Nunnenkamp said, “As a practical
matter all transactions where foreign
money is coming in must do this analysis
up-front,” especially with respect to TID
The Treasury Department said it
would publish separate proposed regulations regarding filing fees and penalties at
a later date.
Direct investment in U.S. companies
from China in particular has declined
dramatically since 2016, plunging from
more than $46.5 billion that year to about
$3.1 billion in 2019, not solely because of
CFIUS rules and U.S.-China trade battles, but also because of internal factors in
China, according to the Rhodium Group,
a research organization. Venture capital from China into U.S. companies also
declined last year to the smallest level since
2015, according to data from Refinitiv.
Signs of a possible thaw in U.S.-China
trade tensions recently have appeared,
however: The Treasury Department also
announced its intention to lift its designation of China as a currency manipulator.
And the two countries signed a “phase
one” compromise trade deal on Jan. 15.
In a statement, Treasury Secretary
Steven Mnuchin said of the CFIUS
rules: “These regulations strengthen
our national security and modernize the
investment review process and also maintain our nation’s open investment policy
by encouraging investment in American
businesses and workers, and by providing
clarity and certainty regarding the types
of transactions that are covered.”
TECH COMPANIES HAVEN’T BEEN SHY ABOUT
pushing into heavily regulated industries
such as health care. But while finance also
represents a new frontier of possibilities
for the deployment of technology, a dense
regulatory landscape may ultimately dictate that progress be slow and steady.
Whether it is Facebook exploring
digital currencies or Google planning
to introduce consumer bank accounts,
a recent article by CNBC pointed out
that many tech entities are steering clear
of crossing the line into regulated financial institution territory. Still, even those
lines can be difficult to navigate, while
the possibility of new regulations that
deal specifically with fintech may become
gridlocked in a battle waged between state
and federal regulators.
“I think that financial regulators are
trying to be accommodating, but I don’t
know how successful that’s been,” says Jeff
Hare, co-chair of DLA Piper’s financial,
regulatory and technology team.
Much of that difficulty may be inherent to banking’s long history. Per Hare,
banking is unlike other industries in that
it has been steadfastly traditional and
antiquated in the delivery of its services,
which technology by its very nature would
disrupt or upend. It’s an oil and water situation, a clash of old and new.
For example, tech companies look-
ing to become a money transmitter—a
business that provides payment instru-
ments or money transfer services—may
have to contend with independent licens-
ing processes in place across 49 states
(absent Montana). The alternative is the
risky proposition of bringing a technol-
ogy product operating under geographic
restrictions to a national audience.
“That’s the message out there, that it’s
a million-dollar investment to get licensed
and it’s a six to nine-month process. That’s
hard when folks are anxious to get to
market and folks are anxious to use their
resources in developing the product, not
on getting licenses. So there’s definitely
an impediment to technology,” Hare says.
Tech companies serious about taking
the leap into financial services have other
options—they just may not be very palat-
able from a business perspective. Obtain-
ing a federal or state banking charter
would free tech companies from certain
hurdles—such as having to worry about
money transmitter licenses in individual
states, for example—but with that trade-
off comes ownership restrictions, plus the
need for experienced bank employees.
Some tech companies opt to partner
with a bank instead, an arrangement that
still has to be carefully structured and
might cut back on profits. However, with
more tech companies pushing into the
finance space, could existing regulations
see updates or additions? Philip Feigen,
an office managing partner of Polsinelli,
thinks regulators don’t want to stifle the
growth of innovative technologies.
“I think the states are very interested in
people doing business in their states. They
are more apt to try and figure out ways to
work with businesses,” Feigen says.
But as with regulating other technologies, challenges continue to persist.
Feigen pointed out that imposing legal
definitions on technology can be difficult,
since there’s always something that either
falls outside the established parameters or
quickly evolves beyond what has already
been legally established.
Still, regulators have already made
attempts to streamline the licensing
obstacles confronting fintech companies,
but tensions between state and federal
authorities have resulted in a stalemate.
— FRANK READY
BANKING ON FINANCE IS RISKY BUSINESS FOR TECH