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Fintech companies use digital technologies to innovate in areas such as financial advisory and robo-advisory services, digital currency, lending, and mobile payment providers. Traditional financial services companies have indicated high levels of interest in fintech startups. Certain fintech sectors have challenged traditional regulatory frameworks, and regulators are responding in new and complex ways.

Digital Asset Regulation

ICO issuers should be aware of the significant SEC regulatory action has occurred in the digital asset space. Digital assets are a broad category of digital tokens that are issued in ICOs, or initial coin offerings. Within the last three years, the SEC has issued a number of statements concerning the cryptocurrency environment, discussing both enforcement priorities and regulatory trends. Companies considering an ICO must be aware of state and federal regulatory frameworks, including guidance put out by the SEC, the IRS, FINRA, and the CFTC.

Depending on the business activities of your company, different regulatory frameworks may be applicable. Federal law regulates cryptocurrencies under a number of different regulatory schemes, including using the Commodity Exchange Act and FinCEN. The FTC is involved in the regulating of mobile payments, focusing on consumer protection and privacy issues. Depending on the structure and content of your business activities, Federal Bank Secrecy Act principles or anti-money laundering practices may apply.

On the state level, virtual currency regulation is in its infancy. Model legislation introduced in 2017 (the Regulation of Virtual Currency Businesses Act) has not yet been adopted on a widespread basis, though it does provide insight into the types of concerns surfacing at the state level. In New York state, the BitLicense regulatory framework requires companies issuing a virtual currency or performing certain exchange services to apply for a BitLicense from the New York State Department of Financial Services.

Blockchain-Oriented Companies

Blockchain technology is at the heart of a number of revolutionary fintech applications. Blockchain’s distributed ledger technology is used in areas including cryptocurrency, smart contracts, and lending. Blockchain-oriented companies that are involved in consumer financial services must be in compliance with CFPB rules. Entities regulated by the Federal Reserve or the FDIC must also be aware of certain regulations relevant to their status as regulated firms before adopting blockchain technology. Certain state laws apply, and legislative concerns vary state to state.

Initial Coin Offerings

In an initial coin offering (“ICO”), a company will issue digital coins (also known as tokens) to investors in a manner similar to that of a company issuing equity in an initial public offering. Companies will use ICOs as a capital raising mechanism. There has been significant development in the regulatory frameworks governing ICOs. The SEC and the CFTC have indicated that both agencies are interested in expanding the regulations covering this capital raising pathway. If your company intends to utilize ICOs as a capital-raising tool, we can advise you on current trends so that your company can make appropriate strategic decisions.

Legal Services

We offer the following services, including:

  • Partnerships with regulated financial institutions,
  • Navigating regulatory frameworks applicable to your business activities,
  • Monitoring state and federal regulatory changes,
  • Investor relations, and
  • Strategy consultation.

Navigation Guide

  • Digital Asset Regulation
  • Blockchain-Oriented Companies
  • Initial Coin Offerings
  • Legal Services

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