JULY 2018

U.S. D E PARTM E NT O F TH E TR EAS U RY

A Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and Innovation

JULY 2018

U.S. D E PARTM E NT O F TH E TR EAS U RY

A Financial System That Creates Economic Opportunities

Nonbank Financials, Fintech, and Innovation

Report to President Donald J. Trump Executive Order 13772 on Core Principles for Regulating the United States Financial System

Steven T. Mnuchin Secretary

Craig S. Phillips Counselor to the Secretary

MENT OF THE

1789

THE DEPART

TREASURY

Staff Acknowledgments

Secretary Mnuchin and Counselor Phillips would like to thank Treasury staff members for their contributions to this report. The staff's work on the report was led by Jessica Renier and W. Moses Kim, and included contributions from Chloe Cabot, Dan Dorman, Alexandra Friedman, Eric Froman, Dan Greenland, Gerry Hughes, Alexander Jackson, Danielle Johnson-Kutch, Ben Lachmann, Natalia Li, Daniel McCarty, John McGrail, Amyn Moolji, Brian Morgenstern, Daren Small-Moyers, Mark Nelson, Peter Nickoloff, Bimal Patel, Brian Peretti, Scott Rembrandt, Ed Roback, Ranya Rotolo, Jared Sawyer, Steven Seitz, Brian Smith, Mark Uyeda, Anne Wallwork, and Christopher Weaver.

ii

A Financial System That Creates Economic Opportunities ? Nonbank Financials, Fintech, and Innovation

Table of Contents

Executive Summary

1

Nonbank Financials, Fintech, and Innovation 4

Emerging Trends in Financial Intermediation 6

Summary of Issues and Recommendations 9

Embracing Digitization, Data, and Technology

15

Digitization17

Consumer Financial Data 22

The Potential of Scale 44

Aligning the Regulatory Framework to Promote Innovation

61

Challenges with State and Federal Regulatory Frameworks 63

Modernizing Regulatory Frameworks for National Activities 66

Updating Activity-Specific Regulations

81

Lending and Servicing 83

Payments144 Wealth Management and Digital Financial Planning 159

Enabling the Policy Environment

165

Agile and Effective Regulation for a 21st Century Economy 167

International Approaches and Considerations 177

Appendices

Appendix A: Participants in the Executive Order Engagement Process 187 Appendix B: Table of Recommendations 195 Appendix C: Additional Background 213

A Financial System That Creates Economic Opportunities ? Nonbank Financials, Fintech, and Innovation iii

Acronyms and Abbreviations

Acronym/Abbreviation Term

ABA

American Bankers Association

ACH

Automated Clearing House

AI

Artificial Intelligence

AMC

Appraisal Management Company

AML

Anti-Money Laundering

API

Application Programming Interface

APR

Annual Percentage Rate

AQB

Appraiser Qualifications Board

ASB

Appraisal Standards Board

ATM

Automated Teller Machine

AVM

Automated Valuation Model

BHC

Bank Holding Company

BHC Act

Bank Holding Company Act

BSA

Bank Secrecy Act

Bureau

Bureau of Consumer Financial Protection

CEG

Cybersecurity Expert Group

C.F.R.

Code of Federal Regulations

CFT

Countering the Financing of Terrorism

CFTC

U.S. Commodity Futures Trading Commission

CHAPS

Clearing House Automated Payment System

CHIPS

Clearing House Interbank Payments System

CMA

Competition and Markets Authority (U.K.)

CRA

Community Reinvestment Act

CROA

Credit Repair Organizations Act

CSBS

Conference of State Bank Supervisors

Cyber Apex

Next Generation Cyber Infrastructure Apex Program

DARPA

Defense Advanced Research Projects Agency

DHS

U.S. Department of Homeland Security

DIUx

Defense Innovation Unit Experimental

iv A Financial System That Creates Economic Opportunities ? Nonbank Financials, Fintech, and Innovation

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