Skip to main content

US State Regulators collaborate for fintech: Is this a step in the right direction for collaborative supervision?

The US Conference of State Bank Supervisors (CSBS) has taken steps to streamline the cross-state regulation of money service businesses, by introducing a single exam that transcends state lines.

A total of 48 state regulators have agreed to a single set of supervisory rules, which will apply to 78 large payment, fintech and cryptocurrency firms. The new, streamlined approach will make it easier for companies to conduct business across multiple states.

Historically, such financial institutions – which include money transmitters such as PayPal – were required to undergo a series of individual state exams. There have been numerous complaints, often from new fintech firms, that this state-by-state system was overly burdensome. The new system will now see a group of examiners from a few states jointly supervising a business, instead of on a state-by-state basis. Such examiners will be experts in the fields of certain supervisory areas – including anti-money laundering (AML) and cybersecurity.

Commenting on the announcement, the Georgia Department of Banking and Finance commissioner and CSBS Board chair, Kevin Hagler, said “One company, one exam is a significant and important shift in how state regulators will ensure compliance with consumer protection and safety and soundness standards for the largest payments companies. By working together and relying on the excellent work of fellow state regulators, we will be able to do even more.”

CUBE comment

Over the last few years, the cross-border nature of financial systems has been under threat – with trade wars and protectionism on the rise. Financial regulation started to sway to more nationalistic approaches, leading to jurisdictional inconsistencies, as well as a decline in information sharing. This move from the CSBS is hopefully indicative of a slow shift towards collaborative supervision practices the world over.

Time and again we have heard global financial institutions (and even some regulators) calling for a supervisory approach that transcends jurisdictions. This is especially true with regard to new, technology-driven currencies that offer borderless transactions. Regulators should be looking to work together and share information if they are to keep pace with the new, digital landscape; whether its Bitcoin or RegTech.

While the CSBS’s new cross-state approach may only be a ripple in the waters for now, it may denote a tide of change for financial collaboration which will free up time and resources for both financial institutions and regulators alike.

Share