Last week, on the anniversary of the JOBS Act of 2012, Republican members of the Senate Banking Committee pitched a new legislative initiative to support entrepreneurship, access to capital, and helping retail investors. The JOBS Act of 2012 legalized online capital formation. The JOBS Act 4.0 is an amalgam of bills designed to take the initiative a step further – more jobs and economic growth.
Championed by Senator Pat Toomey, ranking Republican on the Senate Banking Committee, prior to proposing the JOBS Act 4.0, the Senator solicited public input on potential policy to help smaller businesses, fuel prosperity while encouraging innovation. According to the Senate Banking website, 33 individuals and entities provided commentary and recommendations on regulatory or legislative change.
Below is a sampling of some of the recommendations. If you are curious, you may review all of them here.
OTC Markets, a marketplace for securities that positions itself as a venture market and a home for international firms, focused on improvements to Reg A+. OTC Markets told Senate Republicans to “improve and support the adoption of Regulation A.” OTC Markets requested that Reg A+ be amended to allow for at-the-market offerings as well as approving secondary transactions which are exempt from state Blue Sky Review. Currently, secondary transactions must endure a costly state review thus impeding these transactions.
The National Venture Capital Association (NVCA) told policymakers to “implement an effective blockchain regulatory regime.”
“A number of NVCA members believe that blockchain holds the promise to be the next transformative industry, provided the policy environment allows entrepreneurs to fully experiment with the technology in the U.S. The current discussions around blockchain have many similarities to the regulatory policy conversations that occurred during the rise of previous generations of new industries, such as biotechnology and the commercialization of the Internet. In each of these cases, doubts amongst policymakers proliferated and policy proposals were considered that could have prevented American leadership before the full promise of the technology was realized. Fortunately, cooler heads prevailed, and as a result, the U.S. has been the unquestioned global leader in technological innovation since World War II.”
David R. Burton and Norbert J. Michel of the Heritage Foundation submitted a 112-page document stating that their feedback represents an “opportunity to markedly strengthen economic growth, foster entrepreneurship, enhance economic opportunity, improve productivity, increase the wages of ordinary Americans, regain prosperity, democratize access to capital and reduce the cronyism in the economy.”
The two policy experts recommend that policymakers “establish a fundamentally reformed, simplified and rationalized securities disclosure system with three basic categories of firm (private firms, quasi-public or venture firms and public firms), reasonable, scaled disclosure requirements and specified secondary markets.” Public markets must be improved to simplify the process. There is a lot to unpack here but Heritage hits many of the top line policy needs.
CrowdCheck, a Fintech active in the legal aspects of securities crowdfunding, was briefer in telling policymakers to make Reg A+ a true alternative to a full-blown registration of securities. In brief, make the Reg A+ “mini IPO” supersized so a scaled process for larger firms a Reg A+ 4.0, perhaps.
The Center for American Entrepreneurship (CAE) seems to agree with CrowdCheck that Reg A+ is an exemption with greater potential. CAE recommends that Reg A+ funding cap be increased to at least $100 million, if not higher. CAE also advocates for a new federal tax credit for angel investors. CAE notes that even though angel investors typically commit a smaller dollar amount than VCs the amount of capital dedicated to early-stage firms rivals that of venture capital reporting that angels invested a whopping $24 billion to 63,730 individual firms in 2019. CAE believes that a federal tax credit equal to 25% of investments in startups would lower investment risk to angels by providing an immediate return.
CATO Institute, a free market-focused think tank, believes that the definition of an accredited investor should be amended to include all investors advised by an investment professional. Noting that being wealthy is no proxy for financial sophistication, this simple adjustment will open up an enormous market that is currently the realm of the very wealthy, having disenfranchised the vast majority of the population. The current leadership at the SEC appears to want to make the accredited investor definition even more exclusive – thus undermining small investors even further.
Financial Innovation Now (FIN), the lobbyist that represents the Fintech aspirations of firms like Apple, Amazon, PayPal, and more, believes that data protection legislation should “raise the bar for everyone.”
“FIN supports Congressional efforts to enact comprehensive privacy and data breach legislation. Such legislation should pre-empt state laws; preserve data sharing necessary for enhanced security, authentication and fraud prevention; distinguish direct consumer services (“controllers”) from enterprise services (“processors”) acting on behalf of other businesses; and update relevant provisions of existing statutes to ensure consistent consumer expectations across many different services, or avoid duplicative coverage. Finally, Congress should assess whether prudential regulators are appropriate overseers of industry privacy and security, and consider unifying such oversight through comprehensive legislation.”
Leading Open Banking provider Plaid says “account connectivity is the infrastructure backbone underlying much of that Fintech wave.” Stating that they do not believe that a European approach, like PSD2, is NOT necessary, Plaid still wants more clarity on data held by financial services and consumer control.
“Policymakers should prioritize a holistic regulatory framework to support secure data access, protect privacy and put consumers in control of their own data.”
The Securities Industry and Financial Markets Association (SIFMA) agrees with Plaid that consumer control over data is key. Data aggregation services need greater oversight.
“Data aggregation serves many valuable functions that consumers demand, but such activities are not without risk. At the forefront, the secure transfer of information between financial institutions, data aggregators, and permissioned parties is critical to ensure that customer financial information is not compromised. Currently, data aggregators collect personal financial information from consumers either through a technology protocol such as an application programming interface (API) or by screen-scraping the account information from financial institutions’ websites. The latter method raises more privacy and security risks for consumers and financial institutions.”
An industry standard should be created that aims to reduce associated risks, SIFMA states.
There are a lot of good ideas with many that should be pursued immediately by Congress. Unfortunately, the exceptionally partisan nature of Congress probably means little progress – at least in the near term. Democrats lean toward investor protection at all costs and Republicans tend towards supporting entrepreneurship and innovation as being the backbone of the country. But some of the recommendations should be able to garner bipartisan support.