{ "id": "R46332", "type": "CRS Report", "typeId": "REPORTS", "number": "R46332", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 623187, "date": "2020-04-28", "retrieved": "2020-04-29T22:34:46.859890", "title": "Fintech: Overview of Innovative Financial Technology and Selected Policy Issues", "summary": "Advances in technology allow for innovation in the ways businesses and individuals perform financial activities. The development of financial technology\u2014commonly referred to as fintech\u2014is the subject of great interest for the public and policymakers. Fintech innovations could potentially improve the efficiency of the financial system and financial outcomes for businesses and consumers. However, the new technology could pose certain risks, potentially leading to unanticipated financial losses or other harmful outcomes. Policymakers designed many of the financial laws and regulations intended to foster innovation and mitigate risks before the most recent technological changes. This raises questions concerning whether the existing legal and regulatory frameworks, when applied to fintech, effectively protect against harm without unduly hindering beneficial technologies\u2019 development.\nThe underlying, cross-cutting technologies that enable much of fintech are subject to such policy trade-offs. The increased availability and use of the internet and mobile devices could offer greater convenience and access to financial services, but raises questions over how geography-based regulations and disclosure requirements can and should be applied. Rapid growth in the generation, storage, and analysis of data\u2014and the subsequent use of Big Data and alternative data\u2014could allow for more accurate risk assessment, but raises concerns over privacy and whether individuals\u2019 data will be used fairly. Automated decisionmaking (and the related technologies of machine learning and artificial intelligence) could result in faster and more accurate assessments, but could behave in unintended or unanticipated ways that cause market instability or discriminatory outcomes. Increased adoption of cloud computing allows specialized companies to handle technology-related functions for financial institutions, including providing cybersecurity measures, but this may concentrate financial cyber risks at a relatively small number of nonfinancial companies who may not be entirely comfortable with their regulatory obligations as financial institution service providers. Concerns over cyber risks and whether adherence to cybersecurity regulations ensure appropriate safeguards against those risks permeate all fintech developments.\nFintech deployment in specific financial industries also raises policy questions. The growth of nonbank, internet lenders could expand access to credit, but industry observers debate the degree to which the existing state-by-state regulatory regime is overly burdensome or provides important consumer protections. As banks have increasingly come to rely on third-party service providers to meet their technological needs, observers have debated the degree to which the regulations applicable to those relationships are unnecessarily onerous or ensure important safeguards and cybersecurity. New consumer point-of-sale systems and real-time-payments systems are being developed and increasingly used, and while these systems are potentially more convenient and efficient, there are concerns about the market power of the companies providing the services and the effects on people with limited access to these systems. Meanwhile, cryptocurrencies allow individuals to make payments entirely outside traditional financial systems, which may increase privacy and efficiency but creates concerns over money laundering and consumer protection. Fintech is providing new avenues to raise capital\u2014including through crowdfunding and initial coin offerings\u2014and changing the way companies trade securities and manage investments and may increase the ability to raise funds but present investor protection challenges. Under statute passed by Congress, insurance is primarily regulated at the state level where agencies are considering the implications to efficiency and risk that fintech poses in that industry, including peer-to-peer insurance and insurance on demand. Finally, firms across industries are using fintech to help them comply with regulations and manage risk, which raises questions about what role finetch should play in these systems.\nRegulators and policymakers have undertaken a number of initiatives to integrate fintech in existing frameworks more smoothly. They have made efforts to increase communication between fintech firms and regulators to help firms better understand how regulators view a developing technology, and certain regulators have established offices within their organizations to conduct outreach. In another approach, some regulators have announced research collaborations with fintech firms to improve their understanding of new products and technologies. If policymakers determine that particular regulations are unnecessarily burdensome or otherwise ill-suited to a particular technology, they might tailor the regulations, or exempt companies or products that meet certain criteria from such regulations. In some cases, regulators can do so under existing authority, but others might require congressional action.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R46332", "sha1": "1a3154fb3ec48f67e88404b00a7b3193ed9c10eb", "filename": "files/20200428_R46332_1a3154fb3ec48f67e88404b00a7b3193ed9c10eb.html", "images": { "/products/Getimages/?directory=R/html/R46332_files&id=/0.png": "files/20200428_R46332_images_db53c51b7f096a6197c05b1f7348abe4be407178.png", "/products/Getimages/?directory=R/html/R46332_files&id=/1.png": "files/20200428_R46332_images_3564857b631f50e4b9ea571b9d88c0f0d4f15896.png", "/products/Getimages/?directory=R/html/R46332_files&id=/2.png": "files/20200428_R46332_images_72677049c9d2f6e26c704423087701a13ffe6292.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R46332", "sha1": "dcd8c91752b0b495f09a19118d49f4e9eca7cd7f", "filename": "files/20200428_R46332_dcd8c91752b0b495f09a19118d49f4e9eca7cd7f.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4898, "name": "Financial Market Regulation" } ] } ], "topics": [ "Economic Policy" ] }