A History of Fintech and Regulation: From American Incorporation to Cryptocurrency and Crowdfunding. 2022. Seth C. Oranbourg. Cambridge University Press.

In A History of Fintech and Regulation: From American Incorporation to Cryptocurrency and Crowdfunding, Seth C. Oranbourg highlights recent changes in the world of finance by exploring the role of technology within it, including complex phenomena such as mutual funds, cryptocurrencies, and the stock market. The chapters begin with a historical analogy and basic principles before describing complex digital investment strategies and instruments. Readers will gain an understanding of key concepts in financial regulation, including how law and regulation have prevented some financial crises while facilitating others. The author concludes with ideas about the evolution of finance and how the law should respond. The book should appeal to specialists and generalists who want to learn more about regulation, finance and economics, business and law.

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Oranburg, a legal scholar and professor at the University of New Hampshire’s Franklin Pierce School of Law, provides a broad overview of policy and financial market initiatives to address inherent market issues resulting from regulation. In all the chapters of the book, the author develops his vision of the evolution of the financial markets and the way in which investors and regulators have shaped these evolutions. A consistent theme throughout the book is the division of the history of American corporate finance into three distinct eras.

The first era began with the ratification of the Constitution in the 1790s and ended with the Great Depression in the 1930s. The second era began with the Securities Act of 1933 and ended with the Great Recession of 2007-2009. Finally, the third era began with the emergence of bitcoin in 2008 and continues to this day. The author’s fundamental view is that throughout history, technical developments fostering financial opportunity have been channeled through “major players” – i.e. wealthy investors and regulators – to benefit the few rather than the many. He describes recent developments such as the push towards cryptocurrency investments as the result of small investors desperately seeking higher returns. This idea, however, ignores the wide range of investments already available to the public and does not expand on the excessive risk taking of investors in the financial markets.

The book describes the limited regulation of “bucket shops” in the second half of the 19th century, where small investors driven by the innovation of tickers played the stock market. A bucket shop is a physical location, usually in an office building, designed to resemble a high-end brokerage firm. These institutions, often run by fraudulent owners, put pressure on broker fees and ownership restrictions, contributing to a large increase in share ownership in the 1920s.

This growing involvement in stock market speculation helped fuel the financial excesses of the 1920s. With the crash and severe economic downturn that followed in the 1930s, regulation turned to limiting the sources of these excesses and this instability. New Deal-era regulations are presented as moves to disenfranchise investors, especially retail investors. This dynamic then set the scene for the past few decades, in which markets are dominated by privileged investors, such as angels and startups.

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In summary, the author urges us not always to seek to create a new federal agency in response to what the next crisis will be, but rather to think about alternatives that can protect investors without scaring them away. In our current third era, where small investors can easily choose to invest in unregulated assets, too much regulation can be dangerous, just as too little regulation can be. We should think creatively about other ways to design optimal regulations so that the future of fintech leads to a safer economy with more balanced financial opportunities for all.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.

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Mark K. Bhasin, CFA

Mark K. Bhasin, CFA, is Senior Vice President of Basis Investment Group, LLC, New York, and Adjunct Associate Professor at New York University Stern School of Business.

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