TREASURY RELEASES LONG-AWAITED FINTECH REPORT, CALLS FOR NATIONAL CHARTER, BREACH SYSTEM, SANDBOX

The U.S. Treasury today released a report identifying improvements to the regulatory landscape that will better support nonbank financial institutions, embrace fintech and regtech ventures and foster broader innovation in terms of financial services, anti-money laundering compliance and cybersecurity.

The sprawling, 222-page report touches multiple times on anti-money laundering (AML) programs, chiefly related to how machine learning and artificial intelligence (AI) could improve transaction monitoring surveillance to more quickly sniff out potential money laundering, frauds and illicit schemes – and strengthen and streamline regulatory exams.

To view the full report, click here. To view a shorter fact sheet, click here.

The report makes one thing clear – Some examiners are already dipping their toe in the proverbial artificial intelligence-tinged pool. This is a key takeaway for compliance teams to consider when delving into the nascent regulatory technology, or regtech space, which offers tantalizing dreams of precisely-tuned transaction monitoring systems.

“Machine learning may additionally be used to help reduce fraud and conduct surveillance for money-laundering and other illicit financing risks,” according to the report. “Financial regulators are also beginning to employ machine learning to enhance their own analysis and understanding of economic and financial markets.”

The recommendations in the report can be summarized in four main categories:

  • Adapting regulatory approaches to changes in the aggregation, sharing, and use of consumer financial data, and to support the development of key competitive technologies;
  • Aligning the regulatory framework to combat unnecessary regulatory fragmentation, and account for new business models enabled by financial technologies;
  • Updating activity-specific regulations across a range of products and services offered by nonbank financial institutions, many of which have become outdated in light of technological advances; and
  • Advocating an approach to regulation that enables responsible experimentation in the financial sector, improves regulatory agility, and advances American interests abroad.

“Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector,” U.S. Treasury Secretary Steven Mnuchin said in a statement.

“America is a leader in innovation,” he said. “We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”

One of the most controversial pieces of the report comes as the Treasury clearly backed the Office of the Comptroller of the Currency’s special purpose “fintech” charter, which caused friction and even lawsuits at the state levels – particularly in New York.

“At the federal level, Treasury encourages the Office of the Comptroller of the Currency to further develop its special purpose national bank charter, previously announced in December 2016,” according to the report.

“A forward-looking approach to federal charters could be effective in reducing regulatory fragmentation and growing markets by supporting beneficial business models.”