Regulation

Treasury Finds Promise In, Urges Regulation Across, FinTech Landscape

It was no surprise that FinTech dominated regulatory headlines this past week, with a Treasury report that helped set the stage for a sea change in how these financial upstarts might be both governed and cultivated.

The report urged regulation that would standardize efforts across these tech upstarts, with an eye on new services and the way data is collected and stored.

Last Tuesday (July 31) marked the debut of a report from the Department of the Treasury that looks to have federal regulations, combined with laws at the state level, as well as data breach protections set in place to help foster FinTech growth. The report bows under the byline of Treasury Secretary Steven Mnuchin as a response to the Trump administration’s drive to establish core principles that can govern the financial system overall. As reported, financing FinTechs has been enthusiastic, touching $22 billion in 2017 — up 13 times from 2010.

Yet, growth could be spurred in part with the removal of what have been termed legal and regulatory uncertainties. The barriers here would be eased with some standardization of data sharing and security measures. In addition, the Treasury report reccommended that there should be an effort to develop digital identity, and artificial intelligence, machine learning and cloud technology should be promoted.

As for data breaches, the Treasury recommends that Congress enact data security and breach notification efforts nationwide — currently, only 13 states have such laws. The national mandates, once enacted, would of course pre-empt state laws. As for the states themselves, commented Treasury, they should “harmonize” money transmitter requirements that stretch across licensing and supervisory efforts. The report also calls for the Office of the Comptroller of the Currency (OCC) to allow FinTech firms to operate across every state, taking a page from the way banks operate. After the Treasury report debuted, the OCC advocated such charters, as well. The report also advocated the creation of sandboxes.

Faster Payments, and Lending, Too

Beyond the confines of FinTech, the Treasury also weighed in on faster payments, noting that the U.S. Federal Reserve should “move quickly” in bringing a faster payments system into being, with a real-time settlement service in place — eyeing smaller FIs and credit unions among participants.

As for the payment mechanisms themselves, the report cites blockchain as a “technological tool” that should be explored by regulators and can be used across the financial system.

Separately from the Treasury report, the Bipartisan Policy Center has recommended reforms aimed at boosting liquidity for smaller firms, easing their path to financing. The recommendations come in light of a slippage in startups (which, of course, need capital to, well, start up).

Thus, the Task Force on Main Street Finance has said the federal government should improve efforts to gather data on financing flows and examine existing regulations. The proposals here would shift the collection and storage of data tied to small business lending from the Consumer Financial Protection Bureau to the Office of Financial Research — renewed data collection efforts would come in stages. The Task Force also wants to see a national commission that would examine financial laws in place, with the eventual creation of a pilot program that will test to see if bank examination efforts are adequate.

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