Between Financial Innovation and Regulation  

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“ The way people spend, save, borrow, invest, and send money using computers and mobile apps seem like plot elements of a previous generation’s science fiction novels. “

We are living in a great period of innovation, where technology is changing the relationship between people and money. The way people spend, save, borrow, invest, and send money using computers and mobile apps seem like plot elements of a previous generation’s science fiction novels. The very notion of money as currency backed by the full faith and credit of a government is being challenged by the increasing use of and speculation surrounding cryptocurrencies like bitcoin.

While the innovators in Silicon Valley and Silicon Alley embrace the marriage of finance and technology (“fintech”) and race to disrupt the financial marketplace status quo, regulators charged with maintaining the integrity of the marketplace wrestle with balancing the need to encourage business development with our legal mandate to protect those business’ customers. Last fall, the Department of Banking and Securities issued a letter [PDF] informing fintech firms of their legal responsibilities while providing services and products to Pennsylvania residents.

Earlier this month, I had the privilege to moderate a panel discussion at a “fintech forum” in New York for industry and regulators co-hosted by the Conference of State Bank Supervisors and the New York Department of Financial Services. The conference addressed fintech developments and business models, opportunities and risk, as well as state-based regulatory approaches to money transmission and payments, lending, banking, and other financial innovation.

I left the conference more confident of two concepts. First, state regulators are focused on ensuring consumers having access to responsible financial services that meet their needs. Second, the goal of financial regulation of fintech is not to make it more difficult to conduct business, but to protect consumers using fintech, and work to ensure a level playing field for all fintech competitors; in essence, an approach of facilitated innovation.

At the Pennsylvania Department of Banking and Securities, we spend significant time researching all companies that are required by our laws to be licensed to do business with Pennsylvania residents. We are not looking at building a new regulatory regime around fintech. Rather, our regulatory frameworks for all companies – including fintech — are tailored around the risk, size, and complexity of a company, and the services and products it provides. The Department recognizes that as the industry we supervise and regulate continues to pursue innovation, regulators must also responsibly embrace technology and innovation in how we operate.

We do, however, recognize that some of these fintech companies are by nature start-ups and entrepreneurial, and that they may not be fully aware of the legal requirements to operate in Pennsylvania. And so, the state regulators served by the Conference of Bank Supervisors recently announced the designation of a single “Innovation Staff Contact” in each state to assist firms to understand our state laws and rules and to build compliance into their business models.

You can contact our Innovation Staff Contact at [email protected].

I cannot predict the future for fintech or its impact on traditional financial services. However, Governor Wolf and I will work to ensure a smart, balanced regulatory approach, foster business development, and enhance relationships between the Department of Banking and Securities and industry. We will work with fintech firms to review business concepts, encourage positive aspects of change, and protect consumers.
By Robin L. Wiessmann, Secretary of Banking and Securities

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