What exactly does the word “fintech” mean? The second half of that word is the easy part — technology. It’s the first part, “finance” that introduces political and historic arguments. Now, federal and state US regulators are squabbling over who can claim jurisdiction over the emerging industry.
Office of the Comptroller of the Currency
According to a TechCrunch report, a federal government agency called the Office of the Comptroller of the Currency (OCC) proposed last month that fintech companies apply for its approval as “special purpose national banks”.
The OCC is apparently a thing. Established in 1863, its job is to “charter, regulate, and supervise all national banks and thrift institutions and the federal branches and agencies of foreign banks in the United States”.
Its current head is Thomas J. Curry — a name you probably don’t hear much in the nightly news. In 1863 though, the office had more meaning.
Before the Civil War, US states could issue their own currencies and “banks” were either regulated, unregulated or banned altogether. After that, however, the federal government began to stamp its authority over more aspects of daily affairs. Banking and finance was high on the priority list.
The OCC now has major offices in New York City, Chicago, Dallas and Denver. Its objectives are somewhat vague, but cover instructions such as “to ensure the safety and soundness of the national banking system”. The OCC also fosters competition by allowing banks to offer new financial services, and investigates misconduct in the industry.
The OCC’s Proposal — and Objections
The OCC’s proposal set out rules for fintech rules governing capital, liquidity and financial inclusion. However regulators from four of the largest states — New York, California, Florida and Ohio — quickly objected.
Financial regulators from those states argued against what they saw as federal intrusion into their jurisdictions. New York seemed concerned at payday lenders using protections intended for technology companies, while California viewed the same problem from the perspective of the tech sector. Florida and Ohio complained that such intervention wasn’t even necessary.
While states would prefer to regulate small-time finance and emerging technology at a local level, too many different laws may also stifle innovation. Bitcoin companies operating in the US have already complained about the 48 different money transmitter licenses they must apply for. Then there’s New York’s BitLicense — which serves mainly to shut New York residents out of bitcoin-based fintech services.
What is Fintech and How Should It Be Regulated?
It’s generally assumed that fintech stands for “financial technology” and refers to companies using technological innovation to make financial transfers easier and compete against companies in the “traditional” financial world. Think PayPal, OKPay, Yandex, Alipay etc.
Fast-moving technology against snail-pace regulation. It sounds enticing, and many enter the field for that reason. It attracts everyone from developers who think they can solve inefficiencies in current networks to the anarchists of cryptocurrency, who want to replace the entire financial system.
As you can imagine, there’s a lot of territory in between. There are plenty of people an companies wishing to provide “financial services” to you and they employ varying degrees of technology to do so.
And wherever large amounts of money are involved, expect regulation. Regulation means power, and the prospect of power attracts governments at every level.
The irony is that as local, state and national governments battle over how to regulate financial technology, both finance and technology are becoming increasingly borderless.
What is fintech exactly, and who should regulate it? Let us know in the comments.
Images via Pixabay, Wikimedia Commons