The US Department of the Treasury, in consultation with the White House Competition Council, has released a report, concluding that the fintech industry requires greater levels of oversight.
The report, entitled “Assessing Impacts of New Entrant Non-bank Firms on Competition in Consumer Finance Markets”, details how specifically fintech firms are greatly adding to the number of firms competing in core consumer finance markets. The significant additions of new entrant fintech firms are contributing to competitive pressures, claims the report.
While the Department of the Treasury acknowledges the new capabilities offered by emerging fintech firms, it also suggested they create increasing risks to consumer protection and market integrity. The report suggests that firms are capitalising on loopholes in regulatory systems to avoid needing to comply with unfavourable regulations.
Also citing data privacy risks, the treasury concludes that enhanced oversight of consumer financial activities is required. It states that ‘non-bank firms’ should be overseen more heavily to protect customers. The solution aims also to enable more sustainable competition.
Janet Yellen, the US Treasury secretary, commented: “Innovation and competition must work hand in hand in a healthy economy.”
“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.
“This report lays out actions that would maintain fair, transparent, and competitive markets while encouraging responsible innovation that benefits consumers. With existing authorities, regulators can encourage competition and innovation while further safeguarding and protecting consumers.”
The report comes after President Biden’s executive order in July 2021 “Promoting Competition in the American Economy.”
How will the US Treasury react to the findings?
In moves that attempt to protect consumers’ financial well-being, the Treasury recommends a number of steps are taken. These steps include the following:
Addressing market integrity and safety concerns
In order to maintain market integrity, the Treasury proposes that regulators should provide a clear and consistently applied supervisory framework for bank-fintech relationships. A bank-fintech relationship that delivers consumer financial services provided by an insured depository institution (IDI) must operate in compliance with the laws, regulations, and risk management standards applicable to the IDI.
Using regulators to protect consumers
The report also suggests that regulators increase supervision of bank-fintech lending relationships. There is a need for regulators to ensure compliance with consumer protection laws.
Encouraging consumer-beneficial innovation
While the safety of consumers is paramount throughout the report, the point of continuing to enable innovation remains. The treasury recommends that regulators support innovations in consumer credit underwriting. Innovations that aim to increase credit visibility, reduce bias, and expand credit to underserved consumers should not be hindered.