Lawmakers and fintech advocates expect Joe Biden's
administration to boost the financial innovations that will lead to digital
dollars and stronger personal ownership of digital identities but also close
some regulatory loopholes that financial technology companies could be
exploiting.
The president-elect, who has made economic equality a focus,
will take office amid a rapidly evolving fintech landscape that will see
advancements in artificial intelligence in finance.
Amy Kim, chief policy officer for the Chamber of Digital
Commerce, said it was "a great signal for the industry" that Biden
had included so many people familiar with digital assets on his transition
team, such as former Commodity Futures Trading Commission Chairman Gary Gensler
as well as Chris Brummer and Reena Aggarwal, both of Georgetown University.
Brummer hosts a fintech podcast for CQ Roll Call.
Kim said the chamber, which represents the interests of the
cryptocurrency and blockchain industry, would push during Biden's term for
greater clarity on how financial institutions registered with the Securities
and Exchange Commission should handle digital assets. Isaac Boltansky, director
of policy research for Compass Point Research and Trading, said financial
services issues will fall directly behind the pandemic, health care and the
environment — and will leap into that first tier of priorities if they intersect
with economic access and fairness.
"Fintech has a unique runway to tell a story about
expanding access," he said in an interview. Boltansky said the COVID-19
pandemic and the challenges the government encountered in delivering financial
assistance to individuals earlier this year exposed the "arcane
nature" of the U.S. payments system.
"The fact that we're still talking about sending people
checks in 2020 should be deeply frustrating to everyone involved. So I think
there will be a willingness, if not an eagerness, to examine the financial
architecture," he said. "That provides an opportunity for
fintechs."
Fintech in Congress
Rep. Bill Foster, a Democrat from Illinois, said that with
small majorities in the House and Senate, and a president-elect with a
"natural instinct" for compromise, Democrats would look for
"early, straightforward bipartisan wins." Foster leads the House
Financial Services Committee Task Force on Artificial Intelligence.
"Fintech is an area where that may happen simply
because there isn't a natural Democratic or Republican position on many, maybe
most, of the issues," he told CQ Roll Call. "It's clear that fintechs
are becoming increasingly important, and that they're also going to be an
important tool to deal with the problems of the underbanked people and the
maldistribution of wealth."
Establishing a road map for creating a secure digital
identity, which could modernize public services such as health care, government
assistance and licensing, is a top priority next term and has already earned
bipartisan support, Foster said. A bill on digital identity that Foster
introduced this year was co-sponsored by Republican Reps. John Katko of New
York and Barry Loudermilk of Georgia, as well as Rep. Jim Langevin, a Democrat
from Rhode Island.
Arkansas Rep. French Hill, a Republican on House Financial
Services, said the two parties could likely compromise on a data privacy and ownership
framework in the next term. Hill serves on the committee's Task Force on
Financial Technology.
"You can't have an effective digital financial services
future without data ownership clarity and privacy protection," he said in
an interview. "I go back to that as a fundamental decision Congress has to
wrestle with, which will speed up, improve and make America more competitive on
fintech."
Hill and Foster said establishing a U.S. digital dollar
would be a top priority with bipartisan support, as China and other countries
move forward with their own central bank digital currencies.
Foster said a Biden administration would take a collaborative,
international approach with other democracies to building digital currencies.
"We have natural shared interests in an efficient system that works across
borders and respects privacy protection against government abuse," he
said.
Hill said disagreements may emerge when it comes to the
structure of a U.S. digital dollar. The Republican said he supports a tokenized
dollar that runs on a blockchain payments rail that would borrow from
traditional cryptocurrencies, such as bitcoin and ether, which use distributed
ledger technology.
Competing proposals that would allow individuals to hold
free, no-fee bank accounts or "digital wallets" with the Federal
Reserve have found support among some Democrats, including Sen. Sherrod Brown
of Ohio. The ranking Democrat on the Senate Banking Committee introduced a bill
this year that would establish digital wallets hosted by the Fed for U.S.
residents, citizens and businesses.
The bill borrowed from an idea for "FedAccounts"
proposed in 2018 by professors Lev Menand of Columbia Law School, Morgan Ricks
of Vanderbilt University Law School and John Crawford of the University of
California, Hastings College of the Law.
Menand is a member of Biden's transition team, as is Mehrsa
Baradaran, a law professor at the University of California, Irvine. Baradaran's
push to revive banking services at post offices has influenced and is sometimes
incorporated into account-based digital dollar proposals.
Credit and Artificial Intelligence
Arkansas' Hill and Diego Zuluaga of the Cato Institute said
fintechs that evaluate credit applications or determine scores may face
stricter regulations under the Biden administration.
"I believe that could be an area where certain voices
inside the Biden administration could delay the greater use of artificial
intelligence, which I think is an important contribution to greater credit
availability for more families," Hill said.
Zuluaga, an associate director of Cato's Center for Monetary
and Financial Alternatives, said the Biden administration may face internal
conflicts around fintechs that extend credit to underserved, lower-income and
younger customers. In those cases, credit often comes at a higher cost than in
the past, he said.
"On one hand, you do want to make finance available to
people. On the other hand, you don't want it to be unnecessarily
expensive," he said in an interview. "I think for those fintechs,
it's going to be very much a question of whether they can justify what they do
and whether they can satisfy the officials who are in charge of this."
Foster said deploying artificial intelligence in credit
decisions could have "huge advantages" but must be done carefully.
"There has to be a very nuanced attitude toward
checking the performance of algorithms before they're deployed to make sure
that your training sets, which have all kinds of historical biases embedded in
them, don't simply perpetuate those biases," he said.
Regulatory Arbitrage
Robert Hockett, a professor at Cornell University Law
School, said fintechs built on "regulatory arbitrage," such as
payment apps that provide banking services without a banking charter or digital
assets that replicate derivatives or corporate securities, would face stricter
enforcement than under President Donald Trump. Hockett worked on the presidential
campaigns of Sen. Bernie Sanders, I-Vt., in 2016 and 2020.
"A big part of the fintech sector right now is basically
about regulatory arbitrage. It's about finding loopholes or ways to get out
from under our finance regulatory regime" by calling banking by another
name, he said. The Biden administration will "move very quickly to close
any loopholes through which fintech firms are currently exploiting ambiguities
in the financial regulatory regime."
That likely includes rolling back the national fintech
charter established by the Office of the Comptroller of the Currency under
Trump that would allow payments firms to get a charter from the federal
government, rather than by going state by state, Hockett said. The charter was
halted by a lawsuit that's still pending.
"I think we're going to see a revival of anti-fraud
regulations, financial regulation and tech regulation that avoids fintechs
becoming a kind of loophole out of the financial regulatory regime,"
Hockett said. "That's going to be good for everybody except for the
criminals."
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