OCC fears unregulated fintech companies could lead to financial crisis


Nothing new: Regulators have previously flagged these issues, saying that poorly regulated fintechs continue to push further into the banking space.

Some fintech companies even pose as banks, when in reality they have partnered with one bank that handles all banking services.

  • Misrepresentations are common in the crypto space. For example, crypto broker digital travel implicitly misleading client crypto deposits were FDIC insured. But it has also developed with the proliferation of neobanks and great apps.
  • Consumers don’t always know which entity manages and benefits from their money, and fintechs aren’t always clear in their disclosures.

No baby: Last week, the Office of the Comptroller of the Currency (OCC) took a small step in “regulation by enforcement” by requiring Virginia-based companies Blue Ridge Bank to better monitor the risks posed by its fintech partners. The bank must also obtain agency approval before partnering with new fintechs or offering new products to existing fintech partners. But talking about formal fintech regulation has been just that – talking.

  • The CCO reorganized earlier this year to step up scrutiny of small and medium banks that follow non-traditional business plans or partner with fintechs, but he will still only oversee technological changes.
  • The Consumer Financial Protection Bureau (CFPB) also said it plans to exercise greater monitoring fintechs, but this is not yet the case.
  • This week, several regulatory agencies have made conflicting statements regarding crypto regulation. Federal Bank chief Michael Barr has promised to make crypto a priority from the fedbut Securities and Exchange Commission Chairman Gary Gensler and OCC Hsu both said there was in no hurry at regulate digital currencies.

The big takeaway: Hsu’s observations about banks partnering with fintechs are not wrong. Many banks, especially smaller banks, find it more profitable and faster to partner with a fintech company than to develop digital capabilities in-house.

But it is puzzling and paradoxical that the same agency which welcomed dilatory crypto regulation now warns of a financial crisis due to a lack of regulation. It is not unreasonable to assume that the lack of regulation has been a contributing factor to the recent crypto crisis. And while the OCC boasts about the containment of crypto fallout away from traditional asset markets, its lack of momentum on fintech companies could help bring about a fintech catastrophe.


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