What Does a Fintech Lawyer Do in New York City

A fintech lawyer will help structure your financial product and provide the necessary documentation required for regulatory and compliance issues. Products in the financial sector are highly regulated. A fintech lawyer will ensure your compliance with all data processing obligations, payments regulation, outsourcings, and cryptoasset trading. This includes privacy and data security involving website disclosures, terms of use, privacy policy, and cybersecurity.

A fintech lawyer will help you comply with all regulatory requirements to launch your financial product. These regulatory compliances may be required by the Federal Financial Institutions Examination Council (FFIEC), the Office of Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Consumer Financial Protection Bureau (CFPB), the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), the Department of Commerce, the Department of State, and state law and international law equivalents, which regulate issues regarding banking, securities, cybersecurity, privacy, data breaches, consumer protection, and anti-money laundering.

As we all know, Fintech is a combination of the words “financial” and “technology.” Today, more and more financial institutions, such as banks, are using technology to improve access to their banking and financial services, while more fintech start-ups are offering innovative products for the demanding consumer. Fintech includes digital lending and credit, mobile banking, mobile payments, and cryptocurrency and blockchain.

For example, with fintech, businesses can now engage in peer-to-peer lending, eliminating the role of the traditional financial institution. Your bank’s mobile apps allowing you to transact business online is also a product of fintech. Mobile apps, such as Venmo, that allow peer-to-peer payments have replaced traditional payment methods. Fintech has allowed all these new services to be available to the demanding consumer, at the same time, ensuring compliance with the many regulations that govern the financial services sector.

Entity Formation and Capitalization

Fintech startups need the right corporate structure from day one. The most common choice is a Delaware C-corporation, because Delaware corporate law is well developed and venture capital investors prefer it. The choice of entity affects taxation, governance, ability to raise capital, and exit strategy. A fintech lawyer helps draft the formation documents, the founders' agreement, the stock option plan, and the initial cap table. As the company raises money, the lawyer drafts the term sheets, the stock purchase agreements, the investors' rights agreements, and the related documents that come with venture financing rounds.

Federal Money Transmitter Licensing

Most fintech businesses that move money on behalf of users are subject to money transmission regulation. At the federal level, FinCEN requires registration as a money services business and ongoing compliance with the Bank Secrecy Act, including anti-money laundering (AML) and know-your-customer (KYC) requirements. Independently, almost every state requires a separate money transmitter license, each with its own application package, surety bond, capital requirement, and examination process. Getting licensed in all 50 states is a substantial project, typically taking 18 to 24 months and consuming significant legal fees. A fintech lawyer helps prioritize the states that matter most, prepares the applications, and shepherds them through state regulators.

Sponsorship and Banking-as-a-Service

Many fintech companies operate by partnering with a sponsor bank rather than becoming a bank themselves. The sponsor bank holds customer deposits, issues debit cards, and provides ACH and wire access; the fintech provides the customer experience, the marketing, and the front-end technology. The contractual relationship between fintech and bank is dense and increasingly scrutinized by regulators. The fintech lawyer negotiates the program agreements, the service level agreements, the indemnification provisions, the regulatory cooperation provisions, and the wind-down rights — all in a way that protects the fintech if the bank decides to exit the relationship.

Securities Law Issues

If a fintech company is offering investment products, tokens, or securities-like instruments, the federal securities laws come into play. Registration with the SEC under the Securities Act, exemptions such as Regulation D for accredited investors, Regulation A+ for small public offerings, and Regulation Crowdfunding for retail crowdfunding all have their own rules and limits. State blue-sky laws add another layer. Operating a securities-related fintech also requires consideration of broker-dealer registration with FINRA, investment adviser registration with the SEC or state regulators, and exchange registration in some cases. A fintech lawyer maps out which regulatory frameworks apply and ensures the company stays within their boundaries.

