Fintech Sandboxes May Get Boost From Republican Takeover

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By Gregory Roberts

Nov. 15 — Financial technology entrepreneurs could find more space to experiment with new ideas and products with the advent of an anti-regulation Republican president backed by an anti-regulation Republican Congress.

That’s the hope of Rep. Patrick McHenry (R-N.C.), a leader on fintech policy and the sponsor of a bill to create a version of the regulation-light sandboxes adopted in the U.K., Singapore, Malaysia and several other countries in an effort to catch the crest of the fintech wave.

“Congressman McHenry is encouraged by the results of last week’s election and the prospects of Republicans controlling both Congress and the White House,” McHenry spokesman Jeff Butler said in an e-mail Nov. 15. “While he has yet to have conversations with the Trump transition team, he looks forward to working with them to advance his policy priorities as they relate to capital formation and fintech and believes the likelihood of getting something accomplished increases with a Republican in the White House.”

McHenry’s H.R. 6118, introduced in September, directs a dozen federal regulatory agencies to set up offices to encourage innovation. The bill outlines a mechanism for fintech companies to propose tests of products or services that would not be subject to certain regulations the companies view as overly confining or outmoded. The tests would be limited in duration and extent, and would include protections for consumers and financial systems.

The bill is not expected to advance before the conclusion of the current Congress at year’s end, but it could frame future discussions of fintech regulation.

The Republican wave could erode the resistance to sandboxes expressed to some degree by some current regulators, such as Comptroller of the Currency Thomas Curry and Federal Reserve Governor Lael Brainard.

‘Responsible Innovation.’

Curry has taken a lead role among federal bank regulators in addressing the challenges of fintech, recently creating a separate office within his agency to promote “responsible innovation.”

On deck is his decision on whether to offer a national charter to fintechs and other non-bank companies engaged in taking deposits, lending or paying checks. Curry is expected to put out a proposal and take comments by the end of the year.

A fintech charter doesn’t fit neatly into a pro- or anti-regulatory category. Although some in the industry have criticized the idea as an unnecessary, additional layer of regulation, Jo Ann Barefoot, a former deputy comptroller and current fintech booster, told Bloomberg BNA, “A fintech charter is a way for government to accommodate the need for fintech innovation through another channel.”

It potentially would pre-empt the patchwork of state laws now besetting online platform lenders, for example. The Conference of State Bank Supervisors objected to the idea of a charter in a Nov. 15 letter to the OCC.

Although appointed by Democratic President Barack Obama, Curry himself should survive the change in administrations, at least for a while. Unlike Cabinet secretaries, his term does not automatically expire with the president’s. His five-year appointment runs out in April, although Trump could remove him before then.

The presidential candidates’ views on fintech played little or no part in their campaigns for the White House.

Trump Views a Mystery

“We’re dealing with the unknown,” vice president Scott Talbott of the Electronic Transactions Association (ETA) told Bloomberg BNA; the association is a trade group that includes big banks, online platform lenders and payment processors.

“What we’re looking for is for Trump to define himself,” Talbott said.

“He’s basically an enigma when it comes to tech policy,” vice president Daniel Castro of the Information Technology and Innovation Foundation, a Washington think tank, told Bloomberg BNA.

Trump has consistently echoed the long-standing conservative resistance to government red tape, and House Republicans have picked up the cue: Majority Leader Kevin McCarthy (R-Calif.), said he and other committee chairmen sent a letter Nov. 14 to federal agency officials asking for no new regulations.

“We will work with President-elect Trump to create a favorable regulatory environment to ensure the continued development and deployment of new technology in the payments and financial services space,” Talbott said.

Republicans in Congress have regularly bashed the Consumer Financial Protection Bureau—the darling of Democratic Sen. Elizabeth Warren (D-Mass.)—and with majorities in both House and Senate, it’s widely expected that they will succeed in defanging it. If so, CFPB plans to regulate online platform lending could be scotched.

Trump has seconded the calls by Republicans in Congress to rewrite the 2010 Dodd-Frank Act, which expanded regulation of banks in reaction to the Great Recession (and also created the CFPB). If the reins are loosened on banks, they may be able to compete more effectively against online platform lenders and other fintechs currently outside the reach of federal banking regulators.

The Trump campaign and transition did not respond to e-mailed requests for comment.

To contact the reporter on this story: Gregory Roberts in Washington at gRoberts@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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