This week, Bloomberg reported that “big banks and the powerful lobbying groups representing them are readying a fight on multiple fronts, in what’s already shaping up as a definitive year for the rivalry between traditional banks and their tech competition” as fintechs’ monumental growth eats into incumbent banks’ profits. And the upstarts show no sign of abating after “a transformative year” in 2021 with Forbes reporting that fintechs had “received over $130b in capital representing 20% of all capital invested in 2021.” According to Bloomberg, a group, representing more than 40 of the largest banks, is attempting to convince policymakers that “nonbanks are getting away with ‘regulatory arbitrage,’ avoiding requirements traditional banks face.” And while fintechs now have a trade group advocating for them, 2022 is poised to be the year when regulation makes its biggest attempt to catch up with technology.
Late last year, speaking before the Federal Reserve Bank of Philadelphia’s Fifth Annual Fintech Conference, Acting Comptroller of the Currency Hsu underscored the need to modernize the financial regulatory perimeter. In his speech, Hsu stated that fintechs should be held to banking standards, and that his office is deepening its relationships with state regulators, who just this week dropped its lawsuit against the agency over fintech charters. According to Reuters, the lawsuit by a group of U.S. state banking regulators was “part of a years-long fight between state and federal regulators over who should regulate app-based financial services and online lenders,” as the sector feels the heat on multiple fronts, both domestic and international. In a study by the World Bank late last year, which included responses from 118 central banks and other financial regulators from 114 jurisdictions, over half of regulators in advanced economies stated that fintech has remained a high priority. For regulators in emerging and developing economies, approximately two-thirds had stated that they see the sector as an increased priority going forward.
There is no doubt that regulatory pressures are heating up for the fintech industry and will continue to do so, but the same sort of technological innovation that gave rise to these products and fueled their growth may also hold the solution moving forward. We have previously written about prior calls for fintechs to be regulated more like banks and the case for such companies to leverage regtech solutions such as those provided by Sigma. In fact, a July 2021 report from the Bank of International Settlements (BIS) makes this point crystal clear. As they write, “the adoption of targeted regtech and suptech solutions may merit consideration by regulators as part of the policy response to fintech developments.” Indeed, just as regulators are seeing regtech solutions as part of implementing policy moving forward, so too do fintech companies in making sure they comply with that policy. For fintech companies such increased pressure means using solutions from the regulatory technology space will be essential in order to stay ahead of the curve.