Financial Services Committee (FSC) Chair Patrick McHenry
(R-N.C.) hopes the fourth time is the charm for his legislation to create
“regulatory sandboxes” allowing financial services providers to offer
innovative products and services under an alternative compliance plan.
The Financial Services Innovation Act, which McHenry
previously introduced in 2016, 2019 and 2022, would require federal
regulators to create Financial Services Innovation Offices (FSIOs) within their
agencies to handle petitions from companies seeking to test-drive new consumer
offerings without fear of enforcement.
“Technology has radically changed how consumers interact
with the financial system, as well as how financial institutions interact with
regulators,” McHenry said in a statement. “Budding fintech firms currently
operate in fear of heavy-handed penalties brought down by regulators that
have failed to work with Congress to provide clear rules of the road.”
FSIOs would administer “enforceable compliance agreements,”
outlining certain regulatory and statutory modifications or waivers. The
legislation also allows for “multiparty agreements,” allowing an agency to
become a party to a previously established enforceable compliance agreement.
The legislation would establish an FSIO Liaison Committee to
facilitate cooperation and information-sharing among each agency’s FSIO regarding
company petitions. The committee also would consult with state regulatory
entities to inform and advise the public about financial innovations and agency
regulations.
The Financial Stability Oversight Council (FSOC) would be
required to study the aggregate impact of enforceable compliance agreements
entered under the bill and publish a report on its findings. The report would
consider whether certain existing regulations or practices are burdensome to
innovation, restrictive to competition or limiting to product or service
improvements that may benefit consumers. The council also would be responsible
for identifying any overlap in agency regulations and offering recommendations
for addressing it.
“This common-sense legislation will give entrepreneurs an
opportunity to test legal and regulatory waters before taking new products and
services to market,” McHenry said. “Innovators have long flocked to American
markets because we strike the right balance between fostering innovation and
consumer protection — this bill will help ensure the United States continues to
lead the world in financial innovation.”
McHenry, who intends to retire when his term ends, pointed
to instances where “the regulatory sandbox approach has proven successful,” in
a press release mentioning “states like North Carolina, which launched its financial
and insurance regulatory sandbox through the North Carolina Innovation Council
in 2021.”
The bill has raised concerns among consumer advocates who
wrote to McHenry and FSC Ranking Member Maxine Waters (D-Calif.) saying the
measure could expose consumers to “risky” products and services.
“Creating these regulatory ‘sandboxes’ for companies would
force agencies to shirk their statutory duties to enforce the law and protect
consumers and instead prioritize allowing risky and unproven products into the
marketplace before they have been fully evaluated to ensure that they comply
with the law and are safe for consumers to use.”
The 18 consumer advocacy groups undersigned on the letter
also claim the proposed application process is inadequate to protect consumers
and does not require companies to provide enough information to meaningfully
evaluate products or services to be covered by a regulatory sandbox.