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Financial Services Committee (FSC) Chair Patrick McHenry (R-N.C.) hopes the fourth time is the charm for his legislation to create “regulatory sandboxes” allowing financial services providers to offer innovative products and services under an alternative compliance plan.
The Financial Services Innovation Act, which McHenry previously introduced in 2016, 2019 and 2022, would require federal regulators to create Financial Services Innovation Offices (FSIOs) within their agencies to handle petitions from companies seeking to test-drive new consumer offerings without fear of enforcement.
“Technology has radically changed how consumers interact with the financial system, as well as how financial institutions interact with regulators,” McHenry said in a statement. “Budding fintech firms currently operate in fear of heavy-handed penalties brought down by regulators that have failed to work with Congress to provide clear rules of the road.”
FSIOs would administer “enforceable compliance agreements,” outlining certain regulatory and statutory modifications or waivers. The legislation also allows for “multiparty agreements,” allowing an agency to become a party to a previously established enforceable compliance agreement.
The legislation would establish an FSIO Liaison Committee to facilitate cooperation and information-sharing among each agency’s FSIO regarding company petitions. The committee also would consult with state regulatory entities to inform and advise the public about financial innovations and agency regulations.
The Financial Stability Oversight Council (FSOC) would be required to study the aggregate impact of enforceable compliance agreements entered under the bill and publish a report on its findings. The report would consider whether certain existing regulations or practices are burdensome to innovation, restrictive to competition or limiting to product or service improvements that may benefit consumers. The council also would be responsible for identifying any overlap in agency regulations and offering recommendations for addressing it.
“This common-sense legislation will give entrepreneurs an opportunity to test legal and regulatory waters before taking new products and services to market,” McHenry said. “Innovators have long flocked to American markets because we strike the right balance between fostering innovation and consumer protection — this bill will help ensure the United States continues to lead the world in financial innovation.”
McHenry, who intends to retire when his term ends, pointed to instances where “the regulatory sandbox approach has proven successful,” in a press release mentioning “states like North Carolina, which launched its financial and insurance regulatory sandbox through the North Carolina Innovation Council in 2021.”
The bill has raised concerns among consumer advocates who wrote to McHenry and FSC Ranking Member Maxine Waters (D-Calif.) saying the measure could expose consumers to “risky” products and services.
“Creating these regulatory ‘sandboxes’ for companies would force agencies to shirk their statutory duties to enforce the law and protect consumers and instead prioritize allowing risky and unproven products into the marketplace before they have been fully evaluated to ensure that they comply with the law and are safe for consumers to use.”
The 18 consumer advocacy groups undersigned on the letter also claim the proposed application process is inadequate to protect consumers and does not require companies to provide enough information to meaningfully evaluate products or services to be covered by a regulatory sandbox.
source : https://www.doddfrankupdate.com/DFU/ArticlesDFU/McHenry-reintroduces-Financial-Services-Innovation-90799.aspx