By Evan Weinberger
A highly anticipated Treasury Department report on oversight of financial technology firms and the companies that use them might include regulatory sandboxes among its recommendations to promote innovation in the sector, the official leading the effort said June 21.
The report will provide more than 100 recommendations that will help foster innovation among fintech firms, Craig Phillips, a counselor to Treasury Secretary Steven Mnuchin, said in an address to the Securities Industry and Financial Markets Association in New York.
“What’s real critical is that regulations and regulators can serve to either inhibit or accelerate innovation,” he said. “It’s critical that the latter is the case, that regulators help accelerate innovation.”
The long-awaited report will be released this summer, a Treasury official said on the sidelines of the SIFMA conference.
The report may include the development of some sort of regulatory sandbox that would give companies room to create new products and tools without overly aggressive regulators getting in the way, Phillips said in his speech.
Another way to foster innovation would be to move to a more principles-based approach to regulation that would set up wide guardrails for companies while still allowing for companies to experiment, he said.
Improving communication between regulators and the firms they oversee will also be addressed, Phillips said.
Treasury’s report will also address the often-overlapping, fragmented, and occasionally duplicative oversight of federal and state regulatory agencies, Phillips said.
“By definition, the state system is incredibly duplicative,” he said.
To that end, the report will look closely at licensing and chartering issues. While Phillips did not fully endorse the federal special purpose national fintech charter being considered by the Office of the Comptroller of the Currency, he said a federal license, and the preemption powers it would provide, has its pluses.
Outside of those licensing and innovation enhancement efforts, Phillips said the report will deal with potentially changing rules for banks’ relationships with vendors in a bid to spur partnerships with fintech firms, as well as how to deal with the influx of venture capital into the financial services market that has come with the development of fintech.
The storage, use, and security of consumer data will also get a thorough review in the report, Phillips said.
The fintech report is the last of four ordered by President Donald Trump in February 2017 with the goal of finding ways to make it easier for banks, securities firms, and financial companies to operate.
The other three reports — one each on banking regulations, capital markets and asset management and insurance issues — have each included “pragmatic” ideas about overhauling regulations and “actionable” recommendations, either through legislative action or moves by regulators.
“Our new report will be very similar to the results from our other reports,” Phillips said.
Treasury’s fintech report was expected to come out earlier this year, but the broad sweep of markets included in it — everything from small-dollar loans to marketplace lending to alternative credit scoring and debt collection — has made it a challenge, Jessica Renier, a Treasury adviser, said on a separate panel.
Another complicating factor is that “many of the areas we’re looking at are in the early stages of development” and not as mature as the other markets Treasury studied, she said.
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