The Treasury Department and the Office of the Comptroller of the Currency both released major documents recently providing guidance on banking innovation, increased controls on the use and sharing of consumer data, and the potential for a new charter for financial technology firms (through the OCC). The response to these proposals varied from enthusiastic endorsement to confusion and rejection of some components of the recommendations.
The goal of the recommendations is to create a regulatory environment that supports responsible innovation and economic growth in the financial sector. The Treasury Department report makes more than 80 recommendations related to fintech and nonbank financial policy. Treasury officials estimated that two-thirds of their recommendations could be enacted directly by regulators, with the remainder requiring congressional action. Some of the most anticipated recommendations revolved around the aggregation of consumer data and sharing data between different organizations, similar to what is now available in the UK.
The new recommendations by the Treasury and OCC are both welcomed and long overdue. Doing nothing was not an option given the growth of Fintech investment that just reached a new high in the first half of this year according to the KPMG Pulse of Fintech report. With clear guidelines, organizations of all sizes can compete on a relatively level playing field where collaboration between providers will be more structured.
Not surprisingly, representatives for fintech companies supported the report, while community banking organizations and consumer advocacy groups gave a much more lukewarm reception, especially around the potential of a federal fintech charter. Some of the concern was because it opens the door to new special purpose national charters immediately, circumventing the current patchwork of state licenses.
Impact on Traditional Banks Unknown
Despite concerns from some banking organization around the potential of ‘opening the floodgates’ to new non-traditional banking organizations, recent history does not support this contention. In the UK, where similar regulations are already in place, a surprisingly low number of fintech firms have decided to go through a bank charter process.