Regulatory hurdles for the open source hardware bank?
There’s quite a bit of mainstream coverage on the creation of the Open Source Hardware Reserve Bank, which we covered before.
Wired magazine in particular offers a warning on possible regulatory hurdles:
Priya Ganapati:
“A promising idea it may be, but in this case the geeks are likely to face serious opposition from the financial regulators, says Paul Kedrosky, angel investor and a senior fellow at the Kauffman Foundation, which focuses on entrepreneurship and innovation. The Open Source Hardware Bank founders don’t have to flip the pages of history too much to see the fate of peer-to-peer lending ideas in the United States, points out Kedrosky.
Last year, major community lending startup Prosper was forced to shut down by the U.S. Securities and Exchange Commission for not registering with regulators.
“If I put money into a project and am offered some kind of return on a system-wide basis, that requires issuing a security,” says Kedrosky. “Which means the open source hardware guys will have to go through the same kind of securities registration as Prosper was forced to.”
Zopa’s Pitts agrees that the Open Source Hardware Bank needs to figure out how to navigate through the financial rules of the U.S. market. “These guys do not have a regulatory strategy and they need one,” he says.
The SEC regulations around peer-to-peer lending SEC issue aren’t cut and dry. Prosper, for instance, was in business for nearly three years and made $178 million in loans before the SEC intervened. With the open source hardware bank, says Pitts, all depends on the kind of promises and the system that is built. Zopa did not have any SEC related issues as it created a quasi-community lending model and used credit unions as intermediaries.”
March 21st, 2009 at 5:05 pm
There are a number of ways it could be done. First, there could be a foundation. A foundation could sponsor peer to peer lending as a economic development practice. Second, it could be done off shore with foundations (e.g. in Canada). My guess is that the SEC wants this sort of thing to happen. They won’t fight it much. Yes, such navigation needs to be watched, but that is standard corporate management. A well-governed foundation would be all over it.
March 21st, 2009 at 9:57 pm
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