America’s financial technology industry has exploded in recent years, but regulators have not kept pace. This is partly because of the country’s outdated patchwork of state rules.
However, Britain and other countries are further ahead in addressing this emerging sector in a fresh way. Creating a modern, federal agency to oversee these companies is a priority for the United States policy makers. Many of the new “fintech” firms fall under the categories of money transmitters or consumer lenders, businesses that require licenses from nearly 50 states. Each state has different standards, not to mention regulatory examiners with varying degrees of sophistication.
That means the 165-year-old Western Union is regulated the same way that a Bitcoin-based transfer start-up with fewer than 50 employees might be.
The Consumer Financial Protection Bureau, which was established after the 2008 financial crisis, is the federal watchdog looking out for fintech customers. But it is not yet clear who at the federal level has jurisdiction. Regulators need to figure this out fast, and account for the different business models many of these companies have from traditional banks.
Other countries have already moved forward. This year, Britain established a start-up unit to help firms thinking of becoming banks, and later will accept proposals for the “regulatory sandbox” program in which companies can test products. The EU should take examples of these good initiatives.
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