The world’s economic powerhouse has just plunged into a complete regulatory mess regarding one of the most promising innovation of this decade, fintech.
The Conference of State Bank Supervisors, which represents state banking regulators, has sued the Office of the Comptroller of the Currency (OCC) in the U.S. District Court of Columbia to stop their plans of streamlining regulation across states through a fintech charter.
The schism between state regulators and federal regulators is now likely to take years of legal wrangling, with the matter probably ending up at the Supreme Court, leaving America, already ranked as the worst regulatory environment for fintech companies in the developed world, in a standstill as far as regulations are concerned, unable to adapt to the very fast moving innovative landscape in finance.
Their balkanized state by state approach which does not even have passporting – something the far more diverse EU, divided through cultures and languages, still manages perfectly – has been subject to scathing critiques with Yale’s Law School stating:
“The requirement of individual state licensure can kill a startup early in its life, depriving consumers of beneficial innovation in return for few additional protections.”
OCC’s charter isn’t something hugely exciting for this space. Some say its requirements are no different than for a bank, it can be costly and potentially stifle innovation due to extensive requirements, but it’s voluntary, and might be far quicker as well as easier than getting a license in every single state.
The states, however, are complaining about “consumer protections,” including the New York State Department of Financial Services, which had its former superintendent preside over the disastrous BitLicense that led to a backlash with many bitcoin services blocking the country, alongside Iran and North Korea.
Overall, while we were waiting for America to move fast and catch-up now that it has a new administration, it appears to be moving in the opposite direction, with the lawsuit potentially freezing updates to old and outdated laws, potentially preventing the country from adapting to a fast changing landscape.
For others, there couldn’t be any better news. London, specifically, probably can’t believe their luck. Regulators there have all embraced fintech innovation and gone further, supporting it with money, with sandboxes, with innovation centers, with grants for research. Their efforts are paying off as Fintech investment in Europe is now booming.