Regulating Fintech

The financial crisis of 2008 has led to dramatic changes in the way that finance is regulated: the Dodd-Frank Act imposed broad and systemic regulation on the industry on a level not seen since the New Deal. But the financial regulatory reforms enacted since the crisis have been premised on an outdated idea of what financial services look like and how they are provided. Regulation has failed to take into account the rise of financial technology (or "fintech") firms and the fundamental changes they have ushered in on a variety of fronts, from the way that banking works, to the way that capital is raised, even to the very form of money itself. These changes call for a wide-ranging reconceptualization of financial regulation in an era of technology-enabled finance. In particular, this Article argues that regulators' focus on preventing the risks associated with "too big to fail" institutions overlooks the conceptually distinct risks associated with small, decentralized financial markets. In many ways, these risks can be greater than those presented by large institutions because decentralized fintech markets are more vulnerable to adverse economic shocks, less transparent to regulators, and more likely to encourage excessively risky behavior by market participants. The Article concludes by sketching out a variety of regulatory responses that better correspond to fintech's particular risks and rewards.