Since the transformative emergence of fintech in the banking industry, different federal agencies and national groups have been grappling over how to regulate this complex new sector, often resulting in friction and uncertainty. 

The Conference of State Bank Supervisors in February of 2018 announced a multistate agreement between several states, including Massachusetts, intended to significantly streamline the licensing process for fintech companies. 

Later that year, the U.S. Office of the Comptroller of the Currency said it would begin accepting applications for national bank charters from fintech companies, a move that drew criticism and ultimately a lawsuit from the CSBS. 

A similarly chaotic process appears to now be unfolding at the state level, as various agencies in Massachusetts have begun to take different – and often independent – steps to provide further clarity on fintech regulation. 

Many Cooks in the Kitchen 

Earlier this month, the state Securities Division, run by Secretary of State William Galvin, announced the creation of a fintech advisory panel to “help advise securities regulators on meeting the novel demands of this rapidly growing space.” 

At about the same time, Massachusetts Attorney General Maura Healey signed a letter along with 21 state attorneys general, urging the Consumer Financial Protection Bureau not to adopt recently proposed fintech policies, which would broaden the power of no-action letters and create a fintech regulatory sandbox. 

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“This is a microcosm of what is occurring at the federal level,” said Tom Curry, a partner at the Boston law firm Nutter, the former comptroller of the OCC and a member of the new state fintech advisory group. “You have multiple regulators in the U.S. If you’re not going to have a magic wand where everything is streamlined, how do you get the system you have to work better and be more responsive to some of the regulatory issues regarding fintech?” 

Part of the reason there are so many different parties giving input on fintech is because the sector stretches into so many different jurisdictions, said Jon Skarin, executive vice president at the Massachusetts Bankers Association. 

“It’s not just banking products, it’s investment products and insurance products. The brick-and-mortar side is fragmented,” he said. “Fintechs can cross the line in some places.” 

Galvin’s office deals with investment advisors and is examining blockchain technology and cryptocurrencies. The Division of Banks licenses any businesses in the payments space or doing retail lending. Other regulators include the Massachusetts Division of Insurance and the Attorney General’s Office, the chief consumer watchdog in the state.  

Bram Berkowitz

Time to Come Together? 

State lawmakers have already tried to create a fintech task force and an office that would represent a more collective group of stakeholders. 

In early 2017, state Rep. Eileen Donoghue proposed the creation of a financial services innovation office that would have been housed within the Office of Consumer Affairs and Business Regulation, and included representatives from the Division of Banks, Division of Insurance and Securities Division.  

House Rep. Brad Jones proposed a bill in January that would create a task force with a wide spectrum of stakeholders to study the impact of financial technology. 

Neither proposal has yet gained traction on Beacon Hill. 

However, different stakeholders and agencies will eventually need to come together because there is only so much that individual agencies can do on their own, Curry said.   

Activity within the CSBS’ Fintech Advisory Group’s Vision 2020 plan is a good example. 

State banking commissioners approved many of the group’s recommendations regarding payments, but only two of the seven recommendations on lending because lending is regulated by so many different state regulatory authorities. 

“State bank commissioners can’t change state law and some of the things they want to address require state law changes, so they would need state legislators to be involved,” Curry said.  

Many different stakeholders want to weigh in on key regulatory issues like the CFPB’s no-action letters and its regulatory sandbox proposal, said Jean Donnelly, executive director at the state’s Fintech Sandbox. 

“With that overlap, I think it will be important to have it in order to get things done,” she said. “Having it together to make sure things will move in the right direction will be critical.”