With many tech startups having moved into highly regulated financial industries is the Zenefits admission an isolated instance of Silicon Valley not quite getting the compliance issues?
Alternative lending, for example, has been booming, with more than 100 startups doing consumer and small-business lending that the banks had pulled back from. This has been largely, but not entirely, unregulated turf, and one that the Treasury Department has been looking into since last summer. While alternative lenders aren’t subject to all the regulations of banking – and if they were they would disappear given the banks’ advantage of cheap capital from insured deposits – they still must comply with rules on marketing and collections, as well as the securities laws. It’s likely that additional regulation will be forthcoming once the Treasury completes its review. How the Zenefits scandal plays out in other fintech areas remains to be seen. But as funding tightens, it seems unlikely to be the only company that failed at compliance during the boom years.