About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (April 25, 2019)

handle is hein.crs/govznn0001 and id is 1 raw text is: I Congressional Research Service ~~Info rmrng ibhe isatlve debate since 1914 S April 25, 2019 Financial Innovation: Reducing Fintech Regulatory Uncertainty Many companies are developing innovative financial technology-orfintech. Broadly, fintech aspires to provide financial products using technological advances. Given that most of the federal financial regulatory framework was created prior to these technologies, fintech companies often face uncertainty over how-or whether-existing federal laws and regulations may apply to them or their products. Thus, policymakers may consider ways to reduce regulatory uncertainty and integrate fintech into the regulatory framework. This often involves balancing efforts to encourage innovation while protecting consumers and the financial system from excessive risk. This In Focus examines regulatory uncertainty related to fintech and analyzes possible policy approaches and recent regulatory initiatives that may reduce it. Fintech and Regulatory Uncertainty Fintech is an inclusive term that can encompass many technologies providing an array of financial services or products (see Table 1 for examples). The existing regulatory structure, however, may not always have clear rules for new types of fintech. In addition, companies and regulators may have difficulty determining the risks a new technology may create before it is launched. This regulatory uncertainty can negatively affect many different stakeholders. Table I. Examples of Fintech Financial Product or Innovation Service Affected Online Marketplace Lending Commercial lending Crowdfunding Equity issuance Blockchain Ledgers Payment and settlement Robo-Advising Wealth management Algorithmic High-Speed Trading Securities trading RegTech Regulatory compliance Big Data Credit bureau agencies Source: CRS. Note: This is a non-exhaustive, illustrative list. Companies and Investors. Companies must attract investment in order to develop and introduce innovative technologies. Investors generally consider whether a technology will comply with applicable regulations in determining the profitability of these investments. Yet, there may be no clear precedents for which regulations apply to a new financial technology. In addition, certain fintech firm principals' and investors' expertise may lie in technological fields-e.g., software engineering or computer programming-rather than in the financial industry, increasing their uncertainty as to how financial regulation may or may not apply to their product. Regulators. Absent a track record of performance, regulators may lack a complete understanding of what outcomes a new technology or product may generate, the risks it presents, and the appropriate regulatory treatment. Consequently, they may (at least initially) apply regulation in an ineffective or inefficient way to a technology with which they are unfamiliar. Consumers. When accessing an unfamiliar financial product, consumers may lack a complete understanding of the product's terms or the risks they face. This could be especially problematic if it is not clear what consumer protections apply to that product. Potential Regulatory Approaches Many still-evolving terms are used to describe different programs regulators have implemented or proposed to address fintech uncertainty, including sandbox, greenhouse, and single point of entry. Generally, such programs use at least one of the following approaches. Increased Regulator Outreach. Communication between fintech firms and regulators can help these firms better understand how regulators view a developing technology and potential regulatory concerns. Communication also helps make regulators aware of new fintech innovations when developing new or interpreting existing regulations. As discussed below, certain regulators have established offices within their organizations to conduct outreach to fintechs-including maintaining outreach websites, participating in fintech conferences, and organizing office hours with fintech firms. Regulator Information Gathering and Study. Some regulators have announced research collaborations with fintech firms to improve their understanding of new products and technologies. Such initiatives could include jointly designing a research trial or fintech firms sharing data about their product performance with regulators. Tailored Regulation or Limiting Enforcement Actions. If policymakers determine that particular regulations are unnecessarily burdensome or otherwise ill-suited to a particular technology, they might exempt companies or products that meet certain criteria from such regulations. Similarly, a regulator could issue a No Action letter-an official communication stating a regulator does not expect to take enforcement actions in certain situations. Regulators will often only provide such special regulatory treatment to companies that first demonstrate that consumers will not be https:!icrsreports cong --ssq_

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most