Fintech firms should welcome, not fear, regulation because it is in their interest to have an "established framework" in which to operate, says the president of the Federal Reserve Bank of Philadelphia.
While regulators around the world ponder how best to deal with the host of new digital entrants in the financial services world, Patrick Harker is seeking to offer reassurance, insisting that "regulation is not just a question of protecting consumers; it’s a question of protecting the innovators as well".
In a speech, Harker says that trust in the mechanisms that safeguard financial systems is the foundation of their soundness and strength.
"Fintech firms need that trust the same as any other bank or financial institution. This underlying expectation is why it’s best to get in early on regulation. It’s in these firms’ self-interest to provide a layer of trust building that regulation can offer."
Repeating the mantra of watchdogs around the world, he says that his desire is not to stifle innovation but to encourage it while trying to guard against the associated risks.
Harker stresses that he has no hand in drafting regulations. In the US there is currently an argument brewing between the Office of the Comptroller of the Currency (OCC), which is planning a national bank charter for fintech firms, and state regulators led by New York State Department of Financial Services.
Harker says there is an "open question about whether or who should supervise fintech lenders in the United States, made all the more complicated by the interplay between our state and federal regulatory frameworks".
He continues: "But, particularly if we’re talking about loans to consumers, it’s only a matter of time until federal consumer protections will come into play."
Meanwhile, the governor of France's central bank has also been talking about how fintech regulation should be applied. During a speech, François Villeroy de Galhau again reiterated France's rejection of the 'sandbox' approach taken in the UK, Singapore and other fintech hotspots.
"We have also committed the Banque de France and the ACPR to a gradualist and proportionate approach in the regulation and supervision of Fintechs. We think it is still more appropriate than a “sandbox”, which could create threshold effects," he explains.
Meanwhile, the central bank is conducting its own fintech related experiments, with the recent creation of a lab and the appointment of a chief digital officer.