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Fintech regs get second look at Treasury

As start-ups chip into banks’ businesses, regulators aim to make a more level playing field.

Finance and technology
Vasyl Yakobchuk | Getty Images

The financial technology industry is about to get a long, hard look from regulators.

The Treasury Department's Office of the Comptroller of the Currency is considering new regulations for banks and fintech companies, in light of how digital disruption is changing the financial services industry.

"While banks continue to innovate, rapid and dramatic advances in financial technology are beginning to disrupt the way traditional banks do business," Thomas Curry, comptroller of the currency, said in a statement that accompanied the Treasury report. "Banks and regulators must strike the right balance between risk and innovation."

The agency has set a deadline of May 31 for comments before it moves forward in developing a framework to update financial technology regulations. Now, as funding for companies developing mobile technology and displacing banks has hit another new peak, the implications of the OCC's announcement will reach from Wall Street to Silicon Valley.

A separate report, released Wednesday from Citigroup, highlighted the growing pace of funding for fintech companies. After years of slow growth in the space, in 2014 the amount of cash coming to sector start-ups nearly tripled to more than $11 billion. It grew again in 2015, to nearly $20 billion.

Now, in the face of rapidly evolving technology within an already heavily regulated business, the OCC said it's "considering various reforms" to existing policies, which could include establishing "a centralized office on innovation … to vet ideas before a bank or nonbank makes a formal request or launches an innovative product or service."

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Some innovations to stem from the fintech industry proved surprisingly burdensome for banks, which in turn had to react rapidly to what they perceived as overreach by certain companies.

Regulators want to better refine expectations "particularly with respect to third-party relationships," which includes apps that rely on access to banks' data, but also to more traditional businesses, including legal, auditing and information technology partners.

The issue surrounding third-party access to bank data boiled over in 2015, when several banks including JPMorgan Chase restricted some apps' access to their networks.

"What we're seeing right now is D.C. feeling its way to a modern regulatory framework to account for past big-bank behavior and emerging fintech promise, as it relates to the consumer," said David Klein, CEO of online lender CommonBond. "My hope and expectation is that we get to a world where a company meant to better serve consumers is able to flourish."