New York Department Of Financial Services Opposes Sandboxes For FinTech Firms

FinTech, News | August 6, 2018 By:

Maria T. Vullo, Superintendent of the New York Department of Financial Services (NYDFS), has expressed her opposition to the US Department of Treasury’s endorsement of regulatory “sandboxes” for FinTech firms.

Last week, the Treasury Department issued its fourth report to President Trump under Executive Order 13772, which identified certain “Core Principles” to guide regulation of the US financial system. Titled “A Financial System that Creates Economic Opportunities,” the report includes the endorsement of so-called regulatory sandboxes, which would allow FinTech startups to experiment on a small scale with new products and services, such as the use of alternative data in loan underwriting or credit scoring, with reduced risk that regulators will bring enforcement action against them.

“Creating a regulatory environment that supports responsible innovation is crucial for economic growth and success, particularly in the financial sector,” Treasury Secretary Steven Mnuchin said in a release. “We must keep pace with industry changes and encourage financial ingenuity to foster the nation’s vibrant financial services and technology sectors.”

In a statement published on the the NYDFS website, Vullo said that the idea that innovation will flourish only by allowing companies to evade laws that protect consumers, and which also safeguard markets and mitigate risk for the financial services industry, is preposterous.

“Toddlers play in sandboxes. Adults play by the rules,” Vullo said. “Companies that truly want to create change and thrive over the long-term appreciate the importance of developing their ideas and protecting their customers within a strong state regulatory framework.”

Vullo also said that the NYDFS “strongly opposes” last week’s announcement by the Office of the Comptroller of the Currency (OCC), an independent bureau within the Treasury Department, that it will begin to accept applications for “national bank charters from nondepository financial technology companies engaged in the business of banking.”

Joseph M. Otting, Comptroller of the Currency, said that providing a path for FinTech companies to become national banks can make the federal banking system stronger by promoting economic growth and opportunity, modernization and innovation, and competition. He added that it also provides consumers greater choice, can promote financial inclusion, and creates a more level playing field for financial services competition.

Vullo said that the move by the OCC is not authorized under the National Bank Act and is wrongly supported by the Treasury Department.

“As DFS has noted since the OCC’s proposal, a national FinTech charter will impose an entirely unjustified federal regulatory scheme on an already fully functional and deeply rooted state regulatory landscape,” Vullo said.