The Financial Technology Association (FTA) appreciates the opportunity to provide feedback on the Financial Stability Oversight Council’s request for public comment on its proposed analytic framework for financial stability risk identification assessment, and response and authority to require supervision and regulation of certain nonbank financial companies. 

Nonbank fintech companies are a primary source of competition to legacy providers that have failed to serve traditionally unserved or underserved American consumers and small businesses. Nevertheless, in contrast to fintech companies, traditional financial services entities manage and control access to critical infrastructure that fintech companies rely upon to conduct business. Yet, while fintech competitors are still dwarfed in size, scale, and scope they are subject to robust oversight by state and federal financial regulators. As with banks, fintechs comply with a range of state and federal laws designed to address operational risk management to satisfy AML/CTF requirements, to protect consumers and small businesses, and to mitigate any risks from becoming systemic threats. 

Against this backdrop, FTA’s recommendations are made with the understanding that the FSOC was established by Congress to identify and mitigate the most serious of risks that rise to the level of both “systemic” and a “threat” – a high bar. Accordingly, great care should be applied in not broadening the FSOC’s framework, especially in a way that would impede healthy competition and innovation. 

In order to stay true to the statutory intent of the FSOC and prevent an overbroad and arbitrary framework, FTA discusses three themes for recommendations. The proposed changes must (1) require analytics and metrics with greater rigor than what FSOC has proposed, (2) take into account that the Dodd-Frank Act establishes a high bar for determining a systemic threat and whether existing regulation is sufficient to mitigate identified risks, and (3) reflect that fintech activities, and the nonbank companies that engage in them, are not a systemic threat. 

Read FTA’s full comment letter in response to FSOC’s request for public comment here.