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Highlights

What GAO Found

Fintech products—including payments, lending, wealth management, and others—generally provide benefits to consumers, such as convenience and lower costs. For example, fintech robo-advisers offer low cost investment advice provided solely by algorithms instead of humans. Fintech products pose similar risks as traditional products, but their risks may not always be sufficiently addressed by existing laws and regulations. Also, regulators and others noted that fintech activities create data security and privacy concerns and could potentially impact overall financial stability as fintech grows. The extent to which fintech firms are subject to federal oversight of their compliance with applicable laws varies. Securities regulators can oversee fintech investment advisers in the same ways as traditional investment advisers. Federal regulators may review some activities of fintech lenders or payment firms as part of overseeing risks arising from these firms' partnerships with banks or credit unions. In other cases, state regulators primarily oversee fintech firms, but federal regulators could take enforcement actions. Regulators have published consumer complaints against fintech firms, but indications of widespread consumer harm appear limited. The U.S. regulatory structure poses challenges to fintech firms. With numerous regulators, fintech firms noted that identifying the applicable laws and how their activities will be regulated can be difficult. Although regulators have issued some guidance, fintech payment and lending firms say complying with fragmented state requirements is costly and time-consuming. Regulators are collaborating in various ways, including engaging in discussions on financial protections for customers that may experience harm when their accounts are aggregated by a fintech firm and unauthorized transactions occur. Market participants disagree over reimbursement for such consumers, and key regulators are reluctant to act prematurely. Given their mandated consumer protection missions, regulators could act collaboratively to better ensure that consumers avoid financial harm and continue to benefit from these services. GAO has identified leading practices for interagency collaboration, including defining agency roles and responsibilities and defining outcomes. Implementing these practices could increase the effectiveness of regulators' efforts to help resolve this conflict.

Regulators abroad have taken various approaches to encourage fintech innovation. These include establishing innovation offices to help fintech firms understand applicable regulations and foster regulatory interactions. Some use “regulatory sandboxes” that allow fintech firms to offer products on a limited scale and provide valuable knowledge about products and risks to both firms and regulators. Regulators abroad also established various mechanisms to coordinate with other agencies on financial innovation. While some U.S. regulators have taken similar steps, others have not due to concerns of favoring certain competitors or perceived lack of authority. While these constraints may limit regulators' ability to take such steps, considering these approaches could result in better interactions between U.S. regulators and fintech firms and help regulators increase their understanding of fintech products. This would be consistent with GAO's framework calling for regulatory systems to be flexible and forward looking to help regulators adapt to market innovations.

Why GAO Did This Study

Advances in technology and the widespread use of the Internet and mobile communication devices have helped fuel the rise of traditional financial services provided by non-traditional technology-enabled providers, often referred to as fintech.

GAO was asked to provide information on various aspects of fintech activities. This report addresses fintech payment, lending, wealth management, and other products. GAO assesses 1) fintech benefits, risks, and protections for users; 2) regulatory oversight of fintech firms; 3) regulatory challenges for fintech firms; and 4) the steps taken by domestic and other countries' regulators to encourage financial innovation within their countries. GAO reviewed available data, literature, and agency documents; analyzed relevant laws and regulations; and conducted interviews with over 120 federal and state regulators, market participants, and observers, and regulators in 4 countries with active fintech sectors and varying regulatory approaches.

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Recommendations

GAO is making numerous recommendations related to improving interagency coordination on fintech, addressing competing concerns on financial account aggregation, and evaluating whether it would be feasible and beneficial to adopt regulatory approaches similar to those undertaken by regulators in jurisdictions outside of the United States. In written comments on a draft of this report, the agencies stated that they concurred with GAO's recommendations and would take responsive steps.

Recommendations for Executive Action

Agency Affected Recommendation Status
Board of Governors The Chair of the Board of Governors of the Federal Reserve System should invite the National Credit Union Administration to participate in the Interagency Fintech Discussion Forum. (Recommendation 1)
Closed - Implemented

Recommendation status is Closed - Implemented.

In a May 2018 letter, the Chair of the Federal Reserve Board noted that the Federal Reserve agreed that the National Credit Union Administration's (NCUA) oversight of credit unions provides it with experiences and perspectives that are relevant to the group's collaborative work on fintech consumer protection issues and accordingly, Board staff have invited relevant contacts at the NCUA to take part in future meetings of the Interagency Fintech Discussion Forum. In June 2018, Federal Reserve staff advised us that NCUA staff had been invited to participate in this forum and that some NCUA staff attended the forum's meeting held on June 28, 2018.
Federal Communications Commission The Chairman of the Federal Communications Commission (FCC) should discuss with the Presidents of the Federal Reserve Banks of Atlanta and Boston whether the topics of the 2018-2019 biennial regulators meeting of the Federal Reserve's Mobile Payments Industry Working Group would make FCC participation beneficial to the FCC or the group, and take steps accordingly. (Recommendation 2)
Closed - Implemented

Recommendation status is Closed - Implemented.

