The FinTech industry is undoubtedly a competitive one — never mind the cross-country rivalry. As digital currencies, like bitcoin, expand their reach and more people pay using their smartphone, there are concerns that the U.S. may fall behind to other leading countries, specifically the U.K, which is making strides in the space.
To make sure the U.S. doesn’t lose potential FinTech business opportunities to the U.K., Rep. Patrick McHenry (R-NC) introduced a new House bill today (Sept. 22), his second of the summer. The goal is to keep FinTech companies and innovation stateside. The bill is a direct aim against losing financial innovation to the U.K.’s growing “sandbox” regulatory program.
And already, FinTech firms are on board with the idea.
The U.K’s sandbox program allows firms to test new innovation, products and business ideas through a limited launch, sidestepping the full regulatory process. Since its launch in May, it has sought to expand the country’s Project Innovate, allowing the FinTech industry to collaborate with the government for long-term opportunities. Earlier this month, Hong Kong launched its own sandbox initiative.
“Definitely for it,” said Siddhartha Sharma, chief technology officer at Hedgeable. “From an entrepreneur's standpoint, it removes bureaucracy and regulation upfront, while gauging customer interest, and enables them to focus on product development.”
Should McHenry’s bill become a law, it would look similar to the U.K.’s sandbox concept by mandating that certain federal agencies — namely, the Federal Reserve Board, the Treasury Department and the Securities and Exchange Commission — each carve out an internal “Financial Services Innovation Office” for testing out new products and service.
With this bill, firms must prove to the regulator three main things: 1) their product or service serves a public interest; 2) it improves access to the industry; and 3) the product doesn’t pose a risk to both the financial system and consumers.
Related federal agencies would have 60 days to identify three, at minimum, areas for improvement or changes. This may also reduce time on the front end before any regulation missteps occur in the process.
While some agencies may currently have a similar program, McHenry’s bill would add another layer of data sharing and reporting to Congress over time. It would also force regulators to be more attuned and involved in the marketplace.
The “sandbox” approach is something appreciated by FinTech firms, despite having some reservations.
“The passage of the bill may take too long, and by that time, the FinTech ecosystems in other geographies may be too far ahead,” said Sharma. But he quickly added that, in the end, the consumer is the one who could really win.
“From a customer's standpoint, they get to test out and be a partner in the development of a product. Their feedback would be incorporated into the final product,” said Sharma. “Not only do they shape the future, they get educated about the amazing innovations that are happening.”
It may be a difficult bill to pass this year, and McHenry acknowledged this. That said, he said the conversation needed to start even if it’s passed onto the next Congress.