FSC warned giant tech firms could pose dangers to the financial system

2 Oct, 2020 01:27
source: Singularity Financial

Singularity Financial Hong Kong October 1, 2020 –  On Tuesday, the Task Force on Financial Technology held a hearing entitled, “License to Bank: Examining the Legal Framework Governing Who Can Lend And Process Payments In The FinTech Age”.  The hearing was led by Chairman Stephen Lynch (D-MA) with Ranking Member Tom Emmer (R-MN).

A subunit of the Financial Services Committee (FSC), the Task Force on Financial Technology, issued a background memorandum on the hearing and lead the committee’s examinations of emerging technologies.

The memo explains how, since technology firms are offering financial services and yet do not have a comprehensive regulatory framework as banks do, the traditional lines of banking and commerce may be blurred. As a result, the FSC Memo states the hearing, “…will examine the legal framework and regulatory scope governing the oversight of traditional banks and other commercial businesses – especially technology companies – engaged in financial activity and the effect on consumer protection, financial stability, and the traditional separation of banking and commerce.”

As Task Force Chair Stephen Lynch (D-MA) noted, “Banking is becoming less centralized. Consumers are facing more choices than they ever have.”

Citing Covid-19 as dramatically impacting the way Americans have not been able to bank in branches, use physical currency, and receive government benefits and loans, the Memo states, “…it is unclear whether most consumers understand the difference in protections and oversight between “banks” and “technology companies” when participating in financial activities, like sending money to a friend.”

House Fintech Task Force Chair Stephen Lynch warned giant tech firms could pose dangers to the financial system. “I see too-big-to-fail fintechs in the future in a big, big way,” cautioned the Massachusetts Democrat.

The share of loans involving nonbank fintech lenders has soared over seven-fold in five years to 38 percent in 2018 from 5 percent in 2013.

While acknowledging fintechs could be the wave of the future in personal finance, Lynch claimed so far the evidence that fintechs could lead to more of the unbanked becoming banked is mixed.

In response to a line of questioning from Representative Rashida Tlaib (D-MI) about whether fintechs had lived up to this promise, witness Raúl Carrillo of the Demand Progress Education Fund said:

“I have not seen any hard evidence that these private fintech companies are quote unquote saving the day. In fact, I am worried about these transactions happening without proper protections.”