American law has struggled to accommodate the rise of fintech. The United States has labored under a division of regulatory authority between the state and federal governments designed for a financial landscape comprised of banks and large, systemically important shadow banks.
To catch up to the market, state and federal officials have undertaken a diverse array of initiatives. Numerous regulators have relied on the prevailing paradigm of the past century, seeking to extend its already stretched logic into the realm of fintech and exacerbating its many shortcomings in the process. But several regulatory initiatives of the past decade have broken with prior thinking and charted a different path. That path redefines the relative realms of the federal and state governments and promises a legal regime suited to the technological realities of twenty-first century finance.
This emergent paradigm—the New Fintech Federalism—constitutes a radical reversal of the prior division of authority between state and federal actors. Through both cooperative and unilateral initiatives, the states are increasingly adopting an entity-based approach rooted in interstate reciprocity that internalizes the benefits of jurisdictional competition and reduces the costs of redundant mandates. Meanwhile, by focusing on financial activities, the federal government is pursuing a consumer protection framework less prone to arbitrage and a view of prudential risk suited to the fragmentation of fintech.
This Article is the first to identify the New Fintech Federalism, examining how its disparate set of legal experiments could revolutionize U.S. financial regulation. It also details a statutory intervention that would promote the interests of entrepreneurs and consumer protection advocates alike by codifying this emergent approach. Far from jettisoning federalism, this Article’s proposed legislation would harness the distinctive strengths of the state and federal governments to bolster America’s economic vitality and global competitiveness.