GAO Reviews State of FinTech Regulation
The Government Accountability Office (GAO), the “Congressional Watchdog” investigating the use of taxpayer money for the Legislative Branch, released a report on FinTech regulation late last week, reviewing the regulatory challenges in the sector from the perspective of payments, lending, wealth and financial advice, and blockchain technologies. The GAO found that FinTech regulation in America is incredibly scattered and creates difficulties for FinTech companies to determine which consumer protection and banking regulations are actually applicable.
In short, the GAO report recommended more interaction and collaboration between the 10 different federal agencies that oversee the industry, along with each of the 50 states that also contribute their own rules and licensing requirements for various aspects on FinTech operations. A series of FinTech regulatory best practices could best help agencies define roles, responsibilities and outcomes.
The GAO noted that some foreign authorities had met success through the establishment of regulatory “sandboxes.” For instance, the Financial Conduct Authority in the United Kingdom provides a forum in which FinTech companies can test new technologies in the market. This testing is done under the watchful eye of government officials and safeguards consumer protection.
To complete the report, GAO surveyed more than 120 trade organizations, FinTech companies, government regulators, foreign regulators, and consumer groups. The agency touted the many perceived benefits of FinTech, including convenience, lower costs, increased financial inclusion, faster services, and improved data security. However, GAO also cautioned that FinTech could lead to an increased risk of unauthorized access to accounts, exposure for bank account holders not backed by the Federal Deposit Insurance Corporation (FDIC), inaccurate or poorly constructed data models causing unnecessarily high interest rates, and data breaches that could threaten the entire financial system.
Last year, major credit bureau Equifax suffered a massive security breach that exposed sensitive information for more than 143 million American consumers. Earlier this year, the House Financial Services Committee convened a hearing over the future of FinTech and spent much of the gathering discussing the regulatory labyrinth navigated by companies. One panelist, Andrew Smith, lamented that it takes around 2 years and costs millions of dollars for a FinTech company to currently become licensed and comply in all the different state and federal jurisdictions.
Bureaucratic red tape and regulatory uncertainty might be two reasons why America is falling behind other global markets in the development and dissemination of FinTech.