A US government watchdog called for greater regulatory oversight of fintech companies.
The Government Accountability Office made the conclusion in a report entitled: “Additional Steps by Regulators Could Better Protect Consumers and AidRegulatory Oversight.”
“With our past work finding that an effective financial regulatory system needs to be flexible and forward looking to allow regulators to more readily adapt and oversee new products, U.S. regulators could potentially improve their oversight of innovative fintech activities by considering adoption of some of the efforts already being successfully used by regulators abroad. While constraints may limit the ability or willingness of regulators to fully adopt these practices, opportunities exist to assess ways to tailor them to the U.S. context.” The GAO report noted.
The report also concluded: “Among other consumer protection issues related to financial account aggregation, market participants do not agree about whether consumers using account aggregators will be reimbursed if they experience fraudulent losses in their financial accounts. Until regulators coordinate and assist the industry in clarifying and balancing the valid interests of consumers, financial account aggregators, and financial institutions, consumers could have to choose between facing potential losses or not using what they may find to be an otherwise valuable financial service. Although regulators have been reluctant to act too quickly in light of related industry efforts, they could increase collaboration to address key issues such as consumer reimbursement for unauthorized transactions. Aligning ongoing collaborative efforts with leading practices could help regulators and market participants resolve disagreements over financial account aggregation and related consumer compliance issues more quickly and in a manner that balances the competing interests involved.”
The GAO noted that US regulators have been reticent to develop regulatory sandboxes, “Also, initiatives such as regulatory sandboxes or proofs-of-concept that provide fintech firms the opportunity to operate and share information with appropriate regulators have helped regulators abroad educate their staff and thereby improve their oversight capacities. However, the Federal Reserve, CFTC (Commodities Futures Trading Commission), FDIC (Federal Deposit Insurance Corporation), NCUA (National Credit Union Association), and SEC (Securities and Exchange Commission) have not initiated such programs due to concerns about favoring certain competitors over others or that they may not have the authority to initiate these programs. While constraints may limit the ability or willingness of regulators to fully adopt these practices, additional consideration by these regulators of some of the approaches taken by regulators abroad could assist U.S. regulators in learning more about new financial technologies that could provide useful knowledge for their own regulatory activities.”
The GAO made sixteen recommendations, including for the SEC and CFTC.
For the CFTC and the SEC, the GAO made the same recommendation that the chair, “should formally evaluate the feasibility and benefits to their regulatory capacities of adopting certain knowledge-building initiatives related to financial innovation.”
The GAO noted that the CFTC started the “Technology Advisory Committee in late 2017 to explore a range of fintech topics and augment the work of LabCFTC.”
LabCFTC is CFTC’s fintech initiative.
The GAO is a part of the legislature in the US; it audits, evaluates, and investigates federal government programs.