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Fed zeroing in on fintech

Likethe OCC, the Federal Reserve is zeroing in on the burgeoning financial technologyspace.

The centralbank convened representatives from across the Federal Reserve System to form a workinggroup on fintech innovation. Fed Governor Lael Brainard described "a multidisciplinaryworking group that is engaged in a 360-degree analysis of fintech innovation"in a speech April 14.

"Weare bringing together the best thinking across the Federal Reserve System, spanningkey areas of responsibility, from supervision to community development, from financialstability to payments," Brainard said. "As policymakers, we want to facilitateinnovation where it has the potential to yield public benefit, while ensuring thatrisks are thoroughly understood and managed."

The remarksfollow a speech Brainard made April 4, in which she suggested fintech could be transformativefor banking. "Paul Volcker wasn't flattering the financial services industrywhen he said in 2009 that the last great innovation in banking was the ATM, buthe probably had a point. It's been a while since we've seen a true game-changer,but fintech may be one," the Fed governor said.

Brainardhighlighted the opportunities fintech presents, as well as risks the Fed is consideringas it reviews existing regulations and coordinates with other regulators. "Fintechlending models raise an array of risk and policy questions. How will the modelsperform over a full credit cycle? How are BSA, information security, and customerprivacy and data security managed, and by whom? And importantly, how is consumerprotection ensured?" she said. "It's conceivable that innovative algorithms,unintentionally or not, could enable new forms of redlining or other unfair creditpractices. Bankers and supervisors alike need to learn more about fintech and developappropriate strategies to capitalize on its benefits and mitigate its risks."

The OCCraised similar points in a recent whitepaper outlining ways the agency plans to implement fintech regulation.The agency is considering opening a new office dedicated to innovation, and willsponsor "innovator fairs" that bring together the industry and OCC expertsto discuss fintech innovation.