Government regulation is top of mind among fintech innovators these days. In late September, several Silicon Valley Bank executives and I met with top financial industry policymakers in Washington, D.C. I did a Q&A with SVB Fintech Mashup host Shai Goldman, who asked me to share my views on how the regulatory landscape is evolving.
Q: SVB President and CEO Greg Becker and you, in addition to other SVB executives, had meetings this fall with top officials at Treasury, Commerce and the Federal Reserve. How are they viewing fintech innovation?
A: As new fintech ideas and old regulatory structures intersect, the policymakers are very interested, across the board, in learning more about what is happening. In fact, we traveled to Washington, D.C. because of interest from the Federal Reserve and Treasury, and we brought along several clients representing different fintech sectors. These entrepreneurs described how they are delivering financial services in new ways and why customer demand is growing.
Q: How eager are they to start writing new rules?
A: As you would expect, the recent financial crisis is still on regulators' minds. However, I saw a significant appetite to learn more and saw a willingness to create constructive policy to encourage innovation. We are at an early stage in this discussion, and we will continue to encourage more dialogue between policymakers and industry.
Fintech cuts across a lot of products and services, so no single regulator in Washington, D.C. is responsible for supervising it all. For example, the CFPB has jurisdiction over consumer-related issues, the Fed/OCC and FDIC oversee businesses from the banking perspective and the SEC considers financial market-related issues. Each agency has begun to evaluate the impact of fintech innovation, though they are at varying stages.
One area that is drawing some attention is marketplace lending. For example, the U.S. Treasury has solicited public comment on this type of lending and has recently received over 100 letters. In late October, Antonio Weiss from Treasury gave a speech on marketplace lending that provides a good road map of how regulations may evolve.
Q: Entrepreneurs and regulators typically look at the regulatory process with different mindsets. What do you wish regulators to understand from the point of view of entrepreneurs?
A: Regulators should understand that entrepreneurs must move fast in a very competitive industry and they need answers quickly. I don't think we can afford to miss this innovation window because Washington and the financial industry are still fighting battles from the last cycle. The U.K. and other countries are trying to outpace the U.S. to develop fintech hubs, so this is a real threat. Yes, we need to be responsible, measure for systemic risk and have appropriate consumer protections. These are all sound goals, but they should not come at the expense of innovation.
Q: What do you wish entrepreneurs to understand from the point of view of regulators?
A: Entrepreneurs like to innovate, then engage. But they should understand that flying below the radar only works so long and then they would benefit from engaging with regulators. There are many categories of fintech that are now at this inflection point.
I think fintech innovators should want to engage; it is in their long-term interest to have a voice in shaping the outcome of what we will see from Washington. It is better to have a seat at the table to help build a more favorable regulatory structure. The best companies in fintech will continue to distinguish themselves by being actively engaged with regulators. Smart engagement can be a competitive advantage, not a disadvantage.
Q: If you could change D.C. thinking around fintech to make it more conducive to innovation, what would it be?A: There is a policy component to the fintech discussion that is not purely technical regulation. I am getting increasingly concerned by the coordinated efforts by government and industry in the U.K. to brand themselves the global center of fintech. For example, the U.K. government has changed tax policy to encourage seed stage investing, revised immigration policy to encourage highly skilled tech teams to come to the U.K. and opened innovation centers around the country. Senior U.K. government leaders are also planning to sponsor fintech focused trade missions. I am hoping that some area of the U.S. government sees these types of initiatives and decides to become a champion of the U.S. fintech sector.