The Milken Institute Center for Financial Markets, a non-partisan think tank with a mission to increase global prosperity, has published a document on modernizing financial regulation in the US. Most regulations overseeing the financial services sector were written for an analog world. There is a pressing need to update and streamline the regulatory environment as there can be profound benefits to both consumers and business.
The authors of the report, Jackson Mueller, Michael Bright and Phillip Swagel, have bulleted out 10 proposed steps for financial regulatory modernization. They note that;
A key role for regulation is to ensure that risk-taking financial institutions are not imposing risks on taxpayers to create short-term income by free-riding on taxpayer-provided guarantees. Put more simply, regulation should minimize externalities … to balance safety and risk taking.
The Ten Steps for Regulatory Modernization include:
- Volker Rule Reform – regulators should let banks trade securities again
- Basel Reform – Regulators should keep what works and remove what is harming business lending.
- Financial Stability Oversight Council (FSOC) Reform – council should be changed into a way of bridging the moats that regulatory agencies have created
- Reform of the Qualified Mortgage Rule – policy should not discourage originators from holding mortgages they originate as opposed to selling them off
- Tax Reform for Financial Institutions – tax code should be adjusted to level the playing field between debt and equity for financial institutions to fund themselves
- Trading Reform – regulators should allow intermediation to take place inside financial institutions. They should also better understand new tech and stratagies
- Capital Reform – regulators must ensure that bank capital is of high quality
- Consumer Protection Reform – Give the CFPB preemptive authority
- Streamlined licensing for Fintech firms – remove the state and federal fragmentation in licensing requirements
- Regulatory Sandbox – As launched in many other countries around the world, the US needs a regulatory Sandbox for emerging Fintech firms.
Two items Crowdfund Insider clearly supports is the creation of a Fintech Sanbox. These have blossomed around the world. Not so much in the US. The concept is to allow Fintech firms to experiment under the watchful eye of regulators before they are let out in the wild.
The need to reduce licensing hurdles is a pressing issue. Redundant at best, the state and federal approach has hobbled Fintech innovation. This must be addressed.
Crowdfund Insider asked Jackson Mueller, Associate Director, Center for Financial Markets at Milken, about these issues. Mueller pointed to the power of data;
“The importance of data cannot be understated in the FinTech space providing platforms with the ability to adjust their models to respond to shifting demands and changes to the economy in near real time. Of course, the way in which data is applied to various models is, and should continue to be, carefully scrutinized. This is precisely where a sandbox approach can help in assuaging the concerns from state and federal regulators through a collaborative, more transparent testing process, ensuring a platforms’s algorithms adhere to current regulatory requirements, and, in some cases, illuminating areas where more agile regulatory tools and approaches are needed that reflect the realities of a 21st Century economy.”
The report is embedded below.
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