Crypto and Digital Asset Regulation

Cryptocurrency and digital asset businesses face an evolving regulatory landscape. The SEC has taken enforcement action against numerous token issuers and exchanges, arguing that many tokens are securities. The CFTC asserts jurisdiction over commodities and certain derivatives. FinCEN regulates crypto exchanges as money services businesses. The New York Department of Financial Services administers the BitLicense regime for virtual currency businesses operating in New York, which is one of the most stringent state-level frameworks in the country. The IRS treats crypto as property and has stepped up enforcement of tax reporting. Any fintech business touching crypto needs a lawyer who tracks all of these developments.

Consumer Protection

The Consumer Financial Protection Bureau (CFPB) enforces a broad set of consumer protection statutes that apply to fintech, including the Truth in Lending Act, the Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the umbrella prohibition on unfair, deceptive, or abusive acts or practices (UDAAP). State attorneys general also enforce parallel consumer protection laws. Marketing materials, disclosures, dispute-resolution procedures, and customer service practices all need to comply with these requirements. A small piece of misleading marketing copy can lead to a major enforcement action.

Privacy and Data Security

Fintech businesses handle some of the most sensitive personal information: identity documents, Social Security numbers, bank account information, transaction history, and increasingly biometric data. The Gramm-Leach-Bliley Act, the New York SHIELD Act, the California Consumer Privacy Act (CCPA), the California Privacy Rights Act (CPRA), and a growing number of state privacy laws all impose requirements on how this information is collected, stored, used, and disclosed. Internationally, the EU's GDPR applies to U.S. fintechs that process the data of EU residents. The fintech lawyer drafts privacy policies, builds data subject rights workflows, and prepares the company for breach response.

Cybersecurity Requirements

New York's Department of Financial Services adopted one of the country's most comprehensive cybersecurity regulations (23 NYCRR Part 500), which applies to most financial services entities licensed in New York. The regulation requires written cybersecurity programs, designated chief information security officers, regular penetration testing, multi-factor authentication, encryption of nonpublic information, third-party service provider security policies, incident response plans, and prompt notice to the Department of certain cybersecurity events. Compliance is checked through annual certifications and periodic examinations.

Anti-Money Laundering Programs

Any fintech business that holds funds or moves money must maintain a written AML program. The program typically includes customer identification, customer due diligence (including enhanced due diligence for higher-risk customers), ongoing monitoring, suspicious activity reporting, currency transaction reporting, and OFAC sanctions screening. The Bank Secrecy Act and FinCEN regulations impose detailed recordkeeping requirements. The cost of an effective AML program is substantial, but the cost of failing to have one is much higher: regulators have imposed multi-billion-dollar penalties on financial institutions for AML failures.

Intellectual Property

The technology behind a fintech is often the company's most valuable asset. Trade secrets, source code, algorithms, and customer data are all forms of intellectual property that need to be protected. Patents may be available for genuinely novel technical solutions; copyrights protect software code; trademarks protect brand names; and trade secret law protects information that is kept confidential. Employee invention assignment agreements, contractor work-for-hire provisions, and confidentiality agreements with partners all play a role in keeping IP secure.

Litigation and Enforcement Response

Successful fintech companies attract lawsuits and regulatory inquiries. Consumer class actions allege deceptive practices. Competitors sue over patents and trade secrets. Vendors and partners sue over contracts. Regulators send subpoenas, civil investigative demands, and exam letters. A fintech lawyer or law firm responds to these inquiries, defends litigation, and where necessary takes the offensive.

Mergers, Acquisitions, and Exits

The fintech sector has been one of the most active areas for M&A in recent years, with strategic buyers, private equity, and SPACs all participating. When a fintech is acquired or merges with another, the deal involves stock or asset purchase agreements, regulatory approvals (often including change-of-control filings with state money transmitter regulators), customer notice and consent issues, IP transfers, and employee retention arrangements. We help fintech founders and investors prepare for and execute these transactions on the best terms available.

Call Our Office

Aside from the financial products, a fintech law firm should be able to advise the client on other aspects of running a business, such as litigation, labor and employment, real estate, executive compensation, contracts and vendor management, revenue management and debt collection. Should you need assistance in establishing a fintech company or any other regulatory compliance issue, we, at the Law Offices of Albert Goodwin, are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].