Regulators Renew Interest in Understanding FinTech
It’s been more than eight years since marketplace lender Lending Club shut down for six months in order to explain their process and platform to the Securities and Exchange Commission. Still, as a post by Tara Jeffries on Morning Consult notes, the FinTech sector continues to puzzle regulators and legislators. Now some lawmakers are trying to understand these disruptive companies better and figure out how they should be handled.
Part of the reason for the recent interest in FinTech is the mistaken belief that there are currently no laws in place to protect consumers from these new technologies. On the contrary, such firms are not only subject to government oversight but have also worked hard to self-regulate including the formation of the Marketplace Lending Association. As lobbyist Scott Talbott told Morning Consult, “Contrary to the myth that this is the wild, wild West, most FinTech companies who work with banks are heavily regulated and subject to the same regulations as banks.” He added, “FinTech companies who aren’t partnering with banks are largely subject to a lot of similar regulations.”
Still that hasn’t quelled the interest that some officials have in the growing sector. Notably Senators Sherrod Brown and Jeff Merkley recently sent a letter to Fed Chairperson Janet Yellen, Comptroller Thomas Curry, and others requesting more information on what regulators were doing in regards to FinTech. In it the senators said, “These [FinTech] companies are changing financial services, and it is vital that the regulators and Congress understand all the impacts and take actions as appropriate.” This was actually Brown’s third such letter regarding FinTech. Currently the Office of the Comptroller of the Currency (OCC) is in the process of reviewing FinTech regulations and how these companies fit into the current framework.
One interesting note from a white paper the office released earlier this year was their assertion that banks and FinTechs should work together. The paper said, “By employing their respective advantages, banks and nonbank innovators can benefit from collaboration.” However some are now questioning whether that angle will complicate efforts to reinstate legislation similar to Glass-Steagall — the bill which was passed in the 1930s and was repealed under President Bill Clinton that separated commercial and investment banking.
Despite such concerns, others have praised FinTech for making capital available to small businesses. In fact some have asserted that marketplace lenders allow those in under served markets access to loans, which helps level the playing field. Congressman Lacy Clay recently alluded to these advantages but also added that the sector must work to do more, saying, “Marketplace lending and FinTech cannot ignore the capital needs of communities of color and women- and minority-owned businesses.”
As the FinTech sector grows it seems as though it also continues to raise eyebrows. Admittedly the recent setbacks the industry has experienced haven’t made things any easier. What’s important to remember is that this isn’t the first time regulators have taken an interest in FinTechs and that in previous cases firms have come out stronger on the other side. Ultimately including FinTech in the conversation about the future of banking is a positive shift and one that supporters should embrace as an opportunity to fully legitimize the sector in the eyes of doubters.
This article by Jon Dyer originally appeared on Business2Community