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Fintech Subcommittee Spars with Regulators Over Lack Of Innovation In Financial Services

Congressional Republicans called for the Biden Administration to prioritize the use of technology to create a more robust financial services landscape while regulators pushed for a premium on responsible innovation during a Tuesday, Dec. 5 hearing.

Rep. French Hill, the chairman of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, led the effort to push for more innovation in the space during the meeting.

Hill posited that despite a number of noteworthy regulatory actions taken under President Joe Biden’s watch, not enough has been done to push the financial services landscape forward. Among some of the problematic initiatives and missteps cited by Hill include the Fed’s Novel Activities Supervision Program aimed at enhancing supervision of the digital asset space, the gutting of the 2018 Office of Innovation created by the Consumer Financial Protection Bureau (CFPB) and irresponsible leadership and mismanagement at the Office of the Comptroller of the Currency.

“Today we want to talk about how government agencies, while they’re not at the forefront of innovation frequently, they definitely can stop innovation dead in its tracks,” Hill said. “This hearing is the first time that the Committee has called each of you to testify about your agency’s work relating to innovation. Regrettably, when I look at the Government Accountability Office’s recent report, maybe some of that progress is lacking, so we’ll have a good discussion about that today.”

As such, the “Fostering Financial Innovation: How Agencies Can Leverage Technology to Shape the Future of Financial Services” panel discussion included representatives from a number of federal agencies who discussed the work they are doing to facilitate innovation while also protecting consumers.

Testimony at the hearing was provided by:

  • Valerie A. Szczepanik, director of the Strategic Hub for Innovation and Financial Technology at the Securities and Exchange Commission (SEC)
    Donna Murphy, the acting deputy comptroller for the Office of Financial Technology and deputy comptroller for compliance risk policy in the Office of the Comptroller of the Currency
  • Mark Mulholland, the deputy chief information officer for management at the Federal Deposit Insurance Corporation
  • Ann Epstein, assistant director of the Office of Competition and Innovation of the Consumer Financial Protection Bureau
  • Charles Vice, director of Financial Technology and Access at the National Credit Union Administration
  • Michael S. Gibson, director of the Division of Supervision and Regulation for the Federal Reserve

From X (formerly Twitter)

Financial Services GOP @FinancialCmte

"#WATCH: Chairman @PatrickMcHenry to financial regulators’ fintech offices at today’s hearing: 'These offices should not be used to smother innovation and technology, or simply ignore it.'"

Gibson said the Federal Reserve, for its part, has, in fact, looked for ways to boost stability-inducing, cost-saving and inclusive innovation in the banking system but warned novel technologies do often carry inherent risks.

“The Federal Reserve is committed to supporting responsible innovation, both by the firms we oversee directly, and in the financial system broadly,” Gibson said. “However, innovation can also lead to risks, some of which are familiar and others more novel. The Federal Reserve Board, alongside the other federal bank regulatory agencies, has a statutory responsibility to supervise banks to help ensure they operate in a safe and sound manner and in compliance with all applicable laws.”

Szczepanik said the SEC, too, encourages industry players to help shape a responsibly innovative fintech landscape because doing otherwise puts the entire financial system at risk. “The aim is to get this balance right, which will help investors and enable our capital markets to continue to flourish. Investor and market harms and other adverse developments in using new technologies can negatively impact the acceptance of such technologies and potentially curtail investment in them or arrest their development altogether.”

Visit here for a livestream of the event:

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