The White House recently published a whitepaper, “A Framework for FinTech,” outlining administration policy objectives to help regulators and other federal operatives in their efforts to interact with fintech organizations in an effective, productive manner.
The report is based on engagements between stakeholders and senior government officials and is intended as a framework, comprised of 10 key principles, to be utilized by policymakers and regulators “to think about, engage with and assess the fintech ecosystem” when setting objectives and expectations for regulating the fintech industry. By following the framework, those objectives and expectations should be able to be met in such a way that promotes responsible economic growth within the industry.
The 10 principles that makeup the framework are: “think broadly about the financial ecosystem; start with the consumer in mind; promote safe financial inclusion and financial health; recognize and overcome potential technological bias; maximize transparency; strive for interoperability and harmonize technical standards; build in cybersecurity, data security, and privacy protections from the start; increase efficiency and effectiveness in financial infrastructure; protect financial stability; and continue and strengthen cross-sector engagement.”
Stakeholders inside and outside the industry also can use the framework to get a sense for how they can contribute to the financial system to make it more inclusive and better-functioning, as well as to examine their products and services against the stated principles.
“Innovations in financial technology (fintech) have the potential to fundamentally change the financial services industry and the wider economy,” the report states. “While still early in its evolution, fintech can, for example, promote financial inclusion, expand access to capital for individuals and small businesses, and more broadly reshape how society interacts with financial services. As fintech continues to evolve, stakeholders in this ecosystem – including government and the private sector – must actively participate in its development to ensure growth that maximizes value for the consumer and for the system in a safe and sustainable manner.”
Although new innovations in financial services can be beneficial to financial institutions, the report highlights the fact new and often-untested technologies also introduce new risks. The report delves into the need for continued collaboration between policymakers and stakeholders to discuss solutions to address such risks.
“If left unmanaged, these risks could pose harm to the wider financial system,” the report states. “As the financial crisis demonstrated, systemic financial risks may arise in unexpected ways. While fintech represents only a small part of the wider financial services sector at present, policymakers, regulators, and industry should collaborate to identify and mitigate potential systemic risks as the industry grows. Part of that collaboration might include using new innovations to assist in risk management and regulatory functions.
“Nearly a decade after the worst financial crisis since the Great Depression, we must remain steadfast in our commitment to financial stability. The post-crisis environment coupled with the pace of innovation represents a unique opportunity to bring new tools and a new spirit of cross-sector collaboration to bear on this objective.”
Policymakers and regulators are advised to recognize changes in the financial sector and strive to comprehend the various benefits and risks fintech innovations pose to further enhance collaboration between the public and private sectors.
“First, as policymakers and regulators engage with the fintech ecosystem, they should continue to rely on data-driven analysis to inform their work,” the report states. “For example, reflecting the administration’s commitment to sustained engagement, Treasury created an interagency working group on marketplace lending to share information, engage with industry participants and public interest groups, and evaluate where additional regulatory clarity could protect borrowers and investors. All relevant regulatory agencies participate with the recognition that regulatory clarity and consistency are critical to supporting a safe and innovative modern financial regulatory framework.
“Second, policymakers and regulators should endeavor to develop and use tools that help them maintain flexibility as they engage with a rapidly changing industry. Tools like Treasury’s RFI on marketplace lending, and the CFPB’s Project Catalyst and No-Action Letter policy are good examples.
“Third, policymakers and regulators should look across borders and levels of government for examples of how others are engaging with the fintech industry. In particular, the United Kingdom has developed an innovative policy strategy to improve the country’s competitiveness as a global destination for fintech. Additionally, Singapore established a fintech office within the Monetary Authority of Singapore — Singapore’s central bank and financial regulatory authority — to foster fintech innovation and make Singapore an international hub for fintech. While every practice will not fit every jurisdiction, sharing ideas and best practices can promote policy and regulatory harmonization, and help advance safe innovation worldwide.”
The report also highlights the Obama administration’s work over the past eight years to establish a “forward-leaning posture” in relation to fintech and the potential for innovation and entrepreneurship that they represent, including projects, papers, executive agency discussions with stakeholders and the White House FinTech Summit in June 2016.