Regulator Moves to Create New Fintech Framework

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WSJ | Rachel Witkowski | March 28, 2016

Thomas Curry - US ready to move to regulate fintechOffice of the Comptroller of the Currency to issue white paper this week aimed at kicking off discussion on how best to regulate fast-growing sector

WASHINGTON—One of the top U.S. banking regulators will issue a formal call this week for officials to start crafting a new framework aimed at governing the rapidly growing financial-technology sector—a nod to complaints from traditional banks and startups alike that current rules both stifle innovation and provide insufficient oversight for new forms of finance.

“What we’re talking about now is receptivity to exploring these issues and understanding these different models as opposed to saying ‘no’ right off the bat,” Amy Friend, chief counsel with the Office of the Comptroller of the Currency said in an interview with The Wall Street Journal on Friday.

Ms. Friend was previewing a so-called white paper on “responsible innovation” that her agency will release Thursday, the first major move made by any federal bank regulator to try to provide clear guidelines for fintech companies and products, ranging from online lending to digital currencies.

The document is unlikely to include much in the way of specific proposals. Rather, it is intended to kick off a formal discussion between regulators and the industry over how best to create new rules and processes. The OCC, an independent bureau within the Treasury Department, will ask for formal comments and could begin issuing guidance and rules based on that feedback.

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Though many regulators are dabbling with studies and conferences aimed at understanding the new financial products emerging from the largely unregulated fintech sector, the OCC’s white paper will be the first attempt at establishing a new regulatory framework. The OCC oversees the national bank chartering system, so many industry players believe the agency is better positioned than other banking regulators—the Federal Reserve and the Federal Deposit Insurance Corp.—to bring fintech firms into the banking space under one federal regulatory regime.

The white paper is meant to spur a discussion on how to set up a new framework within the OCC so companies can have a main point of entry to submit an innovative idea, and to establish a clear policy internally so OCC officials know how to assess that idea.

“There are so many disparate points of entry now and we don’t have a way to collect all of that information and come up with a consistent way of evaluating something that’s innovative and then rendering an opinion,” Ms. Friend said.

The white paper is designed to try to address in a systemic way mounting complaints that a 20th-century regulatory regime is failing to keep up with a 21st-century financial system.

“The fintech industry…is not stopping but many companies are scratching their heads in trying to determine whether their product is in compliance since there’s not a clear, uniform direction from the federal regulators,” said Jerry Brito, executive director of Coin Center, a nonprofit advocate for bitcoin and blockchain technologies. Blockchain is a technology underpinning the bitcoin digital currency that is emerging as a way to let companies make and verify transactions on a permanent ledger without a central authority.

The OCC’s new focus on fintech also marks a bit of a shift in tone for regulators who since the financial crisis have paid more attention to reining in risk-taking and experimentation.

“Once the OCC thinks financial innovation is important, that’s a big change to the regulatory regime,” said Jo Ann Barefoot, a former OCC deputy comptroller and now a senior fellow at Harvard University’s John F. Kennedy School of Government. Comptroller of the Currency Thomas Curry is scheduled to outline the plan in a speech there.

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