WASHINGTON (Reuters) - A U.S. regulatory panel on Thursday called for watchdogs to closely monitor risks created by financial innovation, warning that “fintech” and virtual currencies such as bitcoin threaten to disrupt the traditional financial services industry.
The comments from the Financial Stability Oversight Council (FSOC), which monitors potential risks to the financial system, offers a further sign that regulators are looking to bring the likes of bitcoin, online lenders, and distributed ledger technology under their purview.
Concerns over a bubble in the global bitcoin market reached fever pitch this week after the virtual currency raced to another record high of $19,500 on Tuesday.
“New applications of technology...can be disruptive and can create risks and vulnerabilities that are difficult to anticipate,” the FSOC wrote in its annual report.
“Accordingly, the Council encourages financial regulators to continue to identify and study new products and services...monitor how they affect consumers, regulated entities, and financial markets and coordinate regulatory approaches.”
The report also proposed beefing-up cybersecurity rules, urging Congress to pass laws allowing financial regulators to oversee third-party service providers in that space.
The financial industry has been watching closely to see how the FSOC will be transformed under the administration of Republican President Donald Trump, who has pledged to reduce financial regulations to promote economic growth.
In its first annual report since Trump took over, the FSOC, which is made up of top U.S. financial regulators broadly embraced this promise, calling on its member watchdogs to trim rules wherever possible while still monitoring potential future risks.
“Council member agencies should, where possible and without reducing the resilience of the financial system, continue to address regulatory overlap and duplication, modernize outdated regulations, and...tailor regulations based on the size and complexity of financial institutions,” the report stated.
Treasury Secretary Steven Mnuchin chairs FSOC, and his department has already issued recommendations for how to relieve banks, brokers and small businesses from overly burdensome or outdated rules.
He has said he would like FSOC to coordinate this effort and on Thursday the council called its members to review the so-called “Volcker Rule” ban on proprietary trading which can only be revised jointly by five of the FSOC’s ten members.
In addition to calling for fewer rules where possible, the FSOC also said the financial system is “clearly stronger” as a result of new rules put in place after the 2007-2009 financial crisis.
Reporting by Pete Schroeder, Editing by Michelle Price
Our Standards: The Thomson Reuters Trust Principles.