A Financial System That Creates Economic Opportunities ...

1 A Financial System That Creates Economic OpportunitiesNonbank Financials, Fintech, and InnovationA Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and DEPARTMENT OF THE TREASURY JULY 2018 TREASURYTHE DEPARTMENT OF THE TREASURY17892018-04417 (Rev. 1) Department of the Treasury Departmental Offices Financial System That Creates Economic OpportunitiesNonbank Financials, Fintech, and DEPARTMENT OF THE TREASURY THE DEPARTMENT OF THE TREASURY1789 Report to President Donald J. TrumpExecutive Order 13772 on Core Principles for Regulating the United States Financial SystemSteven T. MnuchinSecretaryCraig S.

2 PhillipsCounselor to the SecretaryA Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and InnovationiiStaff AcknowledgmentsSecretary 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, Alexan-dra 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 Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and InnovationiiiTable of ContentsExecutive Summary 1 Nonbank Financials, Fintech.

3 And Innovation 4 Emerging Trends in Financial Intermediation 6 Summary of Issues and Recommendations 9 Embracing Digitization, Data, and Technology 15 Digitization 17 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 Payments 144 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 AppendicesAppendix A.

4 Participants in the Executive Order Engagement Process 187 Appendix B: Table of Recommendations 195 Appendix C: Additional Background 213A Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and InnovationivAcronyms and AbbreviationsAcronym/Abbreviation TermABA American Bankers AssociationACH Automated Clearing HouseAI Artificial IntelligenceAMC Appraisal Management CompanyAML Anti-Money LaunderingAPI Application Programming InterfaceAPR Annual Percentage RateAQB Appraiser Qualifications BoardASB Appraisal Standards BoardATM Automated Teller MachineAVM Automated Valuation ModelBHC Bank Holding CompanyBHC Act Bank Holding Company ActBSA Bank Secrecy ActBureau Bureau of Consumer Financial ProtectionCEG Cybersecurity Expert Code of Federal RegulationsCFT Countering the Financing of TerrorismCFTC Commodity Futures

5 Trading CommissionCHAPS Clearing House Automated Payment SystemCHIPS Clearing House Interbank Payments SystemCMA Competition and Markets Authority ( )CRA Community Reinvestment ActCROA Credit Repair Organizations ActCSBS Conference of State Bank SupervisorsCyber Apex Next Generation Cyber Infrastructure Apex ProgramDARPA Defense Advanced Research Projects AgencyDHS Department of Homeland SecurityDIUx Defense Innovation Unit ExperimentalA Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and InnovationvDLT Distributed Ledger TechnologyDOD Department of DefenseDodd-Frank Dodd-Frank Wall Street Reform and Consumer Protection ActDOJ Department of JusticeDOL Department of LaborEducation Department of EducationEMV Europay, Mastercard.

6 And VisaESIGN Electronic Signatures in Global and National Commerce European UnionFATF Financial Action Task ForceFBIIC Financial and Banking Information Infrastructure CommitteeFCA False Claims ActFCA Financial Conduct Authority FCC Federal Communications CommissionFCRA Fair Credit Reporting ActFDCPA Fair Debt Collection Practices ActFDIC Federal Deposit Insurance CorporationFedACH Federal Reserve Banks Automated Clearing HouseFFIEC Federal Financial Institutions Examination CouncilFHA Federal Housing AdministrationFHA-HAMP FHA Home Affordable Modification ProgramFHFA Federal Housing Finance AgencyFHLB Federal Home Loan BankFICO Fair Isaac CorporationFIL Financial Institutions LetterFinCEN Financial Crimes Enforcement NetworkFINRA Financial Industry Regulatory AuthorityFintech Financial TechnologyFIRREA Financial Institutions Reform, Recovery, and Enforcement ActFlexMod GSE Flex ModificationFPS Faster Payments Service ( )

7 A Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and InnovationviFRB Board of Governors of the Federal Reserve SystemFRBNY Federal Reserve Bank of New YorkFSB Financial Stability BoardFS-ISAC Financial Services Information Sharing and Analysis CenterFTC Federal Trade CommissionG-7 Group of 7G20 Group of 20 GAO Government Accountability OfficeGDP Gross Domestic ProductGDPR General Data Protection Regulation ( )GLBA Gramm-Leach-Bliley ActGRC Governance, Risk and ComplianceGSE Government-Sponsored EnterpriseHUD Department of Housing and Urban DevelopmentIaaS Infrastructure as a ServiceIRS Internal Revenue ServiceISO International Organization for StandardizationIT Information TechnologyLOA Levels of AssuranceMAS Monetary Authority of SingaporeMBA Mortgage Bankers AssociationMBS Mortgage-Backed Securities MCSBA Maryland Credit Services Business ActMERS Mortgage Electronic Registration System MMIF Mutual Mortgage Insurance FundMPL Marketplace LenderMSB Money Services BusinessMTRA Money Transmitter Regulators AssociationNACHA National Automated Clearinghouse AssociationNAIC

8 National Association of Insurance CommissionersNBA National Bank ActA Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and InnovationviiNCUA National Credit Union AdministrationNFC Near Field CommunicationNIST National Institute of Standards and TechnologyNMLS Nationwide Mortgage Licensing System or Nationwide Multistate Licensing SystemNSF National Science FoundationNSS National Settlement ServiceOBIE Open Banking Implementation Entity ( )OCC Office of the Comptroller of the CurrencyOFX Open Financial ExchangeP2P Person-to-Person or Peer-to-PeerPaaS Platform as a ServicePCI-DSS Payment Card Industry Data Security StandardPII Personally Identifiable InformationPIN Personal Identification NumberPLS Private-Label SecuritiesPSD2 Revised Payment Services Directive ( )

9 PSP Payment Service ProviderRTP Real Time PaymentsSaaS Software as a ServiceSAFE Act Secure and Fair Enforcement for Mortgage Licensing ActSEC Securities and Exchange CommissionSIFMA Securities Industry and Financial Markets AssociationSRO Self-Regulatory OrganizationSWIFT Society for Worldwide Interbank Financial TelecommunicationSWIFT GPI Society for Worldwide Interbank Financial Telecommunication Global Payments InnovationTCH The Clearing HouseTCPA Telephone Consumer Protection ActTFFT Basel Committee on Banking Supervision s Task Force on Financial TechnologyTreasury Department of the TreasuryA Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and United United StatesUDAAP Unfair, Deceptive, or Abusive Acts or PracticesUDAP Unfair or Deceptive Acts or PracticesUETA Uniform Electronic Transactions ActURPERA Uniform Real Property Electronic Recording United States CodeUSDA Department of AgricultureUSPAP Uniform Standards of Professional Appraisal PracticeVA Department of Veterans AffairsZB ZettabyteExecutive SummaryA Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and Innovation3 IntroductionPresident Donald J.

10 Trump established the policy of his Administration to regulate the finan-cial System in a manner consistent with a set of Core Principles. These principles were set forth in Executive Order 13772 on February 3, 2017. The Department of the Treasury (Treasury), under the direction of Secretary Steven T. Mnuchin, prepared this report in response to that Executive Order. The reports issued pursuant to the Executive Order identify laws, treaties, regula-tions, guidance, reporting, and record keeping requirements, and other Government policies that promote or inhibit federal regulation of the Financial System in a manner consistent with the Core Principles.