Fintech is a rapidly evolving sector that has increasingly drawn the attention of many regulators. Even though President Trump has promised to reduce regulations across the economy, it is speculated that fintech could expect to face quite the opposite trend. This industry is growing at a fast pace. A Business Insider Intelligence found that “in 2015 alone, global venture capitalists increased their exposure to fintech more than a 100 percent to almost 19 billion.” As fintech is attracting more interest and gaining traction in our economy, we can’t help but wonder if fintech will require regulation. It’s important to look at both sides of the conversation to make an informed opinion about the future of fintech regulation.
Yes, Fintech Will Require Regulation
Fintech needs regulations that will foster innovation while guarding against corruption, injustice and risky behavior. The Financial Conduct Authority (FCA) has made a potential range of considerations for the fintech industry. At recent meetings of the world’s leading economies, Group of 20 (G-20) argued that “global financial stability hinges in no small part on fintech regulation.” However, they did also note that fintech has the potential to raise financial services to the billions around the world, making it inevitable for fintech to face regulations. There must be a clear balance between welcoming innovation and protecting consumers and the financial industry.
The Office of the Comptroller of the Currency (OCC) has published an additional supplement to its manual to make provision for fintech companies to acquire national bank charters. Their goal is to create a national charter for fintech, as regulators did with credit-card companies when they disrupted the financial industry. Some speculate that a national charter could cause competition among states to use regulatory ease to attract fintech. There is some skepticism, but it is encouraging that a clarification and simplification process has begun. To eliminate ambiguity and help fintech gain traction, Rep. Patrick McHenry would mandate “innovation offices” dedicated to fintech. There is clearly a strong effort to begin the regulation process, and we can expect it to continue to ensure the safety of consumers and the financial industry.
No, Fintech Will Not Require Regulation
Today’s regulations for licenses and charters are outdated, and do not suit the fast-paced revolutionary world of Fintech. Banking licenses in individual states were issued when banks were not competing with online retailers yet. Fintech is all about being affordable, fast, and modern. Tying it down with an old regulatory system will deny its many benefits to people who are looking for innovative banking methods. The OCC was created during Lincoln’s presidency, and was meant to charter national banks. In order for the OCC’s regulatory system to work with Fintech, it must see that accepting the risks of failure is necessary for a healthy economy. The merging of finance and technology comes with plenty of risks, and innovation embraces risks. In contrast, traditional banking is all about stability, safety and security. Instead of chartering firms that have a predicted zero failure rate, the OCC should ensuring that each of them have a credible plan to tackle any failures that may occur. For example, a lending platform should allow a way for lenders to continue paying borrowers even if the platform is discontinued. As long as the customer is protected, the OCC should not be concerned. The OCC should emphasize that failure of chartered fintech firms is to be expected. Fintech holds the promise of delivering efficient and affordable services to everyone. Slow licensing and outdated regulatory systems will hinder Fintech’s growth.
Late last year, the OCC released a proposal, where fintech firms would be regarded as “special purpose banks.” The purpose of this was to ensure that fintech firms would follow laws and support the federal banking system. U.S. Senators Sherrod Brown of Ohio, who is also the top ranking member on the Bank, Housing and Urban Affairs Committee, and Jeff Merkley of Oregon opposed the OCC’s fintech proposal. They believed that this proposal went against the separation of banking and commerce that the OCC has previously upheld. Instead, they wished for fintech firms to be regarded as non-bank companies, and to be overlooked by Congress.
The Fintech revolution is changing the banking industry rapidly. Many people see the need for regulations in order to prevent corruption and other risky behaviour, while others see regulations as an obstacle for financial growth. The right decisions need to be made in order for the economy to receive the benefits that Fintech brings.
Authors: Yvonne Kwan, Whitney Besser
Ezrati, Milton. “Opinion: Fintech Will Require Regulation.” Investopedia. N.p., 22 Mar. 2017. Web. 28 Mar. 2017.
Klein, Aaron, and Brian Knight. “How Fintech Can Take Off Without Getting Hampered By Regulations.” Fortune. 2017 Time Inc. , 9 Feb. 2017. Web. 28 Mar. 2017.
“US Democratic senators oppose OCC fintech proposal.” Banking Tech. BankingTech.com 2017, 11 Jan. 2017. Web. 28 Mar. 2017.