Regulators Should Use 'Range of Options' in Fintech, Fed's Barr Says

Regulators need to get ahead of developing technologies before they can write rules governing the sector, said Michael Barr, speaking Wednesday to a policy-focused crowd at DC Fintech Week.

Barr, who took on the role as vice chair of supervision at the Fed earlier this summer, said that risk management is a key issue for regulators, even if they note the possible benefits of different types of innovation.

“The range of options available for dealing with emerging technologies and those benefits are solid,” Barr said. “One of them is just risk identification, so we can enunciate to the world that we see a set of risks, and that they should be looked at carefully. And that has an actual effect on behavior.”

Barr, who gave a speech on fintech innovation prior to a back-and-forth with event organizer Chris Brummer, touched on stablecoin regulation, a new real-time payment system called FedNow, tokenizing bank liabilities and central bank digital currencies during his session.

In places he appeared to echo Acting Comptroller of the Currency Michael Hsu in cautioning that some of the advances in financial technology innovation might create potential harms.

“Crypto-assets have grown rapidly in the last several years, both in market capitalization and in reach," said Barr. "But recent fissures in these markets have shown that some crypto-assets are rife with risks, including fraud, theft, manipulation, and even exposure to money-laundering activities ... Crypto-asset-related activity, both outside and inside supervised banks, requires oversight that includes safeguards to ensure that crypto service providers are subject to similar regulations as other financial services providers.”

Still, he added, while regulators do need to provide clarity, they also can’t be overly prescriptive.

“I think particularly in a very fast evolving space, you want to use all those tools because if you just write the rules, first of all, you're going to be late," he said. "And second of all, you're going to miss things, because the industry is evolving all the time."

On the other hand, he said, if a regulator is not writing rules, they’re not providing clarity to entities which might guide their conduct.