Congressman Patrick McHenry is in his sixth term in the US Congress where he represents the citizens of North Carolina’s 10th District. McHenry is also the Chief Deputy Whip, where he assists Majority Whip Steve Scalise in rallying the GOP members to support important legislative initiatives. Before he took on this leadership role, McHenry was recognized as an ardent supporter of both consumers and small business everywhere. He is also one of the principle authors of the JOBS Act of 2012 – the law that legalized investment crowdfunding. Known for being able to work across the aisle to get things done, McHenry recently authored new legislation designed to improve the Fintech ecosystem in the US.
The shift to “internet finance” is a global movement. As far as regulations go, the UK is consistently recognized as leaders with their light touch approach and thoughtful rulemaking. Policy makers understand that rule upon regulation is a myopic approach to fostering a vibrant Fintech ecosystem. But the UK is not alone in its quest to dominate disruptive finance. Singapore, Australia, and other countries have targeted Fintech growth as strategically important. While the US remains the financial center of the globe, nothing can be taken for granted as Fintech firms will inevitably vote with their feet and have a preference to operate in countries that recognize the importance of finance.
HR 6118 or the “Financial Services Innovation Act of 2016, was announced by McHenry last month. HR 6118 is part of the broader objective of improving the innovation environment in the US – or the “Innovation Initiative” launched with Congressman McCarthy. HR 6118 was specifically crafted to create new offices within the 12 different financial regulators establishing “Financial Services Innovation Offices or FSIOs within these agencies. These new entities will work with innovative Fintech firms to help them manage their way through the regulatory process and perhaps provide benefits to consumers sooner rather than later. Fintech has the potential to create a more inclusive financial system better serving the under-banked while providing greater access for both issuers and smaller investors.
At the time of the announcement, McHenry explained;
“For generations, America has been the world’s leader in innovation, spanning a variety of fields from transportation to medicine to software. One area we’re falling behind, is the financial services industry. The bill I introduced today changes that. The Financial Services Innovation Act represents a mindset shift in the way we address financial regulation.”
This past week, Crowdfund Insider caught up with Congressman McHenry to learn more about his most recent legislative initiative.
Crowdfund Insider: What was the catalyst to create The Innovation Initiative with Congressman McCarthy?
Congressman McHenry: It actually goes back to last year. Majority Leader McCarthy and I had recently visited Silicon Valley and saw how innovation was transforming so many different industries. We thought ‘why can’t the same thing happen in government?’ That is what the Innovation Initiative aims to do: bring the innovative thinking that is so prevalent in the private sector, into the government. For me it was a natural extension to my past work with angel investing and investment crowdfunding and tied nicely to my growing interest in fintech.
Crowdfund Insider: Your announcement regarding H.R. 6118, the Financial Services Innovation Act of 2016, tackles a tough issue: a byzantine regulatory approach that harms both consumers and SMEs. Is it enough? Wouldn’t it be better to rationalize the regulatory approach by reducing the number of agencies engaged in enforcing financial regulations?
Congressman McHenry: I think so. Yes, there is a lot of duplicative and overlapping financial regulation and yes we should work to avoid multiple regulators entering the same space. Having said that, the financial markets benefit from having a diverse group of regulators for a couple reasons. First, it promotes healthy competition among the regulators in areas where there may be overlap. Second, in the areas where there is no overlap, we benefit from regulators specializing and therefore better understanding specific parts of the financial system.
Crowdfund Insider: While the US remains the global financial center – nothing is a given right nor should it be taken for granted. Do regulators understand this? What about executive office officials?
Congressman McHenry: I can’t speak for the regulators, but my fear is that they do not recognize that the United States is falling behind—or, if they do—they simply don’t know how to stop it. That’s one of the reasons why the Financial Services Innovation Act is so important: to promote America’s broader interest of maintaining our nation’s leading role in the world’s financial system.
Crowdfund Insider: Several countries appear to be leading the pack when it comes to Fintech Innovation and forward thinking rule-making such as the UK. Did you review global regulatory approaches in crafting HR 6118?
Congressman McHenry:We did look at other countries but I knew with our nation’s unique regulatory framework, we would have to design something new to fit it.
Crowdfund Insider: It is easier for large financial service firms to navigate compliance demands. It is the smaller, entrepreneurial firms that really suffer. Is there awareness of this fact on Capitol Hill?
Congressman McHenry: We are getting there. There have been more and more bills before the Financial Services Committee that seek to promote smaller businesses and startups. I’ve tried to do my part to raise awareness of it as well with my bills that increase access to angel investing and investment crowdfunding. But you are correct: we need to do an even better job—especially with our colleagues across the aisle—in explaining how the complex regulations that define our financial system, tilt the playing field in favor of the biggest firms.
Crowdfund Insider: This should be a bipartisan initiative as no one is against regulation. It just needs to be thoughtful and right sized so it allows for innovation within the financial service sector. You have a reputation for garnering bi-partisan support for legislation. Will this be the case with HR 6118?
Congressman McHenry: That is the goal. The Financial Services Innovation Act is meant to start the conversation on how we can update our regulatory framework to encourage greater innovation. Over the coming weeks and months, I’ll be working with my colleagues on both sides of the aisle about how we can advance these goals.
Crowdfund Insider: Have you discussed your objectives with any of the regulatory agencies in DC? If so – have they been supportive?
Congressman McHenry: We’ve had preliminary conversations with Washington regulators and, generally speaking, the feedback has been positive.
Crowdfund Insider: What is next on the list for the Innovation Initiative? Do you have big plans for 2017?
Congressman McHenry: Majority Leader McCarthy and I look forward to continuing our work on the Innovation Initiative for the remainder of this Congress. Ultimately our goal is to advance a package of common-sense, innovative solutions that make the government work better for the American people. Looking ahead to next year, I will continue to work on the three fintech bills I’ve now introduced, building support among my colleagues, and eventually getting them passed and signed into law.