Treasury Department Issues Regulatory Report On Fintech And Innovation

Author:Mr Mark Nuccio, Gideon Blatt and Mike Tierney
Profession:Ropes & Gray LLP
 
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Reforms that expand horizons for nonbank financial companies were recently recommended in the Treasury Department's July 31, 2018 report entitled "A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation" (the "Report").1 With the Treasury Department's support, the pace of technological advances in the delivery and digitization of financial services and the economy, and capital inflows to the financial technology ("fintech") sector, will accelerate. This Alert highlights elements of the Report that are of special interest to investment and asset management professionals.

Noting emerging trends in financial intermediation, such as rapid advances in technology, increased efficiencies from the rapid digitalization of the economy and the abundance of capital available to propel innovation, the Report addresses the regulatory landscape for certain nonbank financial firms, newer business models employed by technology-based firms and the ability of banks to innovate both internally and in partnership with technology-based firms. The Report identifies opportunities to modernize regulation that embrace the use of data, encourage the adoption of advanced data processing and other techniques to improve business processes and support the launch of alternative product and delivery services. Certain key themes and specific recommendations are discussed below.

Embracing Digitization, Data and Competitive Technologies. The Report highlights the evolution of digitization, data and scalable technologies in connection with innovation in financial services areas such as lending, financial advice and payments. The report makes recommendations intended to improve consumers' access to data and its use by third parties that would support better delivery of services. Specific recommendations include: Removing legal and regulatory uncertainties currently holding back financial services companies and data aggregators from forming data-sharing agreements to allow for more secure and efficient methods of data access. Coordinating with public and private sector actors to develop a solution that addresses data sharing, standardization, security and liability issues. Enacting a federal data security and breach notification law to protect consumer financial data and ensure notification of breaches in a timely and consistent manner. Streamlining of "digital legal identity" initiatives to improve financial inclusion and...

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