Opening Pandora’s Regulatory Box: What to Watch for in 2019

Dan Spalinger, Senior Consultant, Double Diamond Group and Rich Consulting

Working in a regulatory-heavy environment can feel like being inside a washing machine at times, with the accurate forecasting of a 10-day hurricane plot. So where does fintech regulation stand at the beginning of a new year? In a state of flux as usual, it would seem.

A year ago, many of us were coming off holiday dinners with relatives who spent time bending our ears on the value of Bitcoin investing and the benefits of distributed ledgers.

Today? Bitcoin’s value has plummeted 75% from a year ago, and faith in businesses based around it has in many cases gone the way of Evidently, flights to quality from recent stock market fluctuations didn’t result in investments in Bitcoin as they did gold and other more traditional stores of value.

This isn’t to say that the technology behind it doesn’t have value. From food labels to music distribution to government records, recordkeeping processes across the globe are seeing the impact of the promised permanency and immutable nature of blockchain technology.

When it comes to oversight of this cryptographic tool, New York continues to be at the forefront in the U.S. Four years after the state introduced the idea of a “bitlicense,” it now has taken another step forward by creating a task force.

The group is empowered to inform the New York legislature and governor about the effects of digital currency on financial markets and the state as well as the energy usage caused by cryptocurrency mining, while enhancing transparency and consumer protection. Its panel findings are due to be submitted by December 2020.

Hopefully its roster of experts (to be composed of nine individuals from various sectors that touch on blockchain technology) will be consulted in the intervening period for its early findings, as two years is a long time to wait in any technology space.

On the federal agency front, a proposed name change over at the Consumer Financial Protection Bureau resulted briefly in a new acronym for many of us to learn and then to unlearn in mid-December. Those of us not concerned with the not-inconsequential costs associated with this rebranding have instead been wondering if that meant a change in its regulatory and enforcement activity. The BCFP – sorry, CFPB – had already been partially defanged with the arrival of the current administration. Was that trend continuing?

For an agency seen as out of favor, it still brought a number of actions during 2018, including setting ceilings for Fair Credit Reporting Act (FCRA) disclosure charges, fining banks for improperly reopening accounts and neglecting stop payment requests, going after mortgage debt relief lawyers and looking at the sometimes-cozy marketing relationships between some colleges and depository institutions. Any thought of being able to fly under its radar should be heavily discounted.

Further, with the change in House leadership this past November has come emboldened rhetoric from congressional heavyweights such as Rep. Maxine Waters and Sen. Elizabeth Warren demanding that the agency reinvigorate its staff and oversight.

Of particular interest to fintech businesses is the further development of the CFPB’s “sandbox.” To date, the sandbox has been a lonely place, with only a single entity participating and receiving a “No Action Letter” from the CFPB (reducing in scope regulatory concerns during the development of a particular product or service) since it introduced the program in 2012.

But the decision-making process has been revamped, resulting in expedited timelines, a reduction in the information that must be shared with the CFPB, and the provision of further regulatory protections. This may result in an increase in applicants and the support of additional innovations.

Whether the above examples touch upon your industry segment or sub-segment or not, they should serve as a reminder that political and regulatory bodies ought to be seen as an ever-opening Pandora’s Box. They require close attention when creating and supporting the pillars and pathways that make up our financial system—no matter who is front and center on TV.