McHenry Bill Would Create Regulatory 'On-Ramp' for Fintech Firms

WASHINGTON — Federal regulators are not moving fast enough on fintech, prompting Rep. Patrick McHenry to introduce a bill designed to give them a push.

The North Carolina Republican's legislation, introduced Thursday, would require regulators to deal with fintech startups with speed, flexibility and cooperation — qualities that he believes are lacking today.

"Regulating as usual in Washington simply will not work in the digital age," McHenry said during a speech here at the Electronic Transactions Association's Fintech Forum. "Innovation is still occurring while policymakers are having an old debate."

McHenry's bill would require 12 separate federal regulators to create a framework allowing fintech companies to be protected from legal action or supervision from other agencies as they develop their technology.

The "regulatory on-ramp for financial innovation" would aim to create a "mindset shift" among the regulators," McHenry said.

"Go from old analog command and control, kill-it-before-it-grows mentality and change it to a demand, a requirement, an obligation for innovation," he said.

The legislation would also require agencies to establish an office dedicated to overseeing these "on-ramp" programs — which would be enforced under a legally binding contract — and share data with each other.

"That would enable us to combat this regulatory overlap and fragmentation," McHenry said.

The plan seems inspired by the regulatory sandbox established by the British Financial Conduct Authority in May, which allows startups to test products without facing the full weight of regulatory standards imposed on more established financial institutions.

But McHenry stressed that his plan was uniquely tailored to the U.S. system.

"This is not less-or-more regulation. It is adapting regulation to the changes in the economy, to technological shifts that are occurring," McHenry said. "What this is in the American economy is a permanent beta."

The Congressman argued that the clock is ticking for the U.S. to create a regulatory structure that would attract fintech companies.

"We're not the only jurisdiction in the world," he said. "Other regimes want our innovators."

Earlier at the same conference, representatives from the Federal Trade Commission, Consumer Financial Protection Bureau and Office of the Comptroller of the Currency said the regulators were already working together on fintech issues, through bodies like the Federal Financial Institutions Examination Council or one-on-one conversations.

"We already collaborate on a lot of our work through channels like the FFIEC," and around the world, said Kay Kowitt, an OCC deputy comptroller, when asked how regulators were coordinating their efforts.

But, the regulators acknowledged, the agencies are largely conducting their research separately.

"We have different statutory mandates," Kowitt said. "That can influence each of the agency's objectives and the scope of our work as it relates to fintech."

In recent months, the OCC has staked a claim on fintech regulation, starting with a white paper on "supporting responsible innovation" published in March. The OCC has also said it is evaluating the possibility of creating a charter tailored to fintech companies.

In a framework expected later this fall, the OCC is set to detail how it plans to encourage innovation in the financial industry.

"One of our objectives is to build an outreach program," said Kowitt, to "enable the OCC to both serve as a resource to external stakeholders and maintain an up to date understanding of what's going on."

But the CFPB, FTC and OCC officials said they would focus their efforts on clarifying existing standards, not creating new ones.

"The approach that we're taking is take a look at existing guidance and determine whether it's appropriate," Kowitt said. "We are not heading down a path of suggesting there needs to be a lot of new regulation or new guidance."

Speaking after his speech, McHenry said that the OCC's work on this front is "laudable" but that it lacks a more holistic structure.

"It doesn't have the force of law, it doesn't have Congress spurring it on, and it doesn't have the proper oversight," he said. "What we're trying to do is give structure … across these regulators."

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