In June 2018, FCC staff told us they had consulted with Federal Reserve staff about participating in the Mobile Payments Industry Working Group. They noted that they have designated a staff member to serve as point of contact for matters regarding this working group. Regarding the working group's next likely meeting in 2019, the FCC staff indicated that they agreed to discuss this meeting's agenda with the Federal Reserve and determine at that time whether it would be beneficial for FCC to attend that meeting.
Federal Reserve Bank, Atlanta, GA The President of the Federal Reserve Bank of Atlanta should discuss with the Chairman of the FCC and the President of the Federal Reserve Bank of Boston whether the topics of the 2018-2019 biennial regulators meeting of the Federal Reserve's Mobile Payments Industry Working Group would make FCC participation beneficial to the FCC or the group, and take steps accordingly. (Recommendation 3)
Closed - Implemented

Recommendation status is Closed - Implemented.

In a May 2018 letter, the Chair of the Federal Reserve Board noted that staffs at the Federal Reserve Banks of Atlanta and Boston have been in contact with appropriate staff at the Federal Communications Commission (FCC) about the FCC's participation in the 2018-2019 Federal Reserve's Mobile Payments Industry Working Group (MPIW). The letter stated that Federal Reserve Bank staff were scheduling a call with FCC representatives to provide more details on the MPIW and discuss relevant topics and plans for the meeting. In June 2018, Federal Reserve staff provided documentation that Federal Reserve Bank staff had discussed the role of the working group with FCC staff and had agreed to talk again in advance of the next likely meeting in early 2019 about its agenda and possible topics in the mobile payments space that would be of interest to the FCC as well as other regulators.
Federal Reserve Bank, Boston, MA The President of the Federal Reserve Bank of Boston should discuss with the Chairman of the FCC and the President of the Federal Reserve Bank of Atlanta whether the topics of the 2018-2019 biennial regulators meeting of the Federal Reserve's Mobile Payments Industry Working Group would make FCC participation beneficial to the FCC or the group, and take steps accordingly. (Recommendation 4)
Closed - Implemented

Recommendation status is Closed - Implemented.

In a May 2018 letter, the Chair of the Federal Reserve Board noted that staffs at the Federal Reserve Banks of Atlanta and Boston have been in contact with appropriate staff at the Federal Communications Commission (FCC) about the FCC's participation in the 2018-2019 Federal Reserve's Mobile Payments Industry Working Group (MPIW). The letter stated that Federal Reserve Bank staff were scheduling a call with FCC representatives to provide more details on the MPIW and discuss relevant topics and plans for the meeting. In June 2018, Federal Reserve staff provided documentation that Federal Reserve Bank staff had discussed the role of the working group with FCC staff and had agreed to talk again in advance of the next likely meeting in early 2019 about its agenda and possible topics in the mobile payments space that would be of interest to the FCC as well as other regulators.
Consumer Financial Protection Bureau The Director of the Consumer Financial Protection Bureau should engage in collaborative discussions with other relevant financial regulators in a group that includes all relevant stakeholders and has defined agency roles and outcomes to address issues related to consumers' use of account aggregation services. (Recommendation 5)
Open

Recommendation status is Open.

In a May 2018 letter, the Acting Director of the Bureau stated that the Bureau has previously issued principles that include reasonable and practical means for consumers to dispute and resolve instances of unauthorized payments conducted in connection with or as a result of authorized or unauthorized data sharing access. The letter notes that the Bureau is committed to monitoring developments in data aggregation markets and will continue to assess how the Bureau's consumer protection principles may be best realized, including engaging in discussions with other relevant federal and state financial regulators. In October 2018, Bureau staff advised us that they made a presentation on existing consumer protections that would appear to be applicable to consumers using data aggregators at the June 28, 2018 meeting of the Fintech Interagency Discussion Group, which includes OCC, the Federal Reserve, the Federal Deposit Insurance Corporation, and the National Credit Union Administration. They noted they are monitoring private sector efforts related to resolving data aggregation issues and that additional discussions among the regulators about these issues will be held in the future. We will recontact the agency in the future to obtain information on additional actions it has taken. In January 2020, GAO met with CFPB to discuss the recommendation and potential outcomes that could close the recommendation. CFPB officials stated that they will be hosting a public forum on data aggregation in February 2020. They noted that results from the public forum could include action related to the data aggregation recommendation.
Board of Governors
Priority Rec.
This is a priority recommendation.
The Chair of the Board of Governors of the Federal Reserve System should engage in collaborative discussions with other relevant financial regulators in a group that includes all relevant stakeholders and has defined agency roles and outcomes to address issues related to consumers' use of account aggregation services. (Recommendation 6)
Open

Recommendation status is Open.

