Plans for a Federal FinTech “Sandbox” Draw Controversy

Home » FinTech » FinTech News » Plans for a Federal FinTech “Sandbox” Draw Controversy

Plans for a Federal FinTech “Sandbox” Draw Controversy

With the rise of FinTechs over that past decade or so, one of the big questions that has plagued regulators is how to protect consumers from these new financial products without stifling progress. One proposed solution that’s been adopted both abroad and at home is the concept of a “sandbox” that allows approved companies to try new ideas without running into further regulatory restraints. As Bloomberg Businessweek reports, some state regulators and federal regulators are embracing the concept of sandboxes while others blast the idea.

Back in December, the Consumer Financial Protection Bureau proposed the creation of a federal sandbox as a way to foster FinTech innovation. Such a program would invite companies to apply in order to receive certain regulatory exemptions. However participants would be required to detail their efforts and plans for protecting consumers and reimbursing anyone who was harmed.

Naturally not everyone is on board with the CFPB’s sandbox plans. Among them is former New York Department of Financial Services superintendent Mario Vullo. Questioning the move, Vullo said, “Why allow companies that aren’t ready to provide financial services to the public to be permitted to do so?” Vullo has been critical of FinTech regulation in the past, filing a lawsuit against the Office of the Comptroller of the Currency over their intention to offer special purpose national bank charters. Commenting on the deregulatory trend for FinTech, Vullo said, “Ten years ago, we went through a crisis because the loosening of regulations permitted institutions to take on risk at the expense of the consumer. It’s like people have amnesia.”

Despite assertions that a sandbox program would betray the very principle the CFPB was created on, Paul Watkins of the agency’s Office of Innovation recently explained, “[I]nnovation is part of consumer protection—these things are not opposed.” He went on to say that the purpose of the agency “is to ensure competition within markets and ensure consumer access,” noting that these current efforts are helping to do just that.

Turning from federal to state efforts, last year Arizona governor Doug Ducey signed House Bill 2434, which made the state the first in the U.S. create a FinTech sandbox. At the time of that signing, Arizona Attorney General Mark Brnovich said, “The idea of a regulatory FinTech sandbox is not new, and while it’s being discussed at the federal level, Congress is moving at a glacial pace.” He continued, “Arizona has always been a state for big ideas and this is just one more place where we are trailblazing in entrepreneurship and innovation. I hope to see the sandbox serve as a catalyst for capital investment in Arizona and provide opportunities for Arizona businesses and consumers to thrive.” Bloomberg notes that, currently, Arizona’s sandbox only allows companies to offer test products to consumers in the Grand Canyon state, although the CFPB’s plan could change that.

Like we’ve seen with the pushback against the OCC, the CFPB does face opposition in their plans to create a FinTech sandbox. As a result it’s not clear how likely the proposal is to pass. However Bloomberg notes that more than 3,300 FinTech startups have emerged since 2010 despite the lack of such a program. Thus, regardless of whether these latest regulatory plans come to fruition, you can be sure that innovation won’t be stopped anytime soon.

Comments

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

Equifax Fined Up to $700 Million Due to Data Breach

Nearly two years after Equifax announced that a data breach had exposed the information of approximately 147 million customers, the credit bureau has reached a settlement deal. This morning the Federal Trade Commission (FTC) announced that Equifax had agreed to pay at least $575 million and as much as $700...

American Express Announces New Blue Business Cash Card

Over the past decade, credit card company American Express has worked to align themselves with small business owners. This includes founding the increasingly popular retail holiday Small Business Saturday, observed the weekend after Thanksgiving each year. Continuing that mission, this week the company announced the launch of a new small...

Mobile Bank Varo Money Refiles for FDIC Insurance

For years one of the big questions surrounding FinTech is whether startups could one day become their own independent banks. Although a few companies have attempted to obtain charters of their own, they've had varying levels of success — none of which have been overwhelmingly positive. However, as Crowdfund Insider...