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HFSC Chairman Patrick McHenry Reintroduces Legislation to Create Regulatory Sandboxes

The Financial Services Innovation Act will again be considered by the U.S. House of Representatives.

Rep. Patrick McHenry, R-N.C., chairman of the House Financial Services Committee (HFSC), reintroduced the legislation Tuesday (Feb. 27), according to an HFSC press release.

The legislation aims to foster innovation in financial services by establishing federal regulatory sandboxes that let entrepreneurs test new products and services while ensuring consumer protections, according to the release.

“Budding FinTech firms currently operate in fear of heavy-handed penalties brought down by regulators that have failed to work with Congress to provide clear rules of the road,” McHenry said in the release. “That’s why I’m reintroducing the Financial Services Innovation Act.”

This legislation would give these firms a chance to “test legal and regulatory waters” before taking new offerings to market, McHenry said.

It would require federal regulators to create Financial Service Innovation Offices (FISOs) within their agencies and allow companies to apply for agreements with these FISOs to be able to offer new products and services under an alternative compliance plan, per the release.

The legislation would also create an entity that would ensure that agencies share information and data on petitions, work with state regulators to provide information and advice to the public about financial innovations, and report on existing regulations that pose barriers to innovation, competition and improvements in financial products and services, the release said.

“Innovators have long flocked to American markets because we strike the right balance between fostering innovation and consumer protection — this bill will help ensure the United States continues to lead the world in financial innovation,” McHenry said in the release.

McHenry previously reintroduced the Financial Services Innovation Act in 2022, saying that it would in part require federal regulators to foster innovation.

The bill has in the past been opposed by some consumer advocacy groups that said it would allow financial services companies to market “risky new products.”

In an October 2023 letter addressed to McHenry and Rep. Maxine Waters, ranking member of the HFSC, 18 such groups said: “Creating these regulatory ‘sandboxes’ for companies would force agencies to shirk their statutory duties to enforce the law and protect consumers and instead prioritize allowing risky and unproven products into the marketplace before they have been fully evaluated to ensure that they comply with the law and are safe for consumers to use.”