Members of a House Financial Services Subcommittee grilled financial regulators' technology unit heads on tech topics like artificial intelligence, crypto custody and central bank digital currencies during a Tuesday hearing. In their answers, leaders of these tech units stressed the importance of balancing innovation with risk management.
Representatives from six federal agencies—the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, National Credit Union Administration and Securities and Exchange Commission—shared written statements about technology research and policy projects, though few new details were revealed.
"We want to talk about how government agencies, while they're not at the forefront of innovation frequently, they definitely can stop innovation dead in its tracks," said Rep. French Hill, chairman of the Digital Assets, Financial Technology and Inclusion subcommittee, in opening remarks. "This hearing is the first time that the committee has called each of you to testify about your agency's work related to innovation, and, regrettably, when I looked at the Government Accountability Office recent report, maybe some of that progress is lacking."
Patrick McHenry, a Republican from North Carolina and chairman of the full committee, said he's concerned that the agencies' tech offices aren't "operating as intended," and that regulation shouldn't be derived from enforcement.
Rep. Stephen Lynch, a Democrat from Massachusetts, said there's a dichotomy between the financial services' "rule-based system" and the tech ethos of "move fast and break things."
"We have this clash of cultures…that is playing out in the fintech world," Lynch said. "It's going to be a decision at some point of, 'How do we blend those two cultures in a way that protects consumers and depositors and investors, yet allows us to adopt all this innovation?'"
Financial regulators began creating tech-focused offices or roles in the last several years, as artificial intelligence, crypto and other technology development picked up pace, but regulatory scrutiny of fintech and digital assets has increased over the last two years with the rise of interest rates and the spring banking crisis.
For example, the Fed, OCC and FDIC
Rep. Hill, a Republican from Arkansas, said while interagency cooperation is positive, he's heard anecdotally that banks are facing more regulatory scrutiny recently. He also questioned when previously-mentioned additional resources to aid compliance from regulators would come.
The Port Angeles, Washington-based bank said it has already invested "significant resources" into enhancing its compliance management for fintech partnerships, after self-reporting a problem last year.
Michael Gibson, director of the division of supervision and regulation at the Fed, said the agency hopes to provide additional resources around third-party management "very soon."
"What we've heard is that, given all the turmoil in the banking industry this year and the heightening risks, that we're definitely focusing on those risks," Gibson said.
Several questions also signaled an appetite for clearer crypto legislation, or further enforcement, following the collapse of
Rep. Maxine Waters, a Democrat from California, said some members of Congress are "truly interested in the role that crypto is going to play in the world," and invited the agencies' representatives to act as educators in small groups.
While regulators' oversight of tech policy was the main focus in Tuesday's hearing, Hill also mentioned that the agencies themselves could use more oversight as well, following reports from The Information and Fintech Business Weekly that the
