In regulatory oversight news, the New York Department of Financial Services (DFS) announced the creation of a new Cybersecurity Division and the Financial Crimes Enforcement Network (FinCEN) launched an Innovation Hours program.
Not to be outdone, lawmakers joined in on the trend, with the establishment of a pair of new task forces by the House Financial Services Committee.
What happened
Focused on protecting consumers and industries from cyber-threats, the DFS touted the new Cybersecurity Division as “the first of its kind to be established at a banking or insurance regulator.”
The division will help oversee the state regulator’s Cybersecurity Requirements for Financial Services Companies, the country’s first cybersecurity regulation, which took full effect last September.
“Increasingly today, counterterrorism is about cybersecurity, our biggest threat and our biggest challenge,” Acting DFS Superintendent Linda A. Lacewell said in a statement. “As technology changes the financial services industry, regulation must evolve, and DFS is evolving to meet the challenges and opportunities of the new landscape, to protect consumers, safeguard the industry and encourage innovation.”
The division will enforce the DFS’ cybersecurity regulations, advise on cybersecurity examinations, issue guidance on the regulations, conduct cyber-related investigations (in coordination with the recently formed Consumer Protection and Financial Enforcement Division) and disseminate information related to cyberattack trends and threats.
Justin Herring, chief of the U.S. Attorney’s Office of New Jersey’s first Cyber Crimes Unit, will lead the division as executive deputy superintendent.
On the federal level, FinCEN’s new program aims to provide opportunities for financial institutions, technology providers and other firms to showcase new and emerging innovative approaches for combating money laundering and terrorist financing.
Held the second Thursday of every month from 9:30 a.m. to 12:30 p.m. (unless otherwise arranged), the Innovation Hours Program lets fintechs present their products and services to FinCEN, with technological demonstrations highlighting how the innovations work and how financial institutions might use them to enhance their anti-money laundering (AML) compliance programs and contribute to more effective and efficient record-keeping and reporting under the Bank Secrecy Act (BSA) framework.
“Responsible innovation can be an important part of safeguarding the U.S. financial system against new and evolving threats related to money laundering, terrorist financing and other serious financial crimes,” according to FinCEN’s announcement.
Requests for Innovation Hours will be accepted on a rolling basis via an online form, with primary consideration given to entities that are at the operational stage. Companies that are the subject of federal or criminal or civil enforcement actions are not eligible to apply.
The program is part of a broader Innovation Initiative launched by FinCEN last year, aimed at encouraging banks and credit unions to explore innovative approaches to AML/BSA obligations, including collaborative arrangements to share resources.
Lawmakers also joined the innovation oversight trend. The House Financial Services Committee unanimously passed resolutions to form two task forces: one on financial technology and a second on artificial intelligence (AI). The task forces will hold hearings, conduct investigations and issue reports to the committee with findings and recommendations.
The Fintech Task Force plans to examine both U.S. and international fintech regulation, the use of alternative data for loan underwriting and modifications, payment efficiency, and challenges to data privacy, while the AI Task Force intends to review the applications of machine learning in financial services and regulation, risk management relating to algorithms and big data, fraud regarding the use of AI and digital identification technologies, and the impact of automation on jobs in the financial sector as well as the broader U.S. economy.
Set to convene their first hearings in June, the task forces will attempt to better inform the committee’s legislative agenda on legal, regulatory and policy issues related to the two topics, and could provide the basis for future legislative proposals. Both task forces will expire on Dec. 9.
“As new technologies emerge and the financial services industry puts those technologies to use, Congress must make sure that responsible innovation is encouraged, and that regulators and the law are adapting to the changing landscape to best protect consumers, investors and small businesses,” Committee Chair Maxine Waters (D-Calif.) said in a statement. “The new task forces … will help Congress to stay on top of new developments in these areas so that we are well-positioned to make policy.”
To read the DFS announcement about the new Cybersecurity Division, click here.
Why it matters
Regulators across the country have embraced innovation in a variety of formats, from the Federal Deposit Insurance Corporation’s creation of an office to encourage banks to try out new financial technology to regulatory sandboxes in Arizona and Wyoming while cybersecurity remains an increasingly important area of regulatory focus. The trend continues to grow with oversight from the New York DFS, FinCEN and House Committee task forces.