WASHINGTON — The bankruptcy of fintech middleware firm Synapse earlier this year has demonstrated gaps in the financial regulatory regime, according to Acting Comptroller of the Currency Michael Hsu, who added that federal guidelines for money transmitter licensing would close some of those gaps.
"Banking is no longer done by just banks, and [
That is because many fintechs are licensed at the state level as money transmitters, and those state-level rules, regulations and supervision do not always hold fintechs to a consistent standard, Hsu said.
"We have a … regulatory system — chartering, supervision, regulation — which is fairly well developed and mature and understood," Hsu said. "And for the Synapses and the fintechs of the world, it's basically done at the state level as money transmitters … and that regime was developed a long time ago for something much simpler. We do not have the federal payments, e-money payments regime that other countries have, which is really a better fit for purpose today."
Hsu echoed comments made
"There are practical challenges to establishing the same standards in every state and limits as to how well those standards can address risks of business models that extend well beyond state borders," Liang said.
The Conference of State Bank Supervisors — which represents state financial regulators — has taken exception to the idea that state-based money transmission licensing is inadequate, saying in a statement responding to Liang's comments that "the absence of a federal regulator does not, in and of itself, constitute a regulatory gap." The Financial Technology Association, which represents many of the biggest fintechs, said that Liang's comments were a "step in the right direction" and that the group looks forward to working with regulators and Congress "to allow for the optionality of accessing FedNow and other Fed services for leading payments companies."
At Tuesday's conference, Hsu also said that the
"We have to be careful. If there are schemes and approaches that just complicate it, that usually ends badly," Hsu said. "It's good for us as practitioners, regulators, those who are in the field [to] unpack this and not just take it sight unseen that tokenization is great."
He said the technology has potential in some forms. "If you get those foundations right, we set the guardrail, and then as regulators, we get out of the way and let innovators innovate the problem. Without those guardrails, you just mix a lot of things together, and I think we've seen — particularly in the crypto space — bad actors ruin [things for] everybody else."
The technological advancements made in recent years around cryptocurrency and blockchain technology have had one important and positive effect, which is to refocus the traditional financial industry on how and whether it serves low- and moderate-income consumers, Hsu said. But there is an important role for regulators to play in ensuring that the promise of inclusion that so many fintechs tout actually delivers for those consumers, he said.
"It really has forced … quite a few conversations on inclusion, because I think that part of the pitch for crypto, DeFi, etc. is more inclusive, quote-unquote," Hsu said. "I put that in quotes because it's not necessarily more inclusive, but it … has forced the traditional [financial] system to say, 'Look, we need to do that too.'
"That is a good thing, because I think some of the criticisms of traditional finance of not being inclusive have legs. Those are not made-up arguments. You talk to underrepresented groups, [they] have not had good experiences with the traditional finance system, which means access. And that's something that we all need to be working on," Hsu said.
