On February 15, Treasury Secretary Graham Steele delivered remarks to the Finance Club in Washington, DC, where he discussed the US Treasury Department’s agenda for financial institutions on fintech, cryptocurrency and cloud service providers. Saying that “significant potential exists to exploit the underlying technology in fintech, digital assets and cloud services”, Steele warned that common risks exist across these areas related to inadequate oversight, excessive concentration and consumer harm.
With regard to non-banks and fintech, Steele noted that the participation of non-banks in financial services is a key priority for Treasury. He commented that while non-banks add diversity and competitive pressures to consumer finance markets, they have “largely not been subject to the kind of comprehensive regulation and oversight that banks are subject to”, creating a number of “risks related to regulatory arbitrage, privacy for data. and security, bias and discrimination, and consumer protection, among others.” Steele highlighted recent Treasury Department recommendations that focused primarily on using existing authorities held by the federal banking regulators and the CFPB as a way to coordinate oversight of bank-fintech partnerships and credit underwriting models. Another problem area, Steele noted, is large technology companies — those that generally seek to enter the consumer finance market via relationships with banks and third-party fintech firms, and that avoid the regulatory, oversight and risk management requirements that would apply. if they offered banking services. “Big Tech firms may have incentives to leverage their existing commercial relationships, consumer data, and other resources to enter new markets, expand their networks and offerings, and scale rapidly to achieve capabilities that others—including custodian institutions—do not have and cannot can replicate,” Steele said.
Steele also touched on the Treasury’s crypto-asset targets, referencing several studies examining “the potential financial stability implications of crypto-asset activities” and the risks and opportunities they could present to consumers, investors and businesses. He also addressed concerns about misleading claims and representations in this area (for example, regarding the availability of deposit insurance) and noted that several gaps exist in existing authorities over cryptoassets. Finally, Steele discussed a recent Treasury report, which examined the potential benefits and challenges associated with the adoption of cloud services technology by financial services firms (covered by InfoBytes here).
