When done carefully, partnerships between banks and financial technology firms benefit consumers, according to a report due on Wednesday from the Treasury Department.
The approval of bank-fintech partnerships, with the necessary protections, comes as regulators have seen a rapid growth in such agreements, raising questions about what actions might be exempt from regulation.
A Treasury official stated on Tuesday that although there may be regulatory gaps in those arrangements, collaborations between banks and fintech firms have resulted in the development of innovative products catered to niche markets that traditional financial institutions had not previously served.
According to the Treasury official, bank-fintech ties have also made it possible for businesses to provide their products at more affordable prices. Treasury Secretary Janet Yellen said in a statement given to Reuters prior to the publication of the report that regulators can both promote competition and protect customers primarily using existing tools.
The Treasury Department advises that banking regulators finalize the guidance they proposed last year on how banks should manage third-party relationships. This guidance should include language to encourage banks to negotiate effective oversight provisions in their contracts with fintech companies and other third-party service providers.
The Treasury report recommended that other federal agencies, such as the Consumer Financial Protection Bureau and the Federal Trade Commission, might also play a role in regulating the partnerships despite the fact that that suggestion was put forth by banking regulators.
The Treasury Department’s analysis comes after President Joe Biden issued an executive order last year to encourage competition in the American economy. Biden urged authorities to crack down on unfair business practices in all industries. Interagency reports on the competition situation in the beer, wine, and spirits markets as well as the labor market have previously been published by the Treasury Department.
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