The GAO has released a very interesting study on fintech, focusing not only merely on the difficulty of regulating fintech, but also the highly fragmented form of fintech oversight:
Fintech products pose similar risks as traditional products, but their risks may not always be sufficiently addressed by existing laws and regulations. Also, regulators and others noted that fintech activities create data security and privacy concerns and could potentially impact overall financial stability as fintech grows. The extent to which fintech firms are subject to federal oversight of their compliance with applicable laws varies. Securities regulators can oversee fintech investment advisers in the same ways as traditional investment advisers. Federal regulators may review some activities of fintech lenders or payment firms as part of overseeing risks arising from these firms’ partnerships with banks or credit unions. In other cases, state regulators primarily oversee fintech firms, but federal regulators could take enforcement actions. Regulators have published consumer complaints against fintech firms, but indications of widespread consumer harm appear limited.
But this is, frankly, the less interesting part of the study. The GAO goes on to find that many foreign regulators have opened innovation offices among regulators to help assess and test the risk of new products, and in the process facilitate their supervision. It then adds that while some regulators may have concerns “of favoring certain competitors or perceived lack of authority” that “limit regulators’ ability to take such steps, considering these approaches could result in better interactions between U.S. regulators and fintech firms and help regulators increase their understanding of fintech products.”
The GAO is using kids gloves for it, but it’s hard to read its analysis as taking aim at any other agency than the SEC. The CFTC has already launched its innovation office, LabCftc, and it’s hard to imagine that the SEC’s mandate for creating such an office—which includes investor protection, market integrity and the fostering of capital formation—is weaker than that of the derivatives regulator, or that it would preclude the establishment of such an office.