. With this Bill, America joins, among others, the United Kingdom, Hong Kong, and Malaysia in establishing FinTech regulatory sandboxes.

In its current form, the Bill takes a two-prong approach to constructing a regulatory sandbox. First, it creates a government-wide FinTech oversight regime, and second, it codifies an exclusive no-action relief mechanism for financial innovators. Under the first prong, the Bill requires federal regulators to adopt a mandate to encourage innovation in the financial industry through the creation of Financial Services Innovation Offices (“FSIOs”). Further, the Bill provides for the establishment of the FSIO Liaison Committee (“Committee”) comprised of the directors of each agency’s FSIO. The purpose of the Committee is to coordinate the regulation of companies seeking to bring new and innovative financial technologies to market (“Covered Persons”). Under the second prong, Covered Persons may petition regulators for an alternative compliance plan under an “enforceable compliance agreement,” that will provide the conditions under which the Covered Person may implement their financial innovation (including any regulatory waivers).

Copyright 2020 K & L GatesNational Law Review, Volume VI, Number 308


About this Author

Todd Gibson, Investment Management Group, Attorney, KL Gates Law Firm

Mr. Gibson is a member of the firm’s Investment Management Group, and his practice focuses primarily on international aspects of investment management services and globally-distributed fund products. His clients include U.S. and non-U.S. investment managers, U.S. broker/dealers, hedge funds, and private equity funds, and he acts as special U.S. counsel to funds organized under the European UCITS directive. Mr. Gibson also acts as fund counsel to U.S. registered investment advisers and U.S. mutual funds registered under the Investment Company Act of 1940. He also...

Tyler Kirk, Securities, Finance, Attorney, KL Gates Law Firm

Tyler Kirk is an associate in K&L Gates' Washington, D.C. office, and a member of the firm's Investment Management, Hedge Funds and Alternative Investments practice group. Mr. Kirk focuses his practice on U.S. federal and state securities laws, investment company governance and operations, investment advisers, family offices, regulatory investigations, and private securities litigation. He advises clients on the formation and regulation of public and private pooled investment vehicles, the regulation of investment advisers, fiduciary law, derivatives, investigations by financial regulators, as well as emerging regulatory and legislative policies impacting asset managers.

Additionally, Mr. Kirk pays particular attention to legal developments impacting asset managers in the areas of value-at-risk, cybersecurity, digital currencies, blockchain, FinTech, and anti-money laundering, using his experience as a former regulator to develop comprehensive compliance and response strategies for his clients. Mr. Kirk has counseled mutual funds, exchange traded funds, investment advisers, insurance companies, and privately held companies.