U.S. Rep. McHenry introduces bill to spur financial innovation

U.S. Rep. Patrick McHenry (R-NC), chair of the House Financial Services Committee, introduced a bill that looks to foster innovation within the financial services sector.

The Financial Services Innovation Act would require federal regulators to create Financial Services Innovation Offices (FSIOs) within their agencies to foster innovation. Once established, companies may apply for an “enforceable compliance agreement” with the respective FSIOs that, if accepted, will allow them to provide an innovative product or service under an alternative compliance plan.

“Technology has radically changed how consumers interact with the financial system, as well as how financial institutions interact with regulators,” McHenry said. “Budding fintech firms currently operate in fear of heavy-handed penalties brought down by regulators that have failed to work with Congress to provide clear rules of the road. That’s why I’m reintroducing the Financial Services Innovation Act. This commonsense legislation will give entrepreneurs an opportunity to test legal and regulatory waters before taking new products and services to market. Innovators have long flocked to American markets because we strike the right balance between fostering innovation and consumer protection—this bill will help ensure the United States continues to lead the world in financial innovation.”

Further, the bill would establish an FSIO Liaison Committee tasked with facilitating the cooperation of each FSIO to ensure that agencies share information and data on petitions and consult with state regulatory entities.

Also, FSOC must submit a report on the aggregate impact of enforceable compliance agreements entered into under this bill. This includes the existing regulations or practices that are burdensome to innovation, restrict competition in the financial services industry, or that restrict improvements for consumers of financial products or services. FSOC would also have to identify the overlap of agency regulations of financial products or services and issue recommendations for reducing, consolidating, or eliminating such overlap.

This “regulatory sandbox” approach has proven successful in states like North Carolina, which launched its financial and insurance regulatory sandbox through the North Carolina Innovation Council in 2021.

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