BPI and The Hill collaborated to host an event today, “Modern Money: The Next Chapter in Banking, Regulation and Financial Trust,” featuring discussions with lawmakers, experts and financial industry leaders on the future of financial services, policy and regulation as innovation advances. The event examined themes such as how innovation and oversight can advance to reinforce trust in the financial system, and how responsible modernization can evolve as digital and traditional financial ecosystems converge.
Fraud and Scam Mitigation
Fraud is a modern heist: It moves rapidly and often originates and spreads on social media.
The first panel focused on fraud and scam prevention, a matter of increasing urgency for policymakers and industry. Banks are investing heavily in preventing fraud and addressing it after it occurs, but cannot do so alone – a comprehensive solution requires buy-in from the telecom and tech sectors and the entire U.S. government. Reps. Bill Foster (D-IL) and Dan Meuser (R-PA) discussed the problems and the solutions in fraud and scams during the panel. A key theme was the role of social media as a breeding ground for scams and what should be done to stop scams at their source, as well as the benefits of digital ID in fraud prevention.
Rep. Meuser emphasized the role of social media in fueling fraud and the need to hold the platforms accountable. He compared social media to an unsafe product that has been recalled. If social media platforms fail to tackle fraud effectively, Meuser said lawmakers would hold them accountable with hearings and legislation. Rep. Foster offered takeaways from digital ID adoption in other countries, such as India, and suggested a secure digital ID system could help mitigate and prevent fraud in the U.S.
- “I’ll just go back to social media for a second, because a lot of it comes from there. They need to stop it. They need to engage in it. They need to have a recall of that part of their business that’s causing harm to the general public.” – Rep. Dan Meuser (R-PA)
- “If we get [digital ID] incorporated in our modern economy, basically as soon as possible, that’s the best first line of defense against this.” – Rep. Bill Foster (D-IL)
Open Banking and Section 1033
Consumer data privacy is a key element of the open banking debate.
The second panel focused on the future of open banking as the CFPB prepares a new rule on financial data sharing under Section 1033 of the Dodd-Frank Act. The panel featured experts from banks, the fintech industry and a consumer advocacy group. Panelists discussed the high volume of data requests that banks receive – likely much more than necessary for providing services – and the need to protect consumers’ sensitive data in that environment. Panelists also discussed differing views on what federal law says about financial institutions charging fees to access this data.
JPMorgan fields requests from fintechs and aggregators for customers’ data 2 billion times a month, said Kate Prochaska, JPMorgan Chase Managing Director and Head of Consumer Regulatory Affairs, on a panel about financial data sharing. She described “hockey-stick growth” in recent years and a surge of data requests that may not be necessary for providing services. Prochaska stressed the necessity of protecting consumers’ data amid this flood of requests. Adam Rust of the Consumer Federation of America noted that consumers may not be aware of this volume of data pulls.
- “We’re really talking about privacy. We’re talking about how consumers can control a very valuable asset that exists about them, which is their data. How can they permission it? How can they revoke the use of it? I would even say, you know, to the point that Representative Meuser made earlier, and that Kate reiterated about the number of data pulls. I mean, it would be very revealing and impactful if consumers even knew how frequently their data was being pulled. Can you imagine an obligation for a fintech to have to alert the consumer that they just pulled their data? Or if the bank was literally keeping a ledger of all the pulls? I think immediately people would wake up and say, ‘wow, things are happening in this economy that I’m not aware of.’ So, from our perspective, certainly privacy is a key element of why it’s worth weighing in on this process.” – Adam Rust, Consumer Federation of America
Data security remains paramount.
- “This concept is an environment where, ideally, consumers should be able to securely permission with, ideally, trusted entities that their bank is fully aware of and can ensure that they’re doing so in a transparent, safe and secure way.” – Natalie Talpas, PNC
All financial firms handling sensitive customer data – not just banks – should be responsible for keeping it safe.
- “It really comes down to … maturity in the ecosystem, and everyone having skin in the game. So if there’s a data breach … you need to ensure that you have investments in the systems, and I think that that is kind of where the market is headed already.” – Kate Prochaska, JPMorgan Chase
Banks, fintechs and consumer groups agree on the value of data minimization and secondary data use limits to help further enhance data sharing security.
- “I just think data minimization in general is going to make the system safer. It’s going to make it less vulnerable to problems. So that’s important. Data revocation – we haven’t mentioned that, but again, that’s a really useful tool in terms of additional data points.” – Adam Rust, Consumer Federation of America
- “The other thing at play here too is maybe consider secondary use, right? So, customers permission their data, data minimization principles should apply, but also it shouldn’t be buried or even, not even disclosed at all that their data may be used for other purposes or accessed more frequently than they would expect. So that’s also just an undercurrent, kind of theme and topic that I think is important to the discussion as well.” – Natalie Talpas, PNC
- “I think maybe the one area we support, of course, data minimization and really a level playing field when it comes to the application of the [Gramm-Leach-Bliley Act] framework in this environment, which goes to the secondary use discussion, I think. But we also, of course, support modernization on GLBA too.” – Angelena Bradfield, Financial Technology Association
Bank Charters
The final panel examined the changing state of bank charters. The boundaries of what it means to be a bank are up for debate as crypto, fintech and other nonbank firms seek banking charters. Panelists discussed the limits and obligations of each different type of charter, the current landscape of novel companies applying for national trust charters and concerns about transparency and risks to the banking system. The discussion followed OCC conditional approvals on Friday of several trust charter applications.
“If you want to be a bank, be a bank.”
- “If you want to be a bank, be a bank, right? That’s what we said all along, right? And we are concerned that, you know, policymakers, maybe for the sake of innovation, want to allow for the boundaries to be pushed … without addressing all this, right? And that’s where the danger lies. Kind of linked back to your question about Silicon Valley, I think what Silicon Valley showed to community bankers is that we still need to pay very close attention to the system health; whether we like it or not, we are all joined by connective tissue in the banking industry.” – Brian Laverdure, Independent Community Bankers of America
Fintech and crypto firms applying for trust charters should limit themselves to the activities authorized by that specific charter.
- “The activities still have to be within the contours of the law and what either the National Bank Act or the Bank Holding Company Act provide, and so to the extent that entities want to engage in activities beyond what a particular charter provides, that is when we have concerns.” – Paige Pidano Paridon, Bank Policy Institute
Gaps in transparency in the charter application process raise concerns that fintech firms seeking trust charters are straying beyond legal limits on their activities. Trust charters are not subject to the full panoply of prudential regulations, which makes it imperative that firms with these charters stick to these limits.
Innovation is inevitable, and both regulators and the private sector will need to respond accordingly.
- “I think that the plain fact is you can’t put the genie back in the bottle. Innovation is here. Consumers want it. They expect it. And it’s, the regulators have kind of woken up and are figuring out how to slot that into the financial system. It behooves all of us to figure out how to ensure it’s done safely and soundly.” – Michele Alt, Klaros Group
Banks should be able to experiment safely in innovative technology.
- “We’re not saying ‘open the floodgates and let the banking system engage in any activity in the digital asset ecosystem,’ but we are saying that, generally, technology-neutral is an appropriate approach, and that institutions should be able to experiment in innovation and become part of the ecosystem in a broader way.” – Paige Pidano Paridon, Bank Policy Institute
The OCC and other agencies have issued interpretive letters and rescinded guidance that presented roadblocks to such technological innovation. Banks should be able to use blockchain and other technologies to innovate in a safe and sound manner.
Watch the event recording:
