Regulators in the United States are struggling to keep up with the rate of technological innovation overwhelming financial services.
Between technology startups, traditional companies seeking to use emerging products such as blockchain and non-traditional companies entering finance, regulators around the world are re-evaluating existing frameworks and rules.
The United States has tackled the problem without a common organizational strategy, relying instead on a patchwork of state and federal initiatives lacking a common plan, according to a new report by The Pew Charitable Trusts.
Put simply, the existing framework is not prepared for modern digital finance products.
Considers SoFi, a purely digital company offering loans, asset management and banking operations. At various times, it would fall under the jurisdiction of the Office of the Currency Controller, the Office for Consumer Financial Protection and the Securities and Exchange Commission, to name a few. This is first to consider the state regulators.
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If a company like this also wants to work with Apple and support money transfers through Apple Pay, regulators regulating consumer technology and telecommunications companies could also involved.
Steve Boms, president of Allon Advocacy and Envestnet's public policy consultant, said the regulators' network makes it difficult to provide innovative solutions to the market.
"The fundamental issue behind the dissemination of new technology in the financial services space remains the access of consumers and data consultants," Boms said. However, he said that a recent report published by the US Treasury Department, which requires a more flexible regulatory approach to fintech, is a step in the right direction.
The report outlines more than 80 recommendations for legislators. Some are good, some are not, said Nick Bourke, director of Pew's consumer finance project.
He agreed with the idea that regulators should coordinate to establish a set of objectives for fintech regulation, but thinks it is a mistake to report CFPB rules on payday loans.
Mr. Bourke called the report "a great way to start a conversation" and an example of how regulators can work with financial institutions and technology providers to identify barriers to innovation. Recommends that the United States adopt a policy in line with the regulatory authorities in Hong Kong, Singapore and Australia, which promote innovation with a coordinated strategy focused on consumer protection, said Mr Bourke.
"Increasing the scope of action and focusing more on objectives, coordinating more with each other and maintaining consumer protection before the mind are all that US regulators should probably do now," he said, adding that the current approach exposes the industry to uncertainty and puts consumers in danger.
David Lyon, founder and CEO of Oranj, said the risks will diminish as industry continues to educate regulators about technology, as well as capturing consumer support. This is easier said than done, he said.
"The reality is that there will always be some sort of learning curve with regulators," Lyon said.
"As technology becomes more mainstream, you'll see regulators react faster as we've seen with many innovations like mobile banking, robo advisors, etc.," he said. "Regardless of the pace, it is essential that the conversation continues to move forward."