How do you define fintech? Is it back-office technology that supports normal business operations? Is it electronic money transmission or new types of currency? Is it a third-party service provider that can fulfill bank functions? Is it a new business model that disintermediates existing players? The answer to all of these questions is "yes." A definition so broad and all-encompassing presents a challenge: how are state financial regulators — those on the front lines of a wide range of financial services — supervising fintech? At the Illinois Department of Financial and Professional Regulation, our regulatory approach has been to focus on business activity, not technology. To do the reverse would be like the tail wagging the dog. In using this approach, we have found that most fintech firms can be placed in the context of existing law. For instance, if online companies are engaged in moving money from account A to account B — think PayPal — we apply money transmission laws. If other online companies are offering home loans — think Quicken Loans — we apply mortgage lending laws. And so on. States routinely examine their toolkit — existing laws and regulations — and determine whether new tools are needed. For example, the state of North Carolina recently approved a virtual currency bill whereby customer balances should be held in "like kind." In other words, rather than holding the present value of bitcoin in cash — a difficult currency transfer calculation — customer balances can be held in bitcoin. As regulators, we embrace technology to simplify the state licensing process. Financial firms can submit licensing information one time to multiple states through the Nationwide Multistate Licensing System, a form of "regtech" operated by the Conference of State Bank Supervisors. Consumers, in turn, can use the NMLS consumer access […]
