NEW YORK—The counselor to the U.S. Treasury secretary last week offered a sneak peek of the department’s fourth and final report on the current financial regulatory system which calls for a new regulatory approach for fintechs.
The report, like the three that preceded it, will serve as a basis for regulatory reform directed at specific parts of the financial system, namely financial technology and innovation and nonbank financial systems. Previous reports looked at banks and credit unions, capital markets, and asset management and insurance, ThinkAdvisor noted.
Speaking at a fintech conference in New York City hosted by the Securities Industry and Financial Markets Association, Craig Phillips, counselor to the Treasury secretary, said the upcoming report, like the three before, will be pragmatic and offer specific actionable recommendations. He didn’t offer a time frame for its release, but ThinkAdvisor reported a source close to the Treasury told the publication it will likely be released sometime this summer.
“The financial services landscape has over 3,300 new fintech companies” and “over 20% of all personal loans” originate in the fintech marketplace, said Phillips.
Four Trends
This “explosion” of technological capabilities in the financial sector reflects four trends, said Phillips:
- Nonbank sector responding opportunistically
- Startups using a tech-enabled approach to develop and deliver product
- Innovative platforms partnering with traditional financial institutions
- Increasing scale of competitors, raising the stakes for traditional financial firms.
“Adapt or die” is the result, said Phillips.
“We need a new approach by regulators that permits experimentation for services and processes,” said Phillips, adding that it could include regulatory sandboxes. That regulatory structure typically involves some relaxation of regulatory requirements to allow startups or established firms to deploy new technology-based financial services for a limited time, without undergoing an extensive authorization process, ThinkAdvisor added.
Need to ‘Harmonize’
The current financial regulatory system is fragmented, consisting of multiple federal regulators along with state regulators, but “federal regulators are the most important,” said Phillips. He said state regulation should harmonize with federal regulation and federal regulators should harmonize among themselves. He also suggested that a federal charter could perhaps pre-empt a state charter, ThinkAdvisor reported.
“Cooperation among regulators” is a goal, he said, noting that aligning regulations could increase online lending flows.
“One of the challenges across regulators, is [that] all the information they collect becomes confidential supervisory info, which gets siloed and can’t be shared with the public or in some cases other regulators,” said Phillips. Another challenge, he said: the massive digitization of data, which raises issues about how to manage data and protect consumers at the same time.
He said the Treasury report, which surveyed many different companies, from fintech to nonbank companies to traditional firms, will also explore letting companies work across states and on a national basis as well as discussing vendor management rules and how they can be approved on timely basis, ThinkAdvisor said.