Tech Entrepreneurs to Face More Regulatory Scrutiny in 2020

When Facebook CEO Mark Zuckerberg testified before Congress last month, he claimed that Libra as a global currency would solve major problems including banking the unbanked, lowering the costs of international payments and speeding up transactions. However, most politicians in the U.S. and abroad are resisting Facebook’s proposed payment system, calling it a threat to national sovereignty, among other grievances.

Only 17 percent of Americans trust the government in Washington, according to Pew Research Center. So who, in turn, do politicians (and their powerful lobbies) mistrust or oppose? Despite the benefits of their technology, the answer is disruptors and innovators. But the good news for compliance-minded entrepreneurs is that the Trump Administration has significantly deregulated the federal government, issuing 35-40 percent fewer new rules than its predecessors while eliminating decades-old regulations across industries. However, red tape still gets in the way of business owners and technologists.Complying with federal, state or local statutes isn’t always clearcut. An example is the $6 trillion food industry, for which federal, state and local agencies often set contradictory rules and code violations that are seemingly impossible to resolve. One real-world example that’ll leave you scratching your head: While the Food and Drug Administration (FDA) requires the doors of food establishments to swing inside, the Department of Agriculture requires those same doors to swing outside. One government, two rules. Each agency requires code violations to be fixed within 30 days, lest entrepreneurs face thousands of dollars in fines.

Bad rules put small businesses at a disadvantage because they don’t typically have the army of lawyers that Fortune 500 companies possess. “That 100 hours that I work per week, I estimate that I spend 36 [hours] on compliance issues alone,” says Joseph Semprevivo, president of Joseph’s Lite Cookies, in a PragerU video. “This keeps me away from activities that would help me grow my business.”

The global regulation technology (RegTech) market is expected to grow to $12.3 billion by 2023, representing an annual growth rate of 23.5 percent, according to ResearchandMarkets.com. RegTech eases the burdens and costs of compliance in areas like money laundering, know-your-customer and data privacy.

Federal regulations cost Americans nearly $2 trillion annually, according to Competitive Enterprise Institute. When it comes to payments and transactions, tech ventures are working to lower compliance costs via smart-contracts technology, coding compliance directly into the technologies they build. Boston-based Algorand has provided technology that makes a number of financial exchanges more efficient and low cost while also providing features and partnerships that solve for compliance and regulation. This technology allows fintech and blockchain entrepreneurs to follow compliance requirements such as whitelists, geofencing, quarantine and force-transfers of assets by directly hard coding these elements into their projects. It's never been more critical to respect and respond to international regulation. And now, by leveraging this new technology, it's finally cheaper and easier. 

Like choosing the direction of swinging doors, finance regulators will need to pass appropriate measures that encourage innovation and make it easy for the ecosystem to comply with regulatory and reporting requirements. Here’s one good place to start: the classification of cryptocurrencies for tax purposes. The IRS classifies cryptos as property for tax purposes, which means owners must account for capital gains or losses on each and every transaction. The CFTC, however, views cryptos as commodities.