In a May 2018 letter, the Chair of the Federal Reserve Board noted that the Federal Reserve recognizes the importance of working together to determine how best to encourage socially beneficial innovation in the marketplace, while ensuring that consumers' interests are protected. The letter noted that the Federal Reserve staff have been meeting with other regulators and industry participants. The Chair states that the Federal Reserve will continue to facilitate and engage in collaborative discussions with other relevant financial regulators in these and other settings to help market participants address the important issues surrounding reimbursement for consumers who use financial account aggregators and experience unauthorized transactions. In October 2018, Federal Reserve staff advised us that issues related to data aggregation were discussed at a June 28, 2018 meeting of the Fintech Interagency Discussion Group, which includes OCC, the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Bureau of Consumer Financial Protection. They noted they are monitoring private sector efforts related to resolving data aggregation issues and that they expect to hold additional discussions among the regulator about these issues in the future. In March 2019, the agency noted that it continues to collaborate on this issue. We plan to follow up with Federal Reserve staff to obtain updates on these efforts in the future.
Federal Deposit Insurance Corporation
Priority Rec.
This is a priority recommendation.
The Chairman of the Federal Deposit Insurance Corporation should engage in collaborative discussions with other relevant financial regulators in a group that includes all relevant stakeholders and has defined agency roles and outcomes to address issues related to consumers' use of account aggregation services. (Recommendation 7)
Open

Recommendation status is Open.

In November 2018, FDIC staff confirmed that they have engaged in collaborative discussions with other relevant financial regulators regarding issues related to consumers' use of account aggregation services and associated liability issues. We followed up in April 2019 and they confirmed that their collaboration had yet to produce outcomes that would satisfy the recommendation.
National Credit Union Administration The Chairman of the National Credit Union Administration should engage in collaborative discussions with other relevant financial regulators in a group that includes all relevant stakeholders and has defined agency roles and outcomes to address issues related to consumers' use of account aggregation services. (Recommendation 8)
Open

Recommendation status is Open.

In July 2018, NCUA staff indicated that staff from their agency had recently participated in a discussion forum with other federal regulators and other stakeholders on fintech, and, in particular, account aggregation challenges. They stated that they intend to continue to engage other regulators and related industry stakeholders on fintech topics and emerging technology that can have an impact on credit unions and their consumers. In October 2018, NCUA staff advised us that they have been discussing issues related to data aggregation at meetings of the Fintech Interagency Discussion Group, which includes OCC, the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Bureau of Consumer Financial Protection. In November 2019, NCUA staff said that the agency continues to participate in meetings through the Fintech Interagency Discussion Group and had taken part in a Data Symposium held by the San Francisco Federal Reserve. We plan to follow up with NCUA staff to obtain updates on these efforts and resulting outcomes in the future.
Office of the Comptroller of the Currency The Comptroller of the Currency should engage in collaborative discussions with other relevant financial regulators in a group that includes all relevant stakeholders and has defined agency roles and outcomes to address issues related to consumers' use of account aggregation services. (Recommendation 9)
Open

Recommendation status is Open.

In a May 2018 letter, OCC noted that its staff have met with the other banking regulators and with market participants about account aggregation issues in the past. In October 2018, OCC staff advised us that issues related to data aggregation were discussed at a June 28, 2018 meeting of the Fintech Interagency Discussion Group, which includes OCC, the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Bureau of Consumer Financial Protection. We plan to follow up with OCC staff to obtain updates on these efforts in the future.
Federal Deposit Insurance Corporation The Chairman of the Federal Deposit Insurance Corporation should formally evaluate the feasibility and benefit of establishing an office of innovation or clear contact point, including at least a website with a dedicated email address. (Recommendation 10)
Closed - Implemented

Recommendation status is Closed - Implemented.

In November 2018, Chairman McWilliams announced that FDIC will create an Office of Innovation. In April 2019, FDIC officials told us that the agency is in the process of establishing the new office. Officials noted that the agency is still considering a number of key questions that will shape the office, and has not yet hired the necessary staff to answer those questions. We are closing this recommendation because FDIC has formally evaluated the feasibility and benefit of establishing an Office of Innovation.
National Credit Union Administration The Chairman of the National Credit Union Administration should formally evaluate the feasibility and benefit of establishing an office of innovation or clear contact point, including at least a website with a dedicated email address. (Recommendation 11)
Open

Recommendation status is Open.

