Regulating Financial Technology

This month, The Credit Junction had the pleasure of interviewing Peter Dugas, the Managing Director of Government Affairs at FIS' Center of Regulatory Intelligence. Mr. Dugas has a wealth of public policy, government affairs and regulatory compliance experience. 

1. How would you characterize the regulatory landscape for small businesses in the US today?

Small businesses are struggling to keep track and comply with increasingly burdensome regulatory requirements at the state and federal levels. The House Small Business Committee recently estimated that there are around 3,000 regulations in the pipeline and many of these are expected to impact small businesses to one degree or another. Small businesses are challenged with an uneven economic recovery and information asymmetry. These businesses have been a key driver of the U.S. economic recovery since the financial crisis and will continue to drive the U.S. economy into the future. A major impediment to continued improvement for small businesses will be the current outlook for rulemaking and information.

2. What impacts have key regulations such as Dodd Frank had on small business?

The Dodd-Frank Act has had both a positive and negative impact on small businesses. With the creation of the Consumer Financial Protection Bureau (CFPB), many businesses applauded the new agencies focus on reducing predatory lending practices of some companies. In addition, the Dodd-Frank Act contained language that reduced debit interchange fees that banks could charge their customer for certain transactions. The Dodd-Frank Act has also negatively impacted small businesses by reducing access to credit, increased the cost of capital, and can be an impetus for innovation.

3. What role do you see Fintech playing in the banking and lending sectors?

Fintech is playing a significant role in changing the way banks and consumers think about how they consume or deliver financial services. The traditional bank branch model is changing to better mobile integration and improving customer experience. FIS is leading much of the thinking in how financial institutions think about shift to personalization, access to credit, and even cardless cash access. With an eye toward innovation, financial institutions have tremendous opportunities to facilitate new products and services that enable equity funding, peer-to-peer lending, and other forms of business lending that have been previously unavailable to startups and private 

4. How do you see the regulatory framework changing to keep up with the rapid advances in the fintech field?

This is the one area where the U.S. is behind our foreign counterparts. We are not keeping up with the rapid development in technology and fragmentation of payment methods. The OCC has released a white paper on “Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective” and the U.S. Department of the Treasury has similarly released their white paper “Opportunities and Challenges in Online Marketplace Lending.” Both of these papers are an attempt by federal banking regulators to address gaps in current regulation and facilitate the principals for developing an appropriate framework to address financial innovation.

5. What are some of the most exciting regulatory developments from a small business owner’s perspective?

The U.K. has created a regulatory sandbox to test innovation and provide firms with an opportunity to test financial products and services in a safe space without fear of penalty or the chance of being shut down through unintended product effects. We are pleased to see the U.S. Department of the Treasury and OCC take steps to address the gaps in regulation that exist and provide firms with an opportunity to create open dialogue among regulators and firms, as well provide an environment for firms to help customer make purchasing, delivery and financing decisions

6. How do you see fintech benefiting small business?

Small businesses will greatly benefit from the movement towards real-time payments, online lending platforms that can approve loans in minutes instead of days, and advances in technology that can help manage their capital. At FIS, we are developing digital solutions that banks and financial institutions can deploy in the marketplace to help small businesses manage everything from their reward programs to providing incentives to attract and retain their customers. We see technology giving small businesses greater leverage in the marketplace and access to business solutions that were typically available only available to large and more established businesses.

7. Do you have any tips for a small business owner struggling to keep track of the many regulations he or she faces?

Small business owners should take advantage of the resources provided by their business and trade associations, including local chambers of commerce, NFIB, and the U.S. Chamber of Commerce. These organizations are dedicated to ensuring their members have the latest information coming from the U.S. Government and state capitols. Unfortunately, it does take time and commitment to stay abreast of all the potential regulations and government actions that could impact their business. Small businesses should start by identifying their products and services and create a regulatory applicability matrix. The business should also consider the appropriate staff needed to determine whether a rule would or would not apply to the business and ensure they have a written policy to ensure there is consistency in how the address whether a rule is applicable. If the rule applies, they should work with local counsel and their board to determine how to address the specific requirements of the rule and what steps they should take to ensure compliance.