REGULATION: Landmark Treasury Report Supports Special Charters for Fintech Banks and Lenders.


The recent trend has been that Fintech and Crypto startups can jurisdiction shop across the world for a friendly location, like Singapore. But in reality, the United States is still a massive gravitational force for both innovation and technology, and is the world's deepest capital pool in financial services. So with that context, we are thrilled to see a landmark 200+ page fintech report from the United States Treasury, touching on issues from payments, to lenders, to financial planning, to artificial intelligence (where we contributed our thoughts from Augmented Finance). Not crypto yet, though we are sure that will come. 

There is little to say, other than download and read it. Here are a few of the choice takeaways. First, the Treasury sides with the OCC on the idea of a special bank charter for technology firms. This charter would be less onerous than both an industrial loan company (ILC) and a full banking license, making life easier for digital lenders like Lending Club, On Deck, Square and SoFi. Digital Lenders could built out deposits, rather than relying on the shadow banking systems (i.e., credit hedge funds) for funding. The OCC has immediately jumped on this recommendation and is inviting fintech firms to apply. But remember, this hurts small and regional banks -- just imagine a local bank trying to compete with Stripe's new card issuing API. Such regional players have strong lobbies into industry groups and State regulators, so expect some type of allergic legal reaction to come. 

Other recommendations that jumped out at us include: (1) develop regulatory sandboxes like that of UK's FCA, (2) make it easier for bank holding companies to invest in tech, (3) smooth out the various regulatory bodies and interests that touch Fintech firms, (4) develop digital identity and strengthen the protection of consumer financial data (e.g. Equifax breach and GDPR), (5) digitization of the workflows in the mortgage sector and exploration of new approaches to credit modeling, (6) update the IRS income verification system, (7) modernize payments through faster retail payments systems, (8) level set digital wealth regulation (e.g., fiduciary rule from DOL vs SEC), and (9) take strategic efforts towards creating artificial intelligence within finance. We think these are all in the right direction of travel, and hope that the appropriate regulatory and legislative bodies are able to turn these non-binding recommendations into reality.


Source: Treasury (SummaryFull Paper), Bank Charter (OCC response), Stripe (Issuing)