Loosening federal regulations, enacting national data breach protections and drafting “model laws” at the state level to reduce overlapping red tape, could help promote FinTech in the United States, according to report released Tuesday (July 31) by the U.S. Treasury Department.
The report arrives at a time of growing optimism for U.S. financial technology efforts. In addition, there is increased lawmaker attention to promote innovation among non-bank providers of new payments and payment-related technology, and more consumer concern about online and data security. The Treasury Department report, entitled “A Financial System That Creates Economic Opportunities,” serves as a response to executive order 13772, President Trump’s call to regulate the U.S. financial system around a set of core principles.
The report also comes at a time of ongoing growth for U.S. FinTech: “From 2010 to the third quarter of 2017, more than 3,330 new technology-based firms serving the financial services industry have been founded, 40 percent of which are focused on banking and capital markets,” read the report, issued under Treasury Secretary’s Steven Mnuchin’s name. “In the aggregate, the financing of such firms has been growing rapidly, reaching $22 billion globally in 2017, a thirteenfold increase since 2010.”
Beyond that, the report called for “removing regulatory barriers to foundational technologies, including the development of digital legal identity,” along with finding ways to promote further development in such areas as artificial intelligence (AI), machine learning and cloud technology. The latter part is important because, by 2020, the report said, “digitized data is forecasted to be generated at a level that is more than 40 times the level produced in 2009.”
To help build consumer trust in the digital economy, the report said the U.S. Congress should enact a federal data security and breach notification law — only 13 states have such laws, the report said, and they have differing requirements, and apply to companies that do business in a particular state but might not have offices there. A federal law would “employ uniform national standards that preempt state laws,” among other attributes.
Also at the federal level, the Office of the Comptroller of the Currency (OCC) should allow FinTech companies to operate in all states, according to the same standards as banks — a move that would require the office to issue special charters to those younger payment and financial technology firms. In the past, that idea has attracted criticism from some banks and credit unions, which argue that FinTech firms should instead partner with the older FIs.
U.S. Treasury Department officials, like many of their counterparts around the world, want to promote the establishment of “sandboxes” that allow for the relatively quick testing of new FinTech products under loosened regulations. The European Union (EU) is, in fact, aiming to bring to bear a draft law that would accelerate FinTech efforts on the continent — with Brexit as a motivating force behind that.
In the United States, U.S. Representative Patrick McHenry, a front-runner to become the next chairman of the Financial Services Committee, recently said that Republicans should shift focus away from killing the Dodd-Frank Act to legislation that will help prevent the next economic crisis — along with issues involving financial technology. For their part, U.S. states, responding to citizen concerns, are starting to embrace tighter online data protections, following the example of Europe’s recently enacted GDPR.
As the new Treasury report indicates, FinTech is a growing area. That point was recently driven home by Wall Street firm Morgan Stanley, which has not only expressed institutional optimism about the payment and processing sectors, but its bullish attitude has been bolstered by the growing number of consumers moving to digital payments.