Securities Regulation for FinTech Startups - Priori

Securities Regulation for FinTech Startups

Startups in the financial technology sector understand all too well that local, state and federal securities regulation can serve as significant barriers to entry. When considering launching a “fintech” startup, you need to address compliance with securities regulation early on in order to avoid costly mistakes that have tripped others up.

Unfortunately, compliance with securities regulation for fintech startups is not so clear-cut. Many of the regulations that apply to these types of platforms and alternatives to traditional banking are still being developed. That makes it difficult for many early-stage fintech startups to know what is expected of them in terms of compliance. Through Priori’s vetted network of lawyers, you can connect with a securities lawyer who has fintech experience to understand any risks in your business model and ensure that you are in compliance with all applicable regulations.

Accredited Investors & Fintech Startups

FinTech platforms are revolutionizing the access that ordinary individuals have to investing in early stage startups. Unfortunately, this raises issues related to the requirements to be considered an accredited investor under the Securities Act of 1933. Fintech startups must ensure that they are able to check the net worth of potential investors and take care to not step over the line. Screening for accredited investors or ensuring that such an accreditation is not necessary before allowing users access must be written into fintech startups’ business models from the earliest stages.

Broker Dealer & Investment Adviser Licensing 

Other fintech startups act as intermediaries for investment, but this too requires strict adherence to the Securities Act of 1933. Since these give investors access to investments that are classified as “securities” under the 1933 Act, complex broker dealer and investment adviser licensing requirements must be adhered to. This raises the barriers to entry in the field, because if done incorrectly, your startup could face not just civil, but also criminal charges. That’s why a clear definition of your role in the investment process and an adherence to securities regulations that would be relevant at your stage in the investment process if you were traditional actor must be considered. 

Lending Laws

When considering loaning money to individuals whether as a creditor or within the investment process, lending laws come into the picture. Usually these laws are set at the state level, and they restrict thing including who you can lend to, how much you can lend and the interest rates charged to borrowers. Your fintech startup should take care to comply with lending laws that go hand in hand with securities regulations. 

Title IV of the JOBS Act & Regulation A+

Under Title IV of the JOBS Act, emerging enterprises can raise public capital more efficiently through crowdfunding. With these new Reg A+ offerings, more people can participate in early-stage investment and companies can raise capital with less regulatory burdens. For fintech startups, the rules announced in early 2015 will be vitally important when developing new platforms to take advantage of Regulation A+ offerings. It will be important for everyone within the fintech world to watch carefully as these rules are put into actual use.

So how do these Reg A+ offering platforms differ from current platforms that require accredited investors? They are similar, but they aren’t the same. The main difference is that Reg A+ platforms will need to be pre-screened and pre-approved. In addition, the regulations for who can participate will be much less stringent--which is not to say that they are less regulated. Investors will still be limited in how much they can invest and with whom. Fintech startups will be responsible with complying with these new regulations—and with no case law yet to guide them.

Securities Regulation for FinTech Startups a Moving Target 

When you have a fintech startup, you are inevitably navigating uncertain regulatory waters and legal gray areas. Since these startups are based on disruptive technologies and marketplaces, it isn’t always clear how old securities regulations will apply—especially since some have been around for almost a century. Fintech startups must be nimble in their compliance strategies and always stay up-to-date on the latest rulings, while being willing to take a step back and follow the newest regulations. For these reasons, having a seasoned securities lawyer on your team is critical if you are considering launching a fintech startup. 

Priori Pricing

Depending on the complexity of your needs, the cost of hiring a securities lawyer for your fintech startup can vary greatly. Hourly rates for Priori securities lawyers range from $225 to $450 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.


Is this a comprehensive review of everything I should consider in terms of securities regulations for my fintech startup? 

Unfortunately, no. Securities law is very complex, and it would be impossible to address all the issues you may face here. Even more importantly, the regulations that apply to these businesses are changing every day as the SEC and governments adapt to the technologies emerging out of the fintech world. In order to truly learn what compliance burden your startup may face, consult an experienced startup lawyer or corporate securities attorney about your specific needs.

How do state and local securities regulations apply to my fintech startup?

While most fintech platforms operate across the country, making federal securities law more important, your exact obligations under state and local-level securities regulations will depend on the state where you are operating. Consult your corporate securities attorney to learn exactly how you can ensure that you are in compliance with such regulations.

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