Biden’s pick to head OCC favors tighter regulation of FinTech

If Omarova’s nomination is confirmed by the Senate, she would be the first woman and first person of color to lead the Office of the Comptroller of the Currency (OCC), according to Thursday’s White House press release.

She would replace Michael Hsu, who has served as acting head of the Treasury bureau since May.

The move was cheered by progressives like Sen. Elizabeth Warren (D-Mass.), who called Omarova “an excellent choice” on Twitter. “I have no doubt she’ll be a fearless champion for consumers,” Warren added.

But in the banking industry, Omarova’s choice is a signal the OCC will seek to impose tougher regulations on FinTech and cryptocurrency—two areas the nominee has previously expressed concerns about regarding risks they pose to the banking system.

A story in American Banker, often viewed as the voice of banking and financial services industries, suggested Omarova could be Biden’s “most left-leaning selection so far.” It called her “a noted cryptocurrency skeptic” who favors tough regulation.

In a recent journal article titled “Dealing with Disruption: Emerging Approaches to Fintech Regulation” published in the Washington University Journal of Law & Policy, Omarova researched how regulators around the world are trying to address market risks posed by FinTech and cryptocurrency. She cited three approaches: experimentation, incorporation, and accommodation.

Experimentation uses so-called “sandboxes” that allow FinTechs to innovate without drawing the ire of regulators. Incorporation uses special chartering regimes that allow FinTechs to innovate while also charting a course toward “full legitimization” within the existing regulatory framework. And accommodation addresses the rise of a whole new industry, RegTech, which replaces current methods regulators use to collect data and reporting systems with “fully automated and digitized technologies, including AI and cloud-based data management.”

Omarova pointed out regulatory regimes are set up to monitor individual companies and products, and that FinTech offerings often touch several different points in the market, making them harder to monitor and even define in a traditional regulatory approach. Adding to the confusion is the fact some FinTech offerings are intentionally designed to operate outside of traditional regulatory frameworks. In short, they don’t ask for regulators’ permission to exist.

Omarova did not offer an opinion on which regulatory approach to FinTech works best but made it clear existing regulatory schemes are woefully unprepared to regulate the technology. She also stated regulators need to tighten their control of FinTechs.

“It is critically important to develop a comprehensive, effective, and normatively unified regulatory strategy for managing technology-driven changes in financial markets,” she wrote.

Referring to the strengths and shortcomings of each type of regulatory approach, she concluded: “In a broader sense, moreover, it underscores the importance of developing a normatively unified and coherent strategy of fintech regulation, which would seek—explicitly and systematically—to support and harness the power of technology in the public’s interest. We are not there yet.”