On July 31, the U.S. Department of the Treasury (“Treasury”) released a report outlining recommendations to streamline and modernize the regulatory environment to  “better support nonbank financial institutions, embrace financial technology, and foster innovation” (the “Report”).

In preparing the Report, the Treasury engaged with a range of stakeholders, including trade associations, individual firms, investors, academics, consumer and advocacy groups, as well as federal and state regulators. Implementation of many of the over 80 recommendations will require congressional or regulatory action at the federal and state level. 

The Report recognizes that the competitive environment for banks and nonbanks has changed substantially since the financial crisis. Advances in technology, such as cloud computing and data storage, combined with the proliferation of mobile communication, have accelerated financial innovation. Artificial intelligence and machine learning models offer great potential to raise the overall quality of consumer financial services products. However, these various data flows raise data privacy concerns. 

The Report outlines a series of recommendations to promote the efficient and responsible use of consumer data, including the updating of key provisions of the Telephone Consumer Protection Act; removing regulatory barriers to developing a digital legal identity; and establishing a federal data security and breach notification law “to protect consumer financial data and ensure that consumers are notified of breaches in a timely and consistent manner.” Additionally, the Report recommends regulatory reforms in marketplace lending; mortgage lending and servicing; student lending and servicing; debt collection; credit bureaus; IRS income verification; payment processing; and short-term, small-dollar lending. 

One of the overall themes of the Report is fostering an “agile approach to regulation that can evolve with innovation.” As one example, the Report cites blockchain and distributed ledger technologies as examples of “promising innovations” and recommends that “it would be beneficial for regulators to permit meaningful experimentation in the real world, subject to appropriate limitations.” The Treasury also encourages the development of  regulatory “sandboxes” as testing grounds for innovation and notes the importance of participation in international organizations to promote domestic priorities of U.S. regulators and to address the  needs of U.S. companies operating globally. 

This Report is the fourth and final in a series of reports prepared in response to Executive Order 13772 on Core Principles for Regulating the United States Financial System. See previous reports focused on banks and credit unions, capital markets, as well as asset management and insurance. 

A Treasury fact sheet on the Report can be found here, and the full Report can be found here.