As financial technology reshapes lending, payments, and investment, regulators face a difficult question: adapt existing rules or build new ones from scratch?

The Challenge of Regulatory Fit

Traditional financial regulation was designed for a world of brick-and-mortar institutions and paper-based transactions. Fintech disrupts both the products and the delivery channels that regulations were designed to govern.

A Three-Part Framework

When evaluating how existing law applies to a new fintech product, it helps to ask three questions:

  1. Function over form. Does this product perform the economic function of a regulated instrument, even if it uses novel technology?
  2. Consumer harm. Does the product create risks of the type that the underlying regulatory regime was meant to prevent?
  3. Systemic risk. Could widespread adoption of this product create risks for the financial system as a whole?

Implications for Practice

Lawyers advising fintech startups should encourage early regulatory engagement, not regulatory avoidance. The companies that have thrived long-term are those that built compliance into the product from the beginning.