The news: Acting Comptroller of the Currency Michael Hsu warned that the rise of unregulated fintechs will be the impetus of a financial crisis, per Reuters.
What did he say? At a conference hosted by the Bank Policy Institute and the Clearing House Association, Hsu told attendees that fintechs and Big Tech are creeping their way into the banking industry, both independently and through partnerships with banks.
In addition to cyber risks, information security and consumer protection risks, and resiliency risks, Hsu fears other risks could arise that have not yet been identified in such a new and quickly changing environment.
Nothing new: Regulators have previously flagged these issues—saying that loosely regulated fintechs continue to push further into the banking space.
Some fintech firms even portray themselves as banks, when in reality they’ve partnered with a bank that handles all banking-related services.
Baby steps: Last week, the Office of the Comptroller of the Currency (OCC) took a small step in “regulation through enforcement” by requiring Virginia-based Blue Ridge Bank to better monitor the risks posed by its fintech partners. The bank also must gain approval from the agency before partnering with any new fintechs or offering new products from existing fintech partners. But talk about formal regulation of fintechs has been just that—talk.
The big takeaway: Hsu’s observations about banks partnering with fintechs aren’t wrong. Many banks, especially smaller banks, find it more cost-effective and quicker to partner with a fintech company than to develop digital capabilities in-house.
But it’s confusing and paradoxical that the same agency that patted itself on the back for delaying crypto regulation is now warning of a financial crisis due to a lack of regulation. It’s not unreasonable to hypothesize that lack of regulation was a contributing factor in the recent crypto crisis. And while the OCC boasts about the crypto fallout’s containment away from traditional asset markets, its lack of momentum on fintech firms could help cause a fintech catastrophe.
This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.
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