FRB Governor Bowman Warns against "Resistance to Change" on FinTech Innovation

Federal Reserve Board Governor Michelle W. Bowman argued that banking regulators must deepen their understanding of the functionality and benefits of innovation, and innovators must share their understanding and knowledge of innovation and "the risks that new technology presents." 

In remarks at The Salzburg Global Seminar on Financial Technology Innovation, Social Impact, and Regulation, Ms. Bowman highlighted the challenges of regulatory complacency and resistance to change, advocating for an open, collaborative approach between regulators and innovators. She warned against driving innovation outside the regulated banking system and the need for clear, consistent regulatory frameworks. She called for a proactive regulatory stance that includes the use of regulatory sandboxes and ongoing education for regulatory staff to foster responsible innovation.

Governor Bowman said regulators (i) need to better understand "the players who operate in a particular innovative space" in order to adapt appropriate compliance policies and regulatory frameworks; (ii) need to ask fundamental questions when thinking about innovation, (e.g. "[W]hat existing problem does this technology solve? What ... are ... tradeoffs policymakers need to consider if the new technology were introduced or integrated in the existing financial system?"); and (iii) need to better understand the benefits and risks associated with innovation and the use of any new technology. She cited the successful integration of past innovations like ATMs and mobile banking to demonstrate the benefits of a supportive regulatory environment.

Governor Bowman argued that innovators "must not adopt the 'sales' mentality that they may use when pitching investors or partners, and instead, acknowledge the unknowns—the risks that new technology presents..."  She suggested that innovators "may be best positioned to propose how regulators can best develop a regulatory framework to manage these risks." Ms. Bowman encouraged a "posture receptive to innovation," which "requires a shift in regulatory approach," and advocated for a commitment of "regulatory and supervisory resources and attention to building a framework that permits responsible innovation to flourish."