When Trump was inaugurated in January, I saw article after article on the potentially crippling changes the new administration might make that would affect the FinTech industry. After reading what the experts had to say, I wrote about the potential of the administration to weaken or dismantle several regulations. Since then, I’ve mostly heard crickets or confusion about the same issue. The administration’s failed healthcare bill, the war in Syria and other pressing issues have overshadowed the fate of FinTechs. So, I want to take some time to revisit what’s happening.
The confusion over regulatory issues in the U.S. is slowing down a flourishing FinTech industry. This regulation includes complexities at both the state and federal level. The evidence for the slowdown is this: over the past few quarters Asian FinTechs began attracting more venture capital funding than those in the U.S., for the first time. There are two key reasons for these U.S. regulation issues. The first involves the ongoing debate of how FinTechs should be treated (i.e. as tech companies, chartered banks, etc.), and how the government should regulate these companies without stifling their innovation potential. To be fair, these issues existed prior to the current administration as FinTech is still a relatively new industry. The second issue involves the stance that’s being espoused by the Trump administration – and the general public, experts, traditional financial institutions and FinTechs have been left in the dark on what will happen next.
Should FinTechs be subject to federal banking rules? Some argue that FinTechs should be subject to the same rules as banks, while others such as the Center for Responsible Lending and the New York Department of Financial Services, criticize such regulation.
In terms of the new government administration, what have they actually done in the last 4 months? They’ve propagated confusion. Experts say the unclear messages we’re receiving are unprecedented as compared to previous administrations. What will happen to Dodd-Frank? International trade agreements? These are a few of the core questions that need to be answered – and the responses will drastically affect FinTechs.
Here’s what information we do have so far:
Confusion and Conflicts: The administration has struggled to fill in key roles, and there are a host of potential conflicts with Trump’s appointees. Two officials, for example, recently joined the Labor Department. Prior to joining, they were lobbyists who fought some of Obama’s labor rules including a policy in which financial advisors should act in the best interest of their client when providing retirement advice. Although previous administrations have been in danger of potential conflicts of interest, the Trump administration is bordering on a different level. They’ve repealed ethics rules including one in which lobbyists are prohibited from joining companies they lobbied over the past two years.
Big Banks: Trump has also gone against many of his core campaign promises by bringing in Steve Mnuchin, U.S. Treasury Secretary and Gary Cohn, the Director of National Economic Council. Both previously worked at Goldman Sachs. If you remember, Trump campaigned against big banks during his candidacy, something that now appears to be a blatant lie. Some of Mnuchin’s statements indicate that he may be out of touch with the technology world, and the changes that are being pushed forward by the FinTech industry. He was quoted saying “I think that it is so far in the future – in terms of artificial intelligence taking over American jobs — I think we’re, like, so far away from that… not even on my radar screen.”
Dodd-Frank: Mnuchin has been ordered to review Dodd-Frank, and will be given 120 days to do so. The administration is already dismantling small pieces of the act. Recently, the Senate voted along party lines to repeal regulation that requires energy companies to disclose payments they make to foreign governments. It’s still unclear which portions of the act the administration will get rid of or modify moving forward, and where Democrats who helped create and maintain the act might succeed in countering Mnuchin.
Fiduciary Rule: There have been several confusing delays around the start date for implementing a fiduciary rule that was created under the Obama administration. In a nutshell, the rule says that anyone who provides financial advice must put their clients’ interests first over any potential financial gain. This requirement was deeply contentious for several years after the recession, and was finally approved in 2016. Fiduciary advocates believe the regulation is critical, and needs to be passed as soon as possible. Firms believe that delays in fiduciary rule implementation still may not be enough. They want sufficient time to be able to adapt their compliance systems, and are worried about the additional costs.
There’s no question that clear regulations are needed for FinTech growth in the U.S. to continue. Regardless though, companies (like Cinch!) that continue to place the customer first will thrive with or without supportive regulation. Clear and supportive regulation will just make it that much easier.
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