US banking regulator warns of crisis risk from fintech proliferation

Representations of cryptocurrencies on this illustration taken January 24, 2022. REUTERS/Dado Ruvic/Illustration

NEW YORK, Sept 7 (Reuters) – The rise of fintech companies and digital banking may spur monetary dangers and probably a long-term disaster, Michael Hsu, performing comptroller of the foreign money, a significant banking regulator, warned on Wednesday. American.

“I feel fintechs and massive tech have a huge impact and are rather more deserving of our consideration,” Hsu informed a convention in New York, noting that the encroachment of fintech corporations into the normal monetary sector, together with via partnerships with banks, created extra complexity. and the “disintegration” in the complete banking sector.

“My deep feeling is that this course of, left to its personal gadgets, is more likely to speed up and increase till there’s a major problem or perhaps a disaster,” Hsu mentioned.

Banks and tech corporations, in a bid to ship a seamless buyer expertise, are teaming up in methods to make it more durable for regulators to differentiate between the place banking stops and the place tech enterprise begins, a Hsu mentioned. And with fintech valuations falling as funding prices rise, banking partnerships with fintechs are on the rise, he mentioned.

This might create IT dangers round info safety and resiliency, and in addition raises buyer safety issues, Hsu mentioned.

“I fear an increasing number of concerning the ‘unknowns’ and fear that the much less acquainted dangers of this digital transition are being labeled and due to this fact invisible. As we discovered from the 2008 monetary disaster, invisible dangers are likely to develop and later turn out to be the supply of disagreeable surprises,” Hsu mentioned.

Earlier, Gene Ludwig, a former comptroller of the foreign money, additionally warned that rules for fintechs are a lot much less stringent than these governing banks.

“The non-banking business will get away with homicide,” mentioned Ludwig, who’s now a managing companion at Canapi Ventures, a enterprise capital agency.

Ludwig predicted that non-banks “will drag us into the following monetary disaster if we do nothing about it.”

US regulators have been reluctant to permit banks to dive into cryptocurrencies, which have crashed in latest months, over fears that rate of interest hikes may finish the period of low-cost cash. A number of crypto corporations have filed for chapter.

Hsu mentioned the turmoil had “all of the hallmarks of a basic run” on an interconnected business that was struggling, and warned the market was very “hype-driven”.

Reporting by Lananh Nguyen and Saeed Azhar; written by Michelle Worth; Enhancing by Chizu Nomiyama and David Gregorio

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