Partnerships between financial technology firms (fintechs) and banks should be subject to enhanced supervision aimed at addressing risks to consumer protection and market integrity, according to a report released Wednesday by the Treasury Department.
The report, titled “Assessing Impacts of New Entrant Non-bank Firms on Competition in Consumer Finance Markets,” was issued in conjunction with the White House Competition Office. The Treasury said the report finds that new entrant non-bank firms – in particular fintech firms – are adding significantly to the number of firms and business models competing in core consumer finance markets and appear to be contributing to competitive pressure.
“While these fintech firms are enabling new capabilities, they are also creating new risks to consumer protection and market integrity, such as risks related to data privacy and regulatory arbitrage,” the Treasury said. “To protect consumers in these rapidly changing markets and enable sustainable competition, among other recommendations, the report calls for enhanced oversight of the consumer financial activities of non-bank firms.”
More specifically, the Treasury said the report recommends:
- A clear and consistently applied supervisory framework for bank-fintech relationships should be provided by regulators to address market integrity and safety and soundness concerns. “A bank-fintech relationship that delivers consumer financial services provided by an insured depository institution (IDI) must operate in compliance with the laws, regulations, and risk management standards applicable to the IDI,” Treasury stated.
- Robust supervision of bank-fintech lending relationships for compliance with consumer protection laws and their impact on consumers’ financial well-being should be provided by regulators to protect consumers.
- Innovations in consumer credit underwriting designed to increase credit visibility, reduce bias, and prudently expand credit to underserved consumers should be supported by regulators to encourage consumer-beneficial innovation.