OCC’s Hsu: Bank-fintech partnerships ‘here to stay’, while crypto-hogging ‘brain space’

WASHINGTON, Oct 13 (Reuters) – A top U.S. banking regulator said his caution about banks working with fintechs is not meant to stifle those arrangements, but rather reflects his concern that firms need to adequately measure their risks.

Michael Hsu, the acting comptroller of the currency, also told Reuters in an interview that policymakers may be spending too much time and energy thinking about cryptocurrency at the expense of figuring out the best way to oversee other types of financial technology.

“Look, bank-fintech partnerships, they’re here to stay. I’m not trying to do away with them,” Hsu said Wednesday. “This is the future, so let’s get the future right.”

BANKING ON FINTECH

In remarks last month that raised eyebrows across the financial services industry, Hsu said the Office of the Comptroller of the Currency had observed partnerships between banks and fintech growing at “exponential rates” and becoming increasingly complex.

“My strong feeling is that this process, if left to its own devices, is likely to accelerate and expand until it is a serious problem or even a crisis,” Hsu said at the time.

House Republicans criticized Hsu’s comments in a letter sent to the OCC chief on Tuesday, arguing that the technological innovation made possible by bank-fintech partnerships has allowed banks to reach underserved customers.

Hsu explained Wednesday that his concern about banks and fintech joining forces is the possibility that responsibility for monitoring risk could become murky as multiple firms, sometimes with different incentives, share responsibility.

“When everything is done in a bank, we know exactly who is responsible when things break,” he said. “When you start chopping these things up … and the business models are different, that’s when the risk can be lost.”

Hsu said the right regulatory approach to fintech partnerships remains unclear, as agencies work to come to grips with the various issues at play and then decide which authorities to use.

OVERWEIGHT CRYPTO

As for cryptocurrency, Hsu said he was actually concerned about politicians in Congress and regulators overextending themselves to the detriment of other areas.

“We spend too much time on crypto,” he said. “It’s interesting, it has difficult issues … but relative to other tech and banking issues, I think we’re now kind of overweight crypto.”

The rapid rise of crypto and related products such as stablecoins has caught the attention of a number of government agencies, including the OCC, the Securities and Exchange Commission and the Treasury Department, and has even been the focus of an executive order from President Joe Biden.

In Congress, lawmakers are juggling several measures to establish some kind of regulatory framework for cryptocurrency.

But Hsu warned that with so many policymakers focused on this one facet of emerging fintech issues, other issues more relevant to banks may be neglected.

“Crypto just takes up a lot of brain space for a lot of people, both on [Capitol] Hill and the regulatory community,” he said. “The continued occupation of brain space, it’s starting to worry me now that we’re not spending that time and attention on something else.”

Reporting by Pete Schroeder and Hannah Lang in Washington Editing by Matthew Lewis

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