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The OCC and fintech — what could go wrong?

Sean Ryan is a bank analystfor SaLaurMor Capital. The views and opinions expressed in this piece are thoseof the author and do not necessarily represent the views of S&P GlobalMarket Intelligence.

Thisweek the OCC is to offer a white paper on "responsible innovation" asa formal start of its effort to more comprehensively regulate financialtechnology.

Withoutpre-judging said white paper, one anticipates a set of aspirations that arelargely anodyne when notvacuous.

The Wall Street Journal credulouslypositions the OCC's efforts as "a nod to complaints from traditional banksand startups alike that current rules both stifle innovation and provideinsufficient oversight for new forms of finance."

Ohwell, OK, then I guess there's nothing to worry about. They will be greeted asliberators.

Infairness, many people in the industry do genuinely want clearer guidance fromcentral planners, and anything that reduces the arbitrariness of regulation(or, more realistically, better enables entrepreneurs to route around it) holdsout the benefit of reduced investment risk.

Ifthat superficial version was all there was to the story, it would indeed be anet positive. And if you're the sort of person who assumes that's all there isto the story, then I invite, nay, urge you to contact me regarding a bridge inlower Manhattan that I'm prepared to offer at a fire-sale price, on thecondition that you act now.

The Journal reports that the forthcomingpaper "is intended to kick off a formal discussion between regulators andthe industry over how best to create new rules and processes."

Sevenyears ago I might have been foolish enough to take that at face value. In theintervening period, however, I have lost count of the number of financialsector executives who tell investors bluntly that they really don't mind at allhaving been thrown into the regulatory briar patch.

Thereare a few reasons why they actually like it, but typically, the dominant reasonis the prospective attenuation of competitive pressures.

Highercompliance costs, and often reduced growth opportunities, force an adjustmentby large incumbents, but they also create a moat, forcing out smallercompetitors and discouraging new entrants.

Justlet regulators call the shots, don't make waves, collect your stock options,and enjoy the quiet life. Better men have suffered worse fates.

Whenyou see this repeated in a wide range of financial businesses, "formaldiscussions between regulators and the industry" starts to sound like anOrwellian euphemism for "conspiracy against consumers and the common good."

Thisis anything but a newinsight (bonus from watching the linked clip: video proof that, withinliving memory, liberals and conservatives could conduct a serious and civildiscussion of public affairs, on television no less). However, it is an insightthat it has become fashionable to ignore, and we embrace this fashion at greatcost.

Iknow what Tom Curry will get out of this; more power, and a wider range ofpost-OCC employment opportunities, including some with far more cachet thanlarge banks.

Iknow what industries party to this conversation will get out of it: morecertainty about what they will and will not be allowed to do, higher barriersto entry in their businesses, and the comforting if misguided hope that theregulatory crocodile will eat them last.

Ican also venture a well-informed guess as to what will the rest of us, asconsumers, get out of this, based on which, you are advised to hold on to yourwallet.