Treasury Recommends Bank Regulators Finalize Bank-Fintech Relationship Guidance
The U.S. Treasury Department said in a report issued last week that more oversight of the fintech sector and bank-fintech relationships is necessary to protect consumers and maintain sustainable competition, as fintechs are creating new risks for consumers such as regulatory arbitrage and data privacy. The report follows a White House executive order from 2021 that set out to promote competition.
“Innovation and competition must work hand in hand in a healthy economy,” Treasury Secretary Janet Yellen said in a statement according to BankingDive. “While non-bank firms’ entrance into core consumer finance markets has increased competition and innovation, it has not come without additional risks to consumer protection and market integrity.”
The Treasury recommended that banking regulators finalize guidance about the risk management of third-party relationships, under which the banks themselves are accountable. Regulators should increase supervision of bank-fintech relationships too, ensuring they follow consumer protection laws and their effect on consumers’ financial well-being.
According to American Banker, the department said the Consumer Financial Protection Bureau (CFPB) and other federal agencies may need to intervene in cases where regulators don’t have the range to oversee those relationships. These agencies would “help reduce regulatory gaps and maintain a level playing field.”
Although fintechs have filled gaps in the traditional finance market, artificial intelligence and new data usage pose data privacy risks which could lead to new forms of surveillance and discrimination. “[F]urther steps must be taken to monitor and address risks to consumers, market integrity, and safety and soundness,” the Treasury Department said in the report.
In September, the Office of the Comptroller of the Currency (OCC) called out the complexity of bank-fintech partnerships, saying that the financial sector could be at risk of a crisis if the relationships are not properly supervised.