Takeaways from the US Treasury's FinTech Innovation Report
The US Treasury Department published a new, 222-page report on July 31 that heavily focused on the fintech sector. In short, the report calls for “more streamlined and tailored oversight” to nascent fintech innovations, while also modernizing existing regulatory frameworks to ease their evolution.
Recommendations for how to accomplish these goals were summarized into four categories:
- Adapting regulatory approaches to changes in the aggregation, sharing, and use of consumer financial data, while supporting the development of key competitive technologies;
- Aligning the regulatory framework to combat unnecessary regulatory fragmentation, and account for new business models enabled by financial technologies;
- Updating activity-specific regulations across a range of products and services offered by nonbank financial institutions, many of which have become outdated in light of technological advances;
- Advocating an approach to regulation that enables responsible experimentation in the financial sector, improves regulatory agility, and advances American interests abroad.
The document includes a handful of references to cryptocurrencies and distributed ledger technologies (DLTs), clarifying that a more thorough review of those topics is being “explored separately in an interagency effort led by a working group of the Financial Stability Oversight Council.”
Despite this fact, there were still several items of note for blockchain and crypto advocates. The report suggests rationalizing overly complex, growth-stymieing regulations, including often-incompatible state-by-state money transmission legislation that apply to crypto exchanges. It also called for G20 nations to create “appropriate metrics” to monitor the industry while managing the “inherent risks” crypto poses “for investor protection and anti-money laundering and illicit finance regimes.”
G20 nations began tackling crypto in March, recognizing that “technological innovation [including crypto]…has the potential to improve the efficiency and inclusiveness of the financial system.” The Treasury Department noted that “commodities trading and securities settlement [...] trusted identity products and services [...] [and] the potential for central bank-backed digital currencies, or a tokenized form of a fiat currency that utilizes DLT could potentially help reduce fees, processing times, and operational risk for market participants,” but also made clear that benefits remain “highly uncertain.”
The report advocated for creation of “labs, working groups, innovation offices, and other channels for industry participants to engage directly with regulators,” a potential solution addressing the concerns of US Futures Trading Commission (CFTC) President, Christopher Giancarlo, who believes the US is “falling behind” the rest of the world in nurturing innovation. The US currently lacks procedures that enable it to directly participate in trials of blockchain proofs-of-concept without entering legal gray areas (though the CFTC has created a lab, LabCFTC, to cultivate innovation in fintech).
No one can predict fintech and cryptocurrency’s future, but experts are certain that a clear, consistent regulatory climate will not only protect customers and investors – it will allow the right environment for creativity and innovation to flourish in both sectors.
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