The intersection of fintech, legacy systems and digital currencies make this an interesting time for attorneys like Ernest Simons. A corporate and M&A attorney at Thompson Corburn, Simons works with fintechs, payment platforms and PE investors on transactions and product launches. Simons helps companies evaluate their payment systems, assisting with such questions as consolidating or diversifying processors and restructuring systems to improve margins and support global growth.
As technology evolves, it raises the question of whether decades-old regulations are still effective in governing usage. Simons said the answer begins with how one interprets the law’s intent – do they consider what the originalists had in mind, or should it be considered as a living, breathing document?
Simons: Regulations should evolve as industries innovate
Simons believes one must keep with the times. It’s unfair for entities to be victimized by laws written before the product or service they’ve designed was even envisioned. Financial institutions should be overseen by regulations that reflect how assets are currently managed.
Consider state money transmission regulations, which were created pre-Internet and geography-based. They were designed to govern activities within states and physical branches. That’s no longer the case, as the customer base isn’t border-bound. States will either update existing regulations or create new ones.
Does the potential of 50 states charting different paths make it hard to provide advice? Boil it down to Florida, California, Texas, New York, D.C. and the client’s home state. If plans pass go in New York and California, it’s a good sign.
Companies can also be structured to minimize exposure. Employment agreements can be designed in different ways. States with regulatory systems most conducive to different structures can be determined.
Simons said every financial institution must adapt to the reality of stablecoins.
“When you add in a different technology or new rail for things to run on, but you also have your legacy ones, you have to think about it from every permutation,” he said. Whether one’s involved in pure stablecoin exchanges or currency for stablecoins, every on and off ramp must be considered.
It’s a good sign of acceptance that the biggest institutions are exploring stablecoins.
“When you are a bank, you don’t want to offer products that mess with your capital and liquidity requirements,” Simons said. “If you had to keep track of that with something as volatile as Bitcoin, that’s almost impossible. But if you’re able to offer a new product or service that’s still pegged to the dollar, that doesn’t change a lot of your regulatory requirements; it’s just another stable asset.”
Those developing digital wallets and other tools involving money will make their lives easier by concentrating on software development and remaining non-custodial.
“That to me is the thing with digital wallets, keeping clients out of funds flow and giving them as little control (ideally no control) over funds as possible and finding the right bank partner,” Simons said.