The newly formed US House Financial Services Committee’s Task Force on Financial Technology (Committee) recently held its first hearing, and it included some interesting perspectives from both US and UK regulators.
At “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation,” lawmakers heard testimony from representatives of the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC), the Conference of State Bank Supervisors (CSBS) and the United Kingdom’s Financial Conduct Authority (FCA).
These are useful meetings for Congress, regulators and the public. The Task Force hearing offered a wide range of perspectives on fintech regulation providing input for policy discussions.
OCC’s Chief Innovation Officer Beth Knickerbocker explained that the agency has been focused for the past four years on “responsible innovation,” balancing innovation with prudent risk management. Initiatives include the establishment of the OCC’s Office of Innovation as well as a Pilot Program to test innovative products, services and processes.
Knickerbocker also referenced the agency’s efforts with regard to special purpose national bank (SPNB) charters for fintechs, calling the OCC’s decision to consider such applications “the product of considerable research and extensive outreach with stakeholders.” To date, the agency has not received any “formal applications” for this type of charter, she testified, noting that litigation is ongoing.
Valerie Szczepanik, associate director of the Division of Corporation Finance and senior advisor for digital assets and innovation, shared with legislators the work being performed by the SEC’s Strategic Hub for Innovation and Financial Technology, or FinHub. The agency has focused “a significant amount of attention and resources” on digital assets and initial coin offerings, Szczepanik said.
The CSBS representative, Charles Clark, director of the Washington Department of Financial Institutions, provided a counterpoint to the OCC’s discussion of SPNB charters. Only Congress has the power to permit the agency to issue such charters to nonbanks, he said, and a federal fintech charter would “disrupt the market by picking winners and creating losers, drawing a handful of large, established entities and giving them a competitive advantage over new market entrants that have historically injected innovation into our financial system.”
Nonbank financial services are “a large part” of the state regulatory ecosystem, he noted, and state regulators are “actively involved in ongoing efforts to leverage technology and data as regulatory tools to transform state supervision.” State oversight permits a small company to enter the system and be competitive with an innovative idea, Clark added.
Finally, Christopher Woolard, a board member and director of strategy and competition for the FCA, offered an international perspective on fintech regulation from the UK. The agency established Project Innovate in 2014, launching a sandbox for firms to test innovative products and services in June 2016. Of the 110 participants, 80% went on to full operation in the market, he told the Task Force.
Future hearings will turn to issues such as the use of alternative data for loan underwriting and modifications, payment efficiency, and challenges to data privacy.