US Treasury makes 80 recommendations to foster fintech innovation

Fintech companies tend to play in a grey area, where little or no regulation exists.

Regulations, for example, didn’t really think about how peer to peer lending would work, and how it could help some people invest in and allow other people to secure funds for their dream companies. But technology makes it possible, and fintech companies make it easy and efficient.

In the US, regulations aren’t very clear about what fintech companies can and cannot do, and yet, don’t necessarily protect the interests of consumers and stakeholders.

And yet, more than 3,330 new technology-based firms serving the financial services industry have been founded between 2010 and 2017, 40 percent of whom are focused on the banking and capital markets.

Cumulatively, the financing of fintech firms has grown rapidly, reaching US$22 billion globally in 2017, a thirteenfold increase since 2010, according to Deloitte.

In fact, lending by fintech firms now makes up more than 36 percent of all US personal loans, up from less than 1 percent in 2010. Additionally, some digital financial services reach up to some 80 million members, while consumer data aggregators can serve more than 21 million customers.

However, fintech companies find it difficult to explore new opportunities and understand how their actions might be interpreted – which is a violation of Trump’s core principles for financial regulation.

Back in February 2017, President Trump issued an executive order that sought to empower Americans to make independent financial decisions and informed choices in the marketplace, while enabling American companies to be competitive with foreign firms in domestic and foreign markets – among other things.

In order to harmonize existing financial regulations in the country with President Trump’s order, the US Treasury consulted with a wide range of stakeholders focused on consumer financial data aggregation, lending, payments, credit servicing, financial technology, and innovation.

Based on their findings, the US Treasury has created a 222-page report that analyzes various financial activities such as marketplace lending, mortgage lending and servicing, debt collection, payments, and short-term small-dollar lendings, among other things to come up with 80-odd recommendations that are designed to help:

• Embrace the efficient and responsible use of consumer financial data and competitive technologies,
• Streamline the regulatory environment to foster innovation and avoid fragmentation,
• Modernize regulations for an array of financial products and activities, and
• Facilitate “regulatory sandboxes” to promote innovation.

According to US Secretary of Treasury Steven T. Mnuchin, American innovation is a cornerstone of a healthy US economy. Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector.

“America is a leader in innovation. We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors,” said Mnuchin.

In conclusion, the US Treasury believes that America is the global leader in technological innovation, and the pace of technological development in financial services has increased exponentially, offering potential benefits to the US economy.

Through its recommendations, the US Treasury intends to encourage all financial regulators to stay abreast of developments in technology and to create effective regulations support instead of constraining innovation.

“Regulators must be more agile than in they have been in the past, in order to fulfill their statutory responsibilities without creating unnecessary barriers to innovation,” said the report.

It is expected that regulators will take cues from the report, and work towards enhancing the nation’s strength in technology, fostering vibrant financial markets, and promoting growth through responsible innovation.