InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Democratic Senators Commission GAO to Study Fintech Industry
On April 18, Senators Sherrod Brown (D-OH), Jeffrey Merkley (D-OR), and Jeanne Shaheen (D-NH) sent a letter to the Government Accountability Office (GAO) requesting that it complete a study on the fintech industry. Under the Dodd-Frank Act, the GAO is required to examine the regulatory structure of person-to-person (P2P) lending. While the letter recognizes that the GAO issued a report on P2P lending in 2011, the senators urged the GAO to recognize that the lending platforms of financial technology firms (often called fintech) “has changed dramatically and evolved beyond consumer lending,” and that “P2P lending, now generally called marketplace lending, is not the only form of fintech that has developed over the last several years.” The letter further cautions that, “gaps in understanding and regulation of emerging financial products may result in predatory lending, consumer abuse, or systemic issues.” Finally, Senators Brown, Merkley, and Shaheen urged the GAO to provide responses to questions relating to, among other things, (i) the size and structure of the loan portfolios maintained by privately owned fintech lenders; (ii) how fintech lenders’ relationships with financial institutions impact both the financial system at large and regulatory framework; (ii) whether the risks that may arise from the investor base shifting from individual investor to institutional investor have grown since this issue was first noted in the GAO’s 2011 report; and (iii) the anti-money laundering, data security, and privacy requirements fintech companies are subject to.
FTC to Host Fintech Forum on Marketplace Lending
On April 14, the FTC announced the first of a series of events intended to examine consumer protection across several areas of emerging financial technology. Scheduled to take place in Washington, D.C. on June 9, the first forum will focus on marketplace lending, bringing together industry participants, consumer groups, researchers, and government representatives to examine (i) the different models used by companies in the industry; (ii) potential consumer benefits; (iii) potential consumer protection concerns; and (iv) how existing consumer protection laws may apply to companies in the industry.
OCC Lends Perspective on Responsible Innovation
Last week, the OCC published a whitepaper titled, “Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective.” The whitepaper reports on the OCC’s vision for responsible innovation in the federal banking system with emphasis on the concept that when managed appropriately “risk should not impede growth.” The paper provides a preliminary framework for how the OCC intends to improve its evaluation of innovative products, services, and processes identified as having potential associated risks and requiring regulatory approval. According to the paper, the rapid pace at which fintech companies are expanding provides both opportunities – with some banks investing in and partnering with leading fintech companies – and challenges for national banks and federal savings associations. The paper noted that, “[t]hrough strategic and prudent collaboration, banks can gain access to new technologies, and nonbank innovators can gain access to funding sources and large customer bases.” In order to guide the agency’s approach toward regulating and evaluating innovations within the financial services space, the OCC formulated the following eight principles: (i) support responsible innovation; (ii) foster an internal culture receptive to responsible innovation; (iii) leverage agency experience and expertise; (iv) encourage responsible innovation that provides fair access to financial services and fair treatment of consumers; (v) further safe and sound operations through effective risk management; (vi) encourage banks of all sizes to integrate responsible innovation into their strategic planning; (vii) promote ongoing dialogue through formal outreach; and (viii) collaborate with other regulators. The paper concludes with posing questions and soliciting feedback on its evolving framework for understanding and evaluating innovation. Comments on the paper are due by May 31, 2016 and should be sent to innovation@occ.treas.gov.
Boston Fed President Comments on the Ever-Changing Nature of Cyber Risk
On April 4, the Federal Reserve Bank of Boston’s President Eric S. Rosengren delivered remarks at the 2016 Cybersecurity Conference. Rosengren commented on the status of the U.S. economy and the “ever-changing” nature of cyber risk. According to Rosengren, risks in the cyber realm, unlike those related to the economy, are not waning. Significant cyber risk points outlined in Rosengren’s remarks include: (i) banks are increasingly having to compete with “fintech” entities providing similar financial services without the regulatory burden of being a bank; (ii) rapid growth in new applications and devices may provide consumer convenience, but do not always focus on security issues at large; and (iii) implementation of a communication plan addressing customer, vendor, and regulator concern in light of a breach is critical to mitigating problems. Finally, Rosengren cautioned that, “[b]anking organizations need to continue to evolve as [cyber risks] morph, and as new innovations and expectations of convenience introduce new challenges to security.”
CFTC Commissioner Urges Regulators to "Do No Harm" as Blockchain Technology Develops
On March 29, CFTC Commissioner J. Christopher Giancarlo delivered remarks before the Depository Trust and Clearing Corporation 2016 Blockchain Symposium. According to Giancarlo, blockchain technology — also known as distributed ledger technology — has the ability to “revolutionize the world of finance” by potentially linking networks of legal recordkeeping in a similar fashion to how the “Internet connects data and information.” Giancarlo spent much of his remarks heralding the technology’s potential, opining that blockchain technology may (i) “be able to provide regulators with visibility into the trading portfolios of swaps counterparties that they lacked during the financial crisis and that Dodd-Frank mandated”; (ii) “make possible new ‘smart’ securities and derivatives that can value themselves in real time”; and (iii) “help market participants manage the enormous operational, transactional and capital complexity brought about by the legion of disparate mandates, regulations and capital requirements promulgated globally in the wake of the 2008 financial crisis.” In light of the potential benefits of blockchain technology, the speed at which it is developing, and the vast interest it has garnered within the financial industry, Giancarlo advocated that regulators take a uniformed, encouraging, and principle-based approach toward their regulation of the industry, likening it to the “do no harm” framework implemented during the comparatively relaxed regulatory framework at the onset of the Internet. This approach will foster innovation, according to Giancarlo : “[o]nce again, the private sector must lead and regulators must avoid impeding innovation and investment and provide a predictable, consistent and straightforward legal environment. Protracted regulatory uncertainty or an uncoordinated regulatory approach must be avoided, as should rigid application of existing rules designed for a bygone technological era.”
OCC Comptroller Talks Future of Financial Services, Eyes FinTech Industry
On August 7, OCC Comptroller Thomas Curry delivered remarks at the Federal Home Loan Bank of Chicago, which was hosting a conference highlighting the future of financial services. Specifically, Curry discussed innovation in the emerging financial technology industry, or “fintech,” noting the risks and benefits associated with mobile payments, virtual currency, and peer-to-peer lending products within the U.S. banking system. With respect to virtual currency, Curry stressed how important it is for financial institutions to implement adequate procedures to deter money laundering and terrorist financing. Curry also recognized that the OCC is “still early in the process” of evaluating a regulatory framework to examine some new and innovative products and services. Rounding out his remarks, Curry expressed his growing concerns with so called “neobanks,” which operate primarily online but provide similar services to brick and mortar retail branch banks, including the heightened privacy risks that neobanks present in light of recent cybersecurity attacks.