The increased prominence of digital banking and FinTechs could lead to a serious financial crisis, Michael Hsu, the acting U.S. Comptroller of the Currency, said Wednesday (Sept. 7).
“I believe FinTechs and big techs are having a large impact and warrant much more of our attention,” Hsu told The Clearing House and Bank Policy Institute’s yearly conference in New York, per a report by Reuters.
He argued the rise of fintech companies into the traditional financial sector, including through partnerships with banks, had led to more complexity and “de-integration” in the banking sector.
“My strong sense is that this process, left to its own devices, is likely to accelerate and expand until there is a severe problem, or even a crisis,” Hsu said.
Banks and tech firms, hoping to offer a seamless customer experience, are collaborating in ways that make it tougher for regulators to delineate where the lines between the two companies, he said at the conference.
And with fintech valuations dropping as financing costs climb, bank partnerships with FinTechs are on the rise, which could lead to risks surrounding information security, resilience, and customer protection, Hsu said.
“I worry increasingly about the ‘unknowns’ and am concerned that the less familiar risks of this digital transition are unlabeled and thus unseen,” he said. “As we learned from the 2008 financial crisis, risks that are unseen have a tendency to grow and later to be the source of nasty surprises.”
Read more: Ex-Clinton OCC Chief: Crypto Firms ‘Getting Away With Murder’
Hsu spoke one day after another comptroller — Eudge Ludwig, who served under President Bill Clinton — sounded a similar alarm at the conference on Tuesday (Sept. 6), arguing that FinTechs and cryptocurrency companies that compete with banks without having to follow as many regulations are “getting away with murder.”
Ludwig argued that the lack of oversight of these companies could lead to the next recession, and said that if the Federal Reserve endorses a central bank digital currency (CBDC), that will shift the deposit experience away from banking and into the government, which will present “all kinds of problems.”
Ludwig added that banks should “retake the turf rather than let the turf devolve away” and be permitted to “play more aggressively in the crypto markets,” noting the tendency now is to do the opposite.
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