Regulatory Approaches to Financial Technology

The rapid evolution of financial technology (fintech) presents credit unions with challenges and opportunities across a variety of domains. To remain competitive and relevant in today’s financial marketplace, credit unions must consider whether to invest in new technologies, partner with fintech companies, or focus on existing services to achieve member satisfaction and growth. As part of this strategic process, credit unions should be aware that regulatory expectations for financial technology are also in a state of flux. Federal banking agencies have already implemented policy changes and pursued rulemakings to accommodate the emergence of new technologies and business models. Recent actions include the introduction of specialized chartering options, regulatory sandboxes, and data sharing principles to promote innovation. While fintech may not fundamentally change the business of banking, it has the potential to influence regulatory expectations regarding how best to balance traditional supervisory approaches with the desire to foster experimentation and improved flexibility. In this context, NAFCU believes that both Congress and regulators must ensure that when fintechs compete with traditional financial institutions, they do so on a level playing field where smart regulations and consumer protections apply to all actors in the consumer marketplace.

NAFCU advocates for competitive equality between traditional financial institutions and fintech companies, which we generalize as non-chartered, nonbank institutions that reach consumers through digital channels. At the same time, we have sought to empower credit unions with the tools to innovate and serve their communities better and more efficiently. However, tension sometimes exists between these objectives because credit unions and fintech companies are frequently partners. To balance these objectives, NAFCU believes that regulators should not give preference to fintech as a new model of banking, but seek to modernize traditional supervisory frameworks to ensure that the promise of better, more efficient service, or expanded access to credit, is predicated on responsible innovation rather than regulatory arbitrage.

In letters to regulators and members of Congress, NAFCU has consistently sought to reinforce the importance of a level playing field. Fintech, however, is a complex and far reaching subject—and to fully understand the nuances of new business models, their systemic impact, and potential consumer compliance risks requires all financial regulators to work together. To realize this goal, NAFCU recommends the following.

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