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Just a few years ago, many people hadn't even heard of the financial technology industry. Now, it's one of the hottest sectors around.

There's no question 2017 was a big year for fintech, and leaders in the industry expect next year to see many critical developments as well.

Fintech lawyers and regulators anticipate federal agencies will provide more guidance on how to move forward in the coming year—whether that guidance is from the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission or the Office of the Comptroller of the Currency. 

The SEC

Ben Alden, general counsel at wealth management startup Betterment, thinks the SEC “took a thoughtful and measured approach to fintech developments in 2017.”

For starters, the sector in which his company operates received important insights from the SEC back in February with published guidance for automated advisers, or “robo advisers.” Alden called the release of the guidance “an important moment for our growing industry.”

“The guidance underscored robo-advisers' compatibility with existing regulations and laid out very reasonable items that all robo-advisers need to think about and address,” he noted. 

He also commended the SEC's recent actions involving cryptocurrency. The commission published the DAO report in July, asserting its jurisdiction and determining that digital assets of virtual organizations are considered securities. “From the DAO report, to chair [Jay] Clayton's statements [warning investors about] cryptocurrency, to enforcement actions aimed at flushing out fraud, the SEC has responded quickly without overreacting,” he said. 

In terms of what's ahead, Alden said, “I think we will continue to see the decentralization of finance as consumers turn away from intermediaries that don't add value. We're seeing this as money continues to migrate to passive funds and as new technologies like blockchain make existing processes more efficient.”

Jeff Alberts, partner at Pryor Cashman, agrees that the statement released last week by Clayton was reasonable, especially given all of the hype that initial coin offerings have caused. He predicted that next year, companies will continue to learn more about what the SEC expects from ICOs. Most of the guidance can be gleaned from future cases, he said.

“You're going to see more enforcement actions,” Alberts said. “There are many investors who do stupid, unsophisticated things. For those who don't understand what they're buying, they'll go to the SEC and say, 'I was cheated.' That's going to happen more.”

Alberts said it's hard to predict whether the SEC or CFTC will go after more companies in this area, but judging by the fact the SEC has already started to take action and it's a larger agency, it will likely be the most aggressive next year.

“They're both moving quickly,” he said. “Each case will shed new light.”

CFTC

In May, fintech companies were introduced to LabCFTC, a new initiative from the commission designed to “develop forward-looking initiatives focused on facilitating market-enhancing innovations and helping ensure that we can keep pace,” according to LabCFTC director Daniel Gorfine.

LabCFTC was created to give fintechs greater access to the commission—encouraging them to ask regulatory questions and soliciting feedback as to which regulations they find the most prohibitive.

Gorfine noted that this past year there was an increasing focus on fintech in various areas including capital markets, virtual currencies, distributed ledger technologies, machine learning and AI, cloud cybersecurity and regtech.

Gorfine said that while technology is driving efficiency gains for financial institutions, it “also raises new questions around security, scalability, governance and interoperability.”

Moving forward into 2018, he anticipates LabCFTC will continue to promote understanding and regulatory best practices regarding fintech innovation. “I expect other regulators will likewise continue to seek ways to understand emerging regulatory opportunities, challenges and risks,” he said.

OCC

Then there is, of course, the fate of the OCC's special purpose national bank charter, which was proposed in March. The charter, if finalized, could allow fintechs to apply to become national banks. 

The OCC has been sued twice by state banking regulators over the charter, which has not been finalized. The suit filed by the New York State Department of Financial Services was thrown out this month based on subject-matter jurisdiction. The other suit, filed by the Conference of State Bank Supervisors, is still pending.  

Fintechs, including personal finance startup Social Finance Inc., have been watching closely to see what will happen with the charter that could ease the regulatory process for fintech companies by allowing them to be supervised by one federal agency as opposed to various state banking regulators.

SoFi's general counsel Rob Lavet said that until a fintech charter is introduced, many lenders in fintech are still reliant upon state-by-state licensing. “In 2018, there will be an increased effort by both sides to make state processes more efficient for all parties, especially amidst a lack of clarity on the progress of the OCC's fintech charter,” he said.

SoFi applied in June for an industrial loan bank charter with the state of Utah and the Federal Deposit Insurance Corp. Payments company Square Inc. followed suit and applied for this type of loan in September.

Other fintechs like Varo Money Inc. opted to apply for a traditional bank charter through the OCC earlier this year. Lavet predicted 2018 will bring at least two or three other major fintech players applying for bank charters, “amplifying what is already a very loud discussion on the topic and elevating it above the merits of any one individual player and into a sector-wide consideration.”

Aside from any fintech charter, companies will continue to innovate, Lavet said.

“The trend toward more seamless consumer experiences powered by technology will accelerate, especially in point-of-sale consumer loans and in more subtle areas like income verification and directed transfer of funds for things like credit card payoffs,” he said. “It's a key area of differentiation for fintechs versus big banks.”