New US legislation is proposed to help support fintech

The draft Financial Services Innovation Act was recently introduced before the US House of Representatives.

If passed in its present form, the Bill would require a number of US financial regulators to set up a Financial Services Innovative Office and each identify areas of existing regulation that they might waive or modify to accommodate an "alternative compliance strategy" filed by companies seeking to use financial technology (fintech).

Businesses filing an alternative compliance strategy application would need to demonstrate that their financial innovation would serve the public interest, that it improves access to financial products or services, and that it does not present systemic risk to the US financial system and promotes consumer protection, according to the proposed new law.

According to the Bill, fintech innovations could be authorised within four months of applications being filed, and potentially much faster if regulators act more speedily than the backstop timeframes for considering and determining the outcome of the applications set out in the legislation.

Approval of fintech innovations would have to be sealed with an enforceable compliance agreement with the relevant regulator. The agreement would apply for at least one year and would help provide businesses with approved financial innovations with qualified protection against possible enforcement action during that period.

Regulators such as the Board of Governors of the Federal Reserve System, the Department of the Treasury, the Federal Trade Commission and the Securities and Exchange Commission would be subject to the new Bill if it passes into law. 

The proposals can be viewed as the US' answer to the regulatory sandbox scheme developed by the UK's Financial Conduct Authority (FCA). The FCA recently said that some businesses from the US were among those that had successfully applied to take part in testing of fintech products and services under the first iteration of its sandbox initiative.

Other financial centres, including Hong Kong and Singapore, have also outlined plans for a regulatory sandbox.

Financial technology expert Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com, said: "It is great to see the US picking up on the need for regulators to help smooth the path for fintechs. The UK was the forerunner in creating a progressive regulatory regime for fintech, and the fact that other key territories are now following suit is a positive development for the international growth of the fintech sector."