Late last week, the U.S. Government Accountability Office (GAO) said that financial regulators should look more closely at the role of non-bank tech companies in the small business (SMB) lending and consumer lending markets.
The GAO said it had seen — through interviews with 11 FinTech firms — loan volume grow by sevenfold, while collaborative efforts with banks continued to grow from 2013 to 2017. Amid that growth, many of those lenders stated they have been using alternative data in tandem with what might be termed “traditional” information as they make credit decisions.
Such alternative data, said the GAO, could pose risk to such lending decisions. Those interviewed by the GAO also said that guidelines would be of help in making sure lending is done efficiently.
“The Bureau of Consumer Financial Protection (BCFP) and federal banking regulators have monitored FinTech lenders’ use of alternative data by collecting information and developing reports on alternative data,” said the GAO, as noted in media coverage this past week. “But they have not provided lenders and banks with specific guidance on using the data in underwriting. For example, BCFP’s fair lending examination procedures and the banking regulators’ third-party guidance on risk do not clearly communicate the agencies’ views on the appropriate use of alternative data.”
Of those surveyed, said the GAO, nine of the 11 said that regulatory uncertainty has been a hurdle in credit expansion. According to the banks that have linked with FinTech firms, such guidelines would help relationships between the parties.
“GAO recommends that BCFP and the federal banking regulators communicate in writing to FinTech lenders and banks that partner with FinTech lenders, respectively, on the appropriate use of alternative data in the underwriting process. The agencies each stated that they plan to take action to address GAO’s recommendations,” reports said.
Sandboxes, Gathering Steam
Separately, the Securities and Exchange Board of India (SEBI) is in the midst of plans for a “sandbox” that will help boost FinTech efforts for capital markets, as reported by The Hindu. The news outlet quoted SEBI Chairman Ajay Tyagi late last month that blockchain may pose challenges for exchanges and financial firms.
“We will come out with a sandbox policy,” he said at a conference in India. “We are examining whether any changes in laws are required in terms of its dispensation, which may be needed when you try to have a sandbox and allow an activity which otherwise needs registration that the Act may not provide.”
Included in that movement toward tech in capital markets, he said that could include blockchain and artificial intelligence (AI).
Closer to home, in Wyoming, a bill has debuted in the state legislature to create a FinTech sandbox.
The bill, titled the “Financial Technology Sandbox Act,” was introduced as 2019 dawned, and will allow new financial products to be tested in the state. The laws tied to finance and technology need to be updated, according to the bill, which went on to state that “financial technology innovators require a supervised, flexible regulatory sandbox to test new products and services using waivers of specified statutes and rules under defined conditions.”
In addition, the legislation would “make an innovative financial product or service available to consumers during a sandbox period through a waiver of existing statutory and rule requirements, or portions thereof, by the commissioner or secretary.”
According to the reports, Medici Land Governance, a blockchain subsidiary of online retailer Overstock.com, has signed a Memorandum of Understanding (MOU) with Teton County, Wyoming to develop a blockchain-based land records and information platform this year.