The Treasury Department’s fourth and final report on economic markets will encourage regulators to offer “sandboxes” to financial technology firms and consider the benefits of fintech charters at the state and national level, a senior official said Thursday.
The report, which could come out as early as this month, is expected to offer guidance for regulators to adapt to the growing fintech space.
“The increasing scale of technology-enabled competitors and the threat of disruption by new interests has raised the stakes for traditional firms to embrace innovation...and adapt a strategy,” said Craig Phillips, counselor to Treasury Secretary Steven Mnuchin. “Frankly we think it’s adapt or die. And with the implications of millennials and their behaviors and interests, these institutions must change a lot particularly with the presence of these disruptive forces.”
Regulators must ensure there is a level playing field for startups and traditional financial firms, Phillips said.
In particular, Phillips said Treasury would like to encourage regulators to offer sandboxes, which provide relief from certain regulatory requirements in a space where fintech startups can test products and government authorities can offer guidance. Other countries, including the United Kingdom, have offered such setups. But there needs to be more cooperation among regulators in the area, Phillips said.
“A key principle should be to permit experimentation with the financial firms for services and processes,” Phillips said. “And we are really making progress to this end, in particular to getting cooperation with the regulators, since we have a fragmented system, is one of the goals that we lay out.”
While not going into details of the yet-to-be-released report, Phillips said it will also cover the benefits of fintech charters at the state and national level. It’s been a controversial topic since a national fintech charter framework was proposed under former Comptroller of the Currency Thomas Curry. State regulators tried to halt the plan by suing the OCC. Current OCC head Joseph Otting has not taken a position on the national charter, but said he will announce one by next month.
“Our report will explore the implications of federal charters, federalization,” Phillips said. “It may well be a very attractive approach for allowing companies to operate on a multistate or national basis and we will actually explore that and the relative benefits of federal versus state charters to promote effective regulation of growing fintech firms.”
OCC, like other regulators, have already begun to adopt innovation offices to consider how to promote innovation while ensuring safety and soundness in the financial system.
“We definitely would endorse [OCC’s] leadership and support of innovation,” Phillips said. “If you talk to most of the other regulators, they already have labs or other innovative approaches of thinking about how technology is an asset to the entities they regulate.”