On July 31, 2018, the United States Department of the Treasury released a report identifying improvements to the regulatory landscape that the agency believes will better support nonbank financial institutions, embrace financial technology, and foster innovation. The report is Treasury’s fourth final in a series of reports released in response to Executive Order 13772. Issued by President Trump in February 2017, this E.O. calls on Treasury to identify laws and regulations that are inconsistent with the Core Principles for financial regulation it set forth. In drafting the report, Treasury consulted extensively with a wide range of stakeholders focused on consumer financial data aggregation, lending, payments, credit servicing, financial technology, and innovation.

Treasury’s recommendations are designed to facilitate U.S. firm innovation by streamlining and refining the regulatory environment. These improvements should enable U.S. firms to more rapidly adopt competitive technologies, safeguard consumer data, and operate with greater regulatory efficiency. Treasury’s report identifies over 80 recommendations that are designed to:

  • Embrace the efficient and responsible use of consumer financial data and competitive technologies
    • Efficiency: better enable digital communications, data sharing, and the use of cloud computing and machine learning
    • Responsibility: set a national data security and breach notification standard, permit consumers to withdraw prior data authorizations, and develop more secure data sharing methods
  • Streamline the regulatory environment to foster innovation and avoid fragmentation
    • Encourage regulators across the country to harmonize rules in order to create a clear and consistent environment for innovators and existing financial institutions
  • Modernize regulations for an array of financial products and activities (including marketplace lending, mortgage lending and servicing, student lending and servicing, short-term, small-dollar lending, debt collection, new credit models and data, and payments)
    • Update rules to accommodate technological advances such as facilitating service partnerships between banks and nonbank firms and further digitizing the mortgage experience
    • Encourage efforts to develop a faster retail payments system
  • Facilitate experimentation
    • Work with federal and state regulators to establish a system similar to a “regulatory sandbox” to invite innovations from new and existing market participants
    • Reform procurement rules and encourage regulator engagement to allow financial regulators to keep up with the technological developments of the industries they regulate

With respect to modernizing regulatory frameworks for firms looking to provide financial services, Treasury supports several specific regulatory approaches, including:

  • State Harmonization – an acceleration in state regulators’ and legislatures’ efforts to harmonize the existing patchwork of state licensing and oversight of nonbank financial services companies;
  • Bank Charters – Treasury believes the OCC should move forward with “thoughtful consideration” of applications for special purpose national bank charters;
  • Partnerships – enabling further partnerships between banking organizations and fintech companies (with a focus on banking regulators harmonizing their guidance to improve the current tailoring and scope of application of guidance upon third-party vendors to improve the efficiency of oversight; and enable innovations in a safe and prudent manner); and
  • Bank Innovation – updating existing bank regulations to enable innovations commensurate with the rapid changes in how banks are partnering with and investing in fintech and technology firms and how banks are themselves becoming increasingly like technology firms.

“American innovation is a cornerstone of a healthy U.S. economy. Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector,” said Treasury Secretary Steven T. Mnuchin. “America is a leader in innovation. We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”