Law of Unintended Consequences: FinTech

FinTech is forcing banks to compete with and join with tech companies who have entered into financial services. Some regulators are sounding a word of caution.

Economic Times reports that a top Federal Reserve official on Tuesday warned that while financial technologies that enable online loans, digital currencies or other innovations hold great promise, they must be regulated with an eye to protecting consumers from unintended consequences. "It's not that regulators are here to call the cops on the party; we're here to make sure no one jumps off the roof," San Francisco Fed President  John Williams said in remarks prepared for delivery to the LendIt USA 2016 conference here. "And while we see the potential in innovation, we're also looking at the other side of the coin."

Williams does not write the rules for regulating new financial technologies, and did not speak to specific rules or companies. But the Fed as a whole, along with other regulators, is taking an increasing interest in them. In Williams' view, they have the potential to help the economy and financial system run more smoothly and at lower cost, but also could penalize already marginalized groups or be used to aid terrorism or make the global financial system less stable. Williams, who described his own comments as "dour" and "unfun," injected a bit of a chill into the two-day conference that featured dozens of businesses hawking the benefits of new technologies for everybody from the unbanked to small businesses and in between.  "I don't want to see fintech's positive potential hijacked to become a source of new, more powerful platforms to prey on consumers on a massive scale," he said. Nor should fintech businesses expect to escape regulation if they perform the same services as traditional financial institutions. "If it walks like a duck and quacks like a duck, it should be regulated like a duck," he said.  

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