Fintech Requires Tight Controls to Mitigate Data Privacy Risks, Treasury Report

  • Richard Marley
  • November 17, 2022
  • 2 minutes read
  • 558

As per the new report by the U.S. Department of the Treasury, Fintech requires tight controls to mitigate data privacy risks in order to protect consumers and maintain market integrity.

The U.S. Department of the Treasury issued a report citing fintech companies for “creating new risks to consumer protection and market integrity.”

The report, titled “Assessing Impacts of New Entrant Nonbank Firms on Competition in Consumer Finance Markets,” stated that there’s increasing concentration among federally insured banks, and new nonbank firms—particularly fintech firms—are “significantly” increasing the number of companies and business strategies that are struggling to compete in the target customer finance markets. This could be creating competitive pressures.

Fintech, although enabling new features, also introduce new concerns relating to data confidentiality and regulatory arbitrage, the report claims. The research urged tighter controls of financial activity in nonbank companies. Treasury Secretary Janet Yellen stated that “innovation and competition must work hand in hand in a healthy economy,” adding that the report provides methods to “maintain fair, transparent and competitive markets while encouraging responsible innovation that benefits consumers. With existing authorities, regulators can encourage competition and innovation while further safeguarding and protecting consumers.”

There are several suggestions in the report. Regulators should offer “clear and consistently applied” supervision of bank-fintech interactions. The report states, a bank-fintech partnership that provides consumer financial products and services offered by an insured depository institution “must operate in compliance with the laws, regulations and risk management standards applicable to the IDI.” Moreover, while emerging non-bank enterprises unbundle key consumer financial products into limited offers, they are generally not subject to the same level of thorough regulation and oversight as IDIs.

Additionally, regulators need to “robustly” monitor bank-fintech lending partnerships to make sure that consumer protection regulations are followed and that they don’t negatively affect customers’ financial stability. 

Suggested Read: The Rise of FinTech Services can Spur Financial Risk: Says U.S. Bank Regulator