WASHINGTON — A top Treasury Department official on Monday said the administration's forthcoming report on regulating nonbanks will tackle questions around financial technology companies and whether they need to be regulated more like banks.

Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, said at a conference sponsored by the Institute of International Bankers, said Treasury is working on the final of a series of reports recommending changes to financial regulation. The last report will address nonbank financial institutions in general, and fintech firms in particular.

“We’re currently working on our final report which will cover nonbank financials, and this is an area that will really deal with the evolution of fintech and innovation in financial services, which we expect out in the next couple of months,” he said.

Craig Phillips, counselor to the secretary at the U.S. Treasury
“On the regulatory side, we’ll be making some observations on some rationalizations of [what] federal versus states require,” said Craig Phillips, counselor to the Treasury secretary. Bloomberg News

Phillips said that the report will consider regulatory shortcomings concerning two broad categories of nonbank financial institutions. The first are traditional nonbank institutions, such as small-dollar lenders, specialty financial institutions, and mortgage originators and servicers. The second are fintech firms centered around marketplace lending, payments and settlement activities for securities.

The report will consider “regulatory asymmetries” between fintech firms and regulated institutions, and will be guided by a desire to maintain the innovation of the new fintech firms without creating an uneven playing field between federally regulated and unregulated institutions, Phillips said.

Part of that consideration will include the role of state financial regulators as well, and potentially the role of a fintech charter, which was put forth by the Office of the Comptroller of the Currency. But Phillips noted that many nonbank fintech firms have entered into partnerships with banks, so those boundaries between regulated and unregulated institutions are not always so clearly defined.

“On the regulatory side, we’ll be making some observations on some rationalizations of [what] federal versus states require,” Phillips said. “Obviously the OCC has spent some time on a fintech charter idea. Many of these companies are right on the edge of crossing over into banking services, so [determining] where banking begins and ends will definitely be part of our work.”

The Treasury's reports that are meant to serve as blueprints for regulators to follow to achieve so-called “core principles” outlined by President Trump in his Feb. 3 executive order. The order directed bank regulators to identify ways that they could streamline Dodd-Frank regulations.

Phillips’ comments on the OCC’s nascent fintech charter, while divulging little about the Treasury report’s ultimate recommendations, appear roughly in line with comments that Comptroller of the Currency Joseph Otting made in December, where he was generally supportive of the idea.

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