NCUA officials told us that in August 2018 the agency established a working group to formally evaluate the feasibility of establishing a dedicated work unit to oversee and lead fintech and innovation efforts, including creating a website and monitoring a dedicated e-mail account. NCUA officials indicated that as of November 2019 the working group was deliberating key considerations related to establishing a dedicated work unit. We plan to follow up with NCUA staff to obtain updates on these efforts in the future.
Board of Governors The Chair of the Board of Governors of the Federal Reserve System should formally evaluate the feasibility and benefits to their regulatory capacities of adopting certain knowledge-building initiatives related to financial innovation. (Recommendation 12)
Open

Recommendation status is Open.

In a May 2018 letter, the Chair of the Federal Reserve Board noted that the Federal Reserve recognizes the importance of formally increasing its knowledge base related to financial innovation. The letter noted that the Federal Reserve has recently organized two nation-wide teams of experts tasked with monitoring fintech and related emerging technology trends as they relate to its supervisory and payment system mandates, respectively. These new teams include representation from all of the Federal Reserve System's Reserve Banks and have leadership from Board staff. These teams' critical objectives include ensuring that fintech-related information is shared across the Federal Reserve System and is used to inform relevant supervisory, policy, and outreach strategies. We plan to follow up with Federal Reserve staff to obtain updates on these efforts in the future.
Commodity Futures Trading Commission The Chairman of the Commodity Futures Trading Commission should formally evaluate the feasibility and benefits to their regulatory capacities of adopting certain knowledge-building initiatives related to financial innovation. (Recommendation 13)
Open

Recommendation status is Open.

When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Federal Deposit Insurance Corporation The Chairman of the Federal Deposit Insurance Corporation should formally evaluate the feasibility and benefits to their regulatory capacities of adopting certain knowledge-building initiatives related to financial innovation. (Recommendation 14)
Open

Recommendation status is Open.

In November 2018 FDIC staff advised us they are working to address this recommendation by the end of 2018. We followed up in April 2019 and they confirmed the agency had met with two regulators that have adopted knowledge-building initiatives. However, more steps need to be taken to fully address the recommendation, particularly documenting FDIC's consideration of adopting knowledge building initiatives.
National Credit Union Administration The Chairman of the National Credit Union Administration should formally evaluate the feasibility and benefits to their regulatory capacities of adopting certain knowledge-building initiatives related to financial innovation. (Recommendation 15)
Open

Recommendation status is Open.

NCUA officials told us that, as of November 2019, the internal working group that the agency established in August 2018 was evaluating the feasibility and benefits of adopting certain knowledge-building initiatives related to financial innovation. Specifically, the working group was assessing initiatives such as stakeholder outreach, research and collaboration opportunities, grants and other technical assistance, and existing supervisory tools. We plan to follow up with NCUA staff to obtain updates on these efforts in the future.
United States Securities and Exchange Commission The Chairman of the Securities and Exchange Commission should formally evaluate the feasibility and benefits to their regulatory capacities of adopting certain knowledge-building initiatives related to financial innovation. (Recommendation 16)
Closed - Implemented

Recommendation status is Closed - Implemented.

SEC concurred and has taken action to address this recommendation. In October 2018, SEC launched FinHub, which serves as a resource for public engagement on SEC's fintech-related issues and initiatives. Additionally, FinHub serves as a liaison to other domestic and international regulators regarding emerging technologies in financial, regulatory, and supervisory systems. FinHub staff stated that they hold bilateral meetings with financial regulators in other countries roughly twice a month and, among other items, discuss knowledge-building initiatives, such as regulatory sandboxes. FinHub staff also participate in an International Organization of Securities Commissions (IOSCO) Fintech Working Group, which comprises regulators from various countries and meets monthly to discuss fintech-related initiatives of each regulator. As part of a report issued by the IOSCO Fintech Working Group in April 2019, SEC conducted a study of various knowledge-building initiatives used by other regulators and whether those initiatives would be appropriate for SEC to employ, including reviews of regulatory sandboxes, pilot programs, proofs of concept, innovation competitions, and agency-led accelerators. For this study, SEC staff leveraged insight gained through conversations with internal and external stakeholders to understand various types of initiatives whether they would be applicable and valuable to the SEC. According to staff, SEC has also participated in Tech Sprints, similar to the Hackcelerator described in GAO-18-254, at the Massachusetts Institute of Technology and in the United Kingdom.

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