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Challenges in fintech regulation

Regulators and fintechs weigh in on fintech regulation.

3 min read

Modern Money



The changing regulatory needs of the financial services industry and the potential of regulatory sandboxes were discussed by regulators and fintech representatives alike at the Fintech Ideas Festival Policy Series in Washington, D.C., last week.


Promising report

Craig Philips, counselor to the secretary of the treasury, reviewed his department’s latest report, which includes copious information on fintechs. Philips said there has been an increasing number of nonbank financial institutions since 2008, and he thinks innovation will continue to accelerate. “We want this innovation at all nodes of the financial system,” he said, adding that large financial organizations might learn from small, innovative fintechs.


Innovation on the horizon

Paul Watkins, head of the Consumer Financial Protection Bureau’s Office of Innovation, said in his keynote speech that he was hired to support innovation in the agency and that his coworkers have been supportive. He explained that the CFPB is revising its trial disclosure program to encourage disclosure. Under the new program, groups will be able to apply for trial disclosure so that multiple companies can share initial costs. In addition, a component of the new program will involve coordinating with state senators to fast-track federal approval for organizations already approved through state programs in order to keep federal regulations from hindering state efforts to promote innovation. A comment period on the new program closed last week.

The CFPB also aims to join an international network of regulators, Watkins said. Several other countries’ regulatory bodies may be further ahead in terms of fintech regulation. Therefore, they have a better understanding of the industry, and coordination with them will likely benefit the US, he said.


Shifting regulatory needs

Innovation in financial technology is an important goal for US financial institutions, said Tim Murphy of Mastercard. “The government can’t provide it,” he said, “but government needs to enable it”

OnDeck’s Christin Spradley called regulatory uncertainty a significant challenge for fintechs right now, saying, “We’re able to play on the field, but the goalposts keep moving.” Chistian Warner of Kabbage agreed, adding that there’s an educational gap between what fintechs can do and what regulators understand, which results in frustrated parties on both sides of the system.

FS Vector’s John Collins called for “one source of information [on fintechs and fintech regulatory compliance] that’s easy for people to understand” as well as an open dialogue between fintechs and regulators to create a “culture of compliance.”


Compliance is key

Spradley also highlighted the promising nature of partnerships between fintechs and banks. She noted that the tone of the conversation around fintechs has shifted from “disrupting” to forming partnerships with well-established banks and smaller community banks. As these partnerships are complex and sensitive, a fintech’s devotion to compliance can be presented as a competitive advantage, she said.



Regulatory sandboxes, which are spaces for fintechs to experiment with new technology without meeting the most stringent regulation, were mentioned by several speakers at the event. Spradley called the idea promising, pointing out the successful work of Beth Knickerbocker’s team at the Office of the Comptroller of the Currency as well as, on the state level, the Conference of State Bank Supervisors. Collins called sandboxes “a great construct,” adding that they could incentivize new product development and ensure that new products and ideas are “small enough to fail.”


Teresa Donnellan is an editor at SmartBrief.