States are well equipped to regulate fintechs
Leaders at the Office of the Comptroller of the Currency have turned up the volume on their assertions that the regulation of financial technology and payments companies is unchecked and ungoverned unless the OCC intervenes. At the same time, the agency is saying that the current system in which states regulate fintechs is too cumbersome for companies to navigate.
That is confusing and contradictory. But what is clear is that the OCC wants to charter and regulate fintechs even though its role is to regulate institutions that take deposits.
Let's set the record straight: The fintech services used by millions of American every day, from buying a cup of coffee to purchasing a house, are overseen by a robust system of rules and guardrails.
The state system of supervision aims to keep the bad players out and give the compliant financial entities room to innovate and grow, regardless of whether they are a large company or small startup.
In recent years, state regulators have been tracking and matching the rapid clip of innovation in the fintech sector. Just think about how many more technology financial services we use today that have been made available only in recent years, like Venmo, Square and Coinbase.
State regulators are evolving with technology advancements as well, creating a more harmonized system of supervision across the nation. The Conference of State Bank Supervisors has spent considerable time with fintech companies to understand their perspective on being accountable to multiple state regulators, particularly as they want to scale their footprint nationwide. Through CSBS, states have coordinated with each other to find ways to focus on risk and streamline processes that benefit both companies and state agencies. We’ve built better data-sharing resources and made sure that consumer protections stay at the forefront of change.
The result is a number of initiatives known as Vision 2020 that advance the state regulatory system. Earlier this year, CSBS rolled out the State Examination System, a single technology platform that increases the amount and the speed in which state regulators gather information from fintechs and other nonbank financial entities, using data analytics to evaluate risk.
Just last week, CSBS announced a state-initiated program called Money Services Business (MSB) Networked Supervision that streamlines examinations of nationwide payments firms beginning in 2021. Payments companies that have licenses in more than 40 states will undergo one annual comprehensive exam to satisfy all state compliance oversight. Currently the program applies to the nation’s largest payments and cryptocurrency companies that combined move more than $1 trillion a year in customer funds, and we expect more companies to qualify as they scale.
Another initiative, the Multistate Money Services Businesses Licensing Agreement, creates a more efficient MSB licensing process by curbing legal and procedural duplications. To date, 29 states have signed on. If one of these signatory states reviews key elements of state licensing for a money transmitter, other participating states agree to accept the findings. The process has shown to reduce the time for a company to obtain a license by two-thirds.
Among these many initiatives, state regulators have committed to looking ahead at what changes need to be made to be as effective as the entities we regulate change in the next year, five years and even 10 years. We are exploring what we need for the workforce of tomorrow and how we can better use data and technology for supervision.
The OCC’s claims that fintech firms are unchecked and ungoverned are perplexing, as they ignore the work of state regulators. Like fintechs, the state system is robust and evolving. State regulators hold fintech entities accountable to safety and soundness and local authority while allowing for innovation. We enforce consumer protections. We have a clear mission.