Daily Management Review

Cryptocurrency Is Taking Up "Brain Space," Bank-Fintech Partnerships Are "Here To Stay", Says OCC's Hsu


Cryptocurrency Is Taking Up "Brain Space," Bank-Fintech Partnerships Are "Here To Stay", Says OCC's Hsu
A prominent bank regulator of the United States claimed that his caution regarding banks' collaborations with fintechs is not intended to stifle such relationships, but rather to express his concern that businesses must accurately assess their risks.
The acting Comptroller of the Currency, Michael Hsu, also said in an interview with the news agency Reuters that policymakers might be spending too much time and effort considering cryptocurrencies rather than determining the best way to regulate other forms of financial technology.
"Look, bank-fintech partnerships, they're here to stay. I'm not trying to do away with them," Hsu said on Wednesday. "This is the future, so let's do the future right."
In comments made last month that caused a stir in the financial services sector, Hsu claimed that the Office of the Comptroller of the Currency had noticed partnerships between banks and fintechs growing at "exponential rates" and becoming more complicated.
“My strong sense is that this process, if left to its own devices, is likely to accelerate and expand until there is a severe problem or even a crisis,” Hsu said at the time.
In a letter to the OCC chief on Tuesday, House Republicans criticized Hsu's remarks, arguing that banks have been able to reach underserved customers thanks to technological advancement made possible by partnerships between banks and fintech companies.
Hsu clarified that his concern with banks and fintechs collaborating is the potential for risk monitoring responsibilities to become murky when multiple firms, sometimes with different incentives, share responsibilities.
"When everything is done within a bank, we know exactly who is accountable when things break," he said. “When you start chopping these things up ... and the business models are different, that's when risk can get lost."
Hsu claimed that as agencies try to understand the various issues involved and then decide which authorities to use, the proper regulatory approach to fintech partnerships remains unclear.
Regarding cryptocurrencies, Hsu stated he was actually concerned that regulators and policymakers in Congress are overextending themselves at the expense of other areas.
"We're spending too much time on crypto," he said. "It's interesting, it has thorny issues... but relative to other technology and banking issues, I think we're now kind of overweight crypto."
Numerous government organizations, including the OCC, the Securities and Exchange Commission, and the Treasury Department, are paying close attention to the explosive growth of cryptocurrencies and related products like stablecoins. President Joe Biden even issued an executive order on the subject.
Congressmen are juggling a number of bills to create a regulatory framework for cryptocurrencies.
However, Hsu issued a warning that other issues that are more important for banks might be overlooked as a result of the policymakers' intense focus on this particular aspect of emerging financial technology issues.
"Crypto is just occupying a lot of brain space for an awful lot of people, both on [Capitol] Hill and the regulatory community," he said. "The persistence of the occupation of brain space, it’s starting to worry me now that we’re not spending that time and attention on some other things."