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The federal government has proposed to create a regulation-free development environment for fintech companies, months after several regulators called for such a program.
The Consumer Financial Protection Bureau's proposed sandbox program, if formally launched, would create the first federal fintech sandbox. SEC Commissioner Hester Peirce has long advocated for such a nationwide program, arguing that not "every decision has to be made with a regulator sitting at your shoulder." The U.S. is years behind the regulatory initiatives to spur innovation seen in other developed countries. The U.K. started a similar program in 2015, and bank executives have said the country created a world-leading regulatory environment for the burgeoning industry.
"Because of the lack of leadership on this, the United States has been a follower rather than a leader," said Todd Zywicki, a professor at George Mason University's law school. Once the program launches on the national stage, he expects international efforts to come next, something that has likely already begun without the U.S. "In some sense, international collaboration and harmonization should be easier because it's just a matter of us running faster to catch up with them."
The CFPB's program is designed to "facilitate innovation for the purpose of enhancing competition in financial markets and consumer access to those markets," a bureau spokesperson said in an emailed statement.
Rep. Maxine Waters, D-Calif., who is poised to take the helm of the House Financial Services Committee, said she was "very concerned" by the bureau's proposal. In a Dec. 11 statement, she called it an "irresponsible overreach" that "encourages and abets consumer abuses."
But Zywicki, who has expertise in consumer protection law, said the CFPB "clearly" has the authority to launch the program. Although the sandbox "changes the structure of regulatory oversight," the move is not a loosening of that oversight, he said.
"This is a very carefully calibrated proposal," Zywicki said in an interview. "What they're trying to do here is allow ... innovators to come up with new proposals that can help consumers without the regulatory red tape and the fear of regulatory uncertainty."
Paul Watkins, current head of the CFPB's office of innovation, helped launch Arizona's fintech sandbox program earlier in 2018. Arizona is the first and only U.S. state to have launched such a program. The state has received 12 applications and approved three of them, Arizona Attorney General Mark Brnovich said in an emailed statement.
On Oct. 11, Omni Mobile Inc. was the first approved Arizona sandbox applicant. It is testing a financial services platform that uses direct automated clearinghouse payments. Grain Technology Inc. is testing an application that offers personalized savings plans and credit opportunities, while Sweetbridge NFP Ltd. is testing a blockchain-enabled product to purchase financing without a credit check.
Blockchain often comes up in discussions with interested businesses, Brnovich said of Arizona's program, adding that he expects "more activity" on that front. Zywicki said he expects card networks, such as Visa Inc. and Mastercard Inc., and banks to take advantage of a national program. Interested parties will likely explore how to use blockchain, what they can do in data security, and the internet of things, Zywicki added.
The CFPB's sandbox would not overshadow or negate the need for Arizona's program, experts said.
"The states and federal government both must take action to keep up with innovation. We don't see this as an 'either/or' proposition," Brnovich said. "We don't see the CFPB's proposals as attempting to pre-empt what we're doing in Arizona, and that's how it should be."
Elsewhere in fintech, questions surround Robinhood Markets Inc.'s latest product announcement. The California-based startup, which touts a fee-free trading app, announced plans to launch Robinhood Checking & Savings, a nonbank account that will provide customers with 3% interest on their deposits. Robinhood initially said the accounts would be insured by the Securities Investor Protection Corp., but the head of the SIPC said that was not the case.
Robinhood later removed reference to the Checking & Savings program, which it now refers to as a cash management program.
Across the Atlantic, London-based Revolut Ltd. secured a banking license from the European Central Bank. The fintech startup will start testing its license in Lithuania in 2019, and it will expand to other European markets throughout the year.
The company will also launch in the Asia-Pacific region in the first quarter of 2019. CEO Nik Storonsky said he hopes to launch in the U.S. in March or April of 2019, CNBC reported.
In cryptocurrency news, Gemini Trust Co. LLC launched a mobile wallet for customers to buy and sell cryptocurrencies, among other functions. The cryptocurrency exchange also recently added support for bitcoin cash, and trading began Dec. 10.
From Dec. 7 to Dec. 14, the SNL U.S. Financial Technology index fell 0.89%.
A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.