The not so good side of the "Fintech Charter"

The Fintech have gained great popularity in recent years, positioning themselves among the main innovations of today. These industries, which try to combine the best of Wall Street and Silicon Valley in one place, usually have the support of public opinion and with quite positive reviews. Despite this, these companies are not exempt from government regulations.

In the United States, financial technology firms, better known as Fintech, have had to comply with the same regulations as any other financial company operating in the country.

The problem that the Fintech claimed with this, is that they do not follow the same schemes of the traditional financial companies; therefore, they could be adversely affected, even to the extent that their innovative element is compromised by following the regulations.

Given this problem, the Office of the Comptroller of the Currency (OCC, for its acronym in English), decided to create the "Fintech Charter" or Charter of the Fintech, which is based on regulations specifically designed for these companies.

The Treasury Department, which recently published a report advocating a light approach to the regulation of the Fintechs, also spoke on this point; all this so as not to impede innovation.

Although at first glance it may seem a very positive measure, since a specific regulation is being developed for these companies, which will allow them to innovate and provide better and better services to their clients, not everything is so good.

Before continuing, it is important to remember why such harsh regulations were placed on Fintechs in the first place. During the crisis of 2008, financial engineering, also cataloged as an innovator, led many to lose their homes, jobs and lifelong savings to seek ever higher returns.

Although the letter will give Fintech the same status and benefits as a national bank, it will also allow you to ignore the state interest rate caps and some other consumer protections.

A very worrisome issue is that the letter, seeking to protect the Fintech, has set difficult goals to meet or that bypasses the state laws on consumer protection.

The OCC assures that it will be in charge of guaranteeing the financial inclusion of the Fintech products, but this can be very complicated to fulfill, since these companies are not usually linked to a specific geographic location, which makes it difficult to measure the inclusion of their products.

And another measure, which directly affects these companies, is that the OCC ensures that it will subject Fintech to the same liquidity requirements as banks, which could represent a gigantic obstacle for new companies wishing to enter this sector.

The "Fintech Charter" is a good initiative, the first step towards the right path, taking into account that Fintech companies do need their own regulations, considering how different they are from traditional financial industries.

However, this measure still has several weaknesses that must be solved. Innovation is the key to evolution, that point is clear. But governments must make sure to protect innovation without neglecting consumer protection. In addition, they must set realistic goals that both they and the companies can fully comply with.