BITS FSR Outlines Core Principles for Promoting Innovation in Financial Services in Letter to Treasury

It is an exciting time in FinTech. The exponential pace of technological change is bringing new opportunities and changing how financial firms engage with customers and facilitate commerce. From enabling frictionless and secure account access using a fingerprint or a selfie, to finding new ways to expand access to credit and reduce fraud, technologies like Artificial Intelligence and machine learning, biometrics, blockchain, and Big Data are enabling transformational change in our daily lives.

As established financial firms and FinTech innovators alike seek to apply these technologies and all that they offer, our current regulatory system and the heavily conservative culture that it reinforces should similarly adapt. The need for flexibility in regulation to enable rapid, iterative testing of new technologies and the opportunity for banks to keep pace and foster meaningful partnerships with fintech firms is more important than ever before.

Customers are increasingly demanding higher levels of service, speed, access and value. New service providers, innovators and technology firms are emerging and established financial firms are adapting and working to build, acquire or partner with companies that can help serve customers and improve overall efficiency.

As this transformation in the industry takes place, however, there is an imbalance between traditional financial firms subject to rigorous regulatory oversight and FinTech innovators unencumbered by significant regulatory scrutiny who are free to experiment and innovate at a faster pace. This imbalance hinders the ability of traditional financial institutions to keep pace, and creates unnecessary barriers to entry for new products and services.

Creating a safe place for responsible innovation where due diligence is proportionate to the risks, is essential to building partnerships between financial institutions and non-bank innovators and better serving the millions of global customers that rely on this industry to be cutting edge and provide top notch services.

Modernizing the United States regulatory system to enhance firms’ ability to test technologies and create innovative offerings is an important undertaking. As FSR-BITS outlined in our recent submission to the Treasury Department, there are three core principles for re-defining regulation for this modern era;

1. Innovation Requires Risk-Taking and a Cultural Shift – Fostering innovation will require a cultural shift within government agencies, regulators and firms that challenges traditional notions of risk.

2. Modernizing Regulations Requires Greater Coordination – A coordinated review of regulations across agencies could help eliminate duplication and ensure current frameworks and guidelines reflect today’s technological era, ensuring that outdated rules don’t discourage innovation.

3. Expanding Technology Education – The fast pace of technological change will require regulatory examiners to have a deeper understanding of technology and its impact on firms and consumers.

When you consider the tremendous pace of innovation, you can start to imagine the advances we might see in the next three, five or even ten years and being prepared for the future, meeting customer demands and anticipating their needs is a central role of financial firms that underpin America’s economy. As the tides of traditional banking activities are changing, so too should the regulatory frameworks that guide such activities. Regulators can work collaboratively with firms to increase awareness, manage risk, and make changes that foster innovation and new partnerships without jeopardizing financial stability and consumer protection.