KEY POINTS

  • Global financial regulation ballooned after the 2008 financial crash. In fact, the number of regulatory publications, changes, and announcements increased 492% between 2008 and 2015. This came on top of already extensive regulation and oversight governing the financial services sector, as regulators looked to increase consumer protection and prevent such an event from occurring again.
  • Heavy regulation can hinder innovation, and this issue is exacerbated in the US by the existing regulatory framework. The country's regulatory system involves many different players at the federal level, as well as a regulator for each state. Each regulator also covers different jurisdictions and issues different rules and requirements for financial firms. This complexity not only makes the US regulatory environment harder for fintechs to navigate in the first place, but it's a major barrier to the development of a coherent fintech policy.
  • Fintechs are using different models to achieve compliance — but none are ideal. Some partner with legacy institutions to piggyback off their licenses, which introduces complexity to business models, typically requires that fintechs share their revenue with partners, and leads to uncertainty over which firm bears the compliance burden. Other fintechs choose to operate independently, but they must decide which states to launch in first, as very few fintechs can afford to acquire the licenses necessary to deploy nationwide.
  • Meanwhile, the US is notably behind when it comes to establishing a coherent policy on fintech. Although the country arguably maintains a global lead when it comes to the size of its fintech industry, there are several segments where the UK and Europe are pulling ahead. These regions have acted by introducing special frameworks and rules for fintechs, while none of the US regulators have formed a policy — let alone reached a cross-agency consensus.
  • Some US regulators realize the benefits fintechs offer and have implemented initiatives to make compliance easier. Major regulators including the OCC, CFPB, and SEC have launched initiatives designed to help them better understand the risks and opportunities of fintech, and what that means for existing regulatory regimes. Several have hinted they may alter regulation as a result.
  • But a supportive regulatory environment for US fintechs is still a long way off. These initiatives vary widely and have little overlap with each other, which means it's [...]