FinTech Regulation in the United States: Past, Present, and Future

Abstract

Research on regulating emerging financial technologies (``FinTech") has been siloed to individual branches. Instead, I present a high-level view of various FinTech branches and analyze the economic incentives of each. By focusing on the dynamics and parallels between the branches, I offer new insights for optimal regulation that balances the costs and benefits as use cases expand. DeFi, which combines advances from the AI and blockchain branches, reduces the cost of coordinating complex financial services. Yet the efficiency gains intertwine with potential legal risks associated with liability, financial crime, dispute resolution, jurisdiction, and taxes. To ensure financial stability, effective regulatory solutions include adapted definitions and safe harbors, regulatory sandboxes, self-regulatory organizations, and/or policing misleading characterizations (e.g., regarding the extent of decentralization or agreed to data uses).

Keywords: Regulation, Rules, Securities and Exchange Commission, Commodity Futures Trading Commission, FinTech, Cryptocurrency, Tokens, Blockchain, Decentralized Finance, DeFi, Decentralized Autonomous Organizations, DAOs, Automated decision-making, Artificial Intelligence, Big Data, Data Mining, Privacy

JEL Classification: K22, K23, K24, G23, G28, G38, O38