A report from the Department of the Treasury highlights technological advances made in financial services and offered recommendations for non-bank firms.
Since the financial crisis erupted, there has been a proliferation in technological capabilities and processes with improving cost efficiency and speed.
From 2010 through the third quarter of last year, more than 3,330 new technology firms that serve the financial services industry have been established.
That is according to A Financial System That Creates Economic Opportunities – Non-bank Financials, Fintech, and Innovation published by the Treasury Department.
Technology-based financial services providers have found easy access to capital.
“In the aggregate, the financing of such firms has been growing rapidly, reaching $22 billion globally in 2017, a thirteenfold increase since 2010,” the report said.
And the benefits from digitization are real.
The Treasury highlighted how increased digitization of the mortgage process has improved the online experience of financing a home.
Still, the average 52 days it took to close a mortgage is too long, and additional innovations could dramatically help shorten the time table even more.
One trend taking place in financial services is the simultaneous entry of large technology companies with access to vast stores of consumer data.
With the non-bank sector capitalizing on the pullback in services and increased regulation, traditional financial institutions are under more pressure to innovate more rapidly and pursue more dynamic and adaptive strategies.
The Treasury recommends that regulatory approaches need to be adapted to changes in the aggregation, sharing and use of consumer financial data. It also recommends that regulatory fragmentation be avoided.
It is additionally calling for “Updating activity-specific regulations across a range of products and services offered by non-bank financial institutions, many of which have become outdated in light of technological advances.”
A recommendation that state level foreclosure processes and loss mitigation practices be standardized will benefit residential mortgage-backed securities, according to Moody’s Investors Service.
“In addition providing clarity in the use of digital communications, such as email and text messaging for debt collections, should increase borrower contact rates for servicers, reduce complaints and enhance the overall borrower experience,” Moody’s Vice President William Fricke said in a written statement.
The Conference of State Bank Supervisors issued a statement indicating it supports innovation in financial regulation. The group said it is modernizing non-bank regulation by shaping an integrated, 50-state system of licensing and supervision.
But the CSBS isn’t happy with all of the Treasury’s recommendations.
“We do not support creation of new federal rules or unauthorized federal charters that would seek to compromise the ability of state officials to apply and enforce state laws,” the conference stated. “And so, we disagree with Treasury’s recommended changes to the valid-when-made doctrine and the true-lender doctrine and the creation of an OCC special purpose bank charter for fintech companies.”
American Land Title Association President-Elect Cynthia Blair said in a statement that ALTA provided input for the Treasury’s report.
“As digital closings continue to evolve, ALTA and its members will continue to help lead the effort to improve the closing experience for consumers,” Blair said. “Finding the right balance between convenience, security and risk are all issues we must consider as we build a road to smarter closings.”
But she warned that as digitization of home lending proliferates, documents must still be validly executed in a recordable format.
“To ensure that the title insurance and settlement industry can protect property rights, we need to have a reliable land records system that is free of any contamination of unlawfully executed and/or recorded documents,” Blair added.
