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The Examiner

One man with courage is a majority.

- Thomas Jefferson
Born this day, 1743

State Financial Regulators Name Fintech Innovation Contacts

To foster communication between regulators and industry regarding financial technology, regulators from all 50 states and the District of Columbia have designated an Innovation Staff Contact within their offices. 

The Innovation Contact will be the primary contact for fintech officials, streamlining communication on money transmission, payments and lending. The full list can be found here.

John Ryan, CSBS president and CEO, said: “State regulators see how fintech is reshaping the financial services industry. And an Innovation Contact is but the latest step that states are taking to engage with industry and modernize nonbank regulation.”

Robin Wiessmann, Pennsylvania secretary of banking and securities, explained: “Innovation 
Contacts will smooth the process for new fintechs navigating the licensing process and seeking feedback on business plans. Regulators will be better able to review business concepts, encourage positive aspects of change, and protect consumers.”

Collectively, state regulators oversee 79 percent of all U.S. banks and 23,000 nonbanks licensed at the state level. In 2017, state regulators, through CSBS, committed to moving towards an integrated, 50-state licensing and supervisory system for fintechs and other nonbanks. CSBS adopted CSBS Vision 2020 to reflect implementation initiatives, such as:

  • Fintech Industry Advisory Panel of 33 companies to identify pain points and recommend solutions
  • A next generation technology platform, now in development, to streamline licensing and supervision 
  • State efforts to harmonize their licensing and supervisory practices

Forkner on Fintech Regulation

By Albert L. Forkner 
Chairman, Conference of State Bank Supervisors 
Commissioner, Wyoming Division of Banking 

Forker delivered these remarks at the CSBS Fintech Forum, April 10, in Brooklyn, N.Y. 

Forkner​On behalf of all state financial regulators, let me welcome you to our Fintech Forum. We have done events like this in different regions of the country. But this one probably has the broadest participation by regulators, both state and federal, as well as consumer groups, and industry officials. 

I want to thank the state regulators who organized this event – Maria Vullo of New York, Robin Weissman of Pennsylvania, Jan Owen of California, and Bryan Schneider from Illinois – as well as staff at CSBS and the New York Department of Financial Services. 

From our perspective, we are looking to modernize state regulation of fintechs and other nonbanks. We see, as you do, how fintech is changing how we get a mortgage, transmit money, and, my favorite, send money to your kids. Well, maybe that’s their favorite-- you have removed much of the friction from that experience, much to the detriment of my bank account, however. 

To support a financial system fueled by fintech, we as regulators want to make sure that consumers have access to great products with strong protections...that businesses operate on sound financial footing...and transactions function properly and securely. And we want to perform our roles in the most effective and efficient manner. 

To do that, we need to learn more from you. About your products and services. About your business models. About your operations. That is why we are holding this forum. For us to learn from you, and you to learn from us. Once we achieve a common level of knowledge, then we each have the information to take action. 

And taking action is what we all want. So, I want this discussion to be productive. But I also want us to be focused on what we can achieve with the knowledge we gain today. 

For example, last spring, state regulators committed to moving towards an integrated, 50-state system of licensing and supervision for nonbanks, including fintechs. We put together an implementation plan, we call it Vision 2020, to help get us there. In the months since, we have been busy. 

We have launched development of a next generation technology platform...which promises to dramatically improve how we regulators license and supervise nonbanks...while simplifying the experience for companies, too. 

We also have formed a Fintech Industry Advisory Panel, comprised of 33 fintechs of all shapes and sizes. They have divided into subgroups on lending and money transmission. They have met several times, including last week...identified pain points, or as we call them, “opportunity areas”...and now are doing the hard work to develop possible solutions. 

But that’s not all. This morning, CSBS is announcing yet another fintech action. To improve communication between state regulators and fintech companies, all 50 states and the District of Columbia have identified Innovation Contacts within their agencies. They will be the primary point of contact with fintech companies. So, no more hunting for the right person. 

I hope you come away with the impression that state regulators take fintech seriously. We are your primary regulator. And we are committed to ensuring consumer protections and a sound financial system. But we also see the opportunity to transform customer experiences. By modernizing how we regulate the entire nonbank sector, we believe we will be in a better position to block the bad and nurture the good. 

Financial Innovation: Past, Present and Beyond

By Maria T. Vullo
Superintendent, State Department of Financial Services
Vullo delivered these remarks at the CSBS Fintech Forum, April 10, 2018, in Brooklyn, N.Y.

Maria VulloAs the Superintendent of the New York Department of Financial Services, a hearty welcome to New York and to the great borough of Brooklyn! It is a special privilege to be here in Brooklyn at this Fintech Forum -- not only because Brooklyn is where I was born and raised, but because Brooklyn represents the diversity of innovation that we are here to talk about today.  

We have a full agenda today, and I look forward to our discussions of business innovation and how state regulators are ahead of the curve on promoting innovation while protecting the integrity of our markets and consumers at the same time.

As a matter of personal privilege, I must say that it is quite fitting for us to have this nationwide discussion here in the State of New York, where banking regulation began and where innovation thrives. New York has a very proud and stable banking history, but many of you might not know that New York’s banking industry actually grew and prospered out of national instability.  

Those of us who are history buffs may know that our nation’s founders were famously in disaccord over the nature and type of banking system that our fledgling nation should adopt. Thomas Jefferson declared back in 1799 that “banking establishments” “are more dangerous to our liberties than standing armies.” Alexander Hamilton felt quite differently -- and he had already founded the Bank of New York in June 1784 – which remains a New York state chartered bank today.  

Jefferson and Hamilton ultimately resolved their disputes by a federalism compromise, but the debate was a continuing one for some time. Indeed, over the course of early American history there were many efforts to hinder state banking by federal attempts to nationalize banking, and each such effort was met with resistance by the states.  

It also is a truth that each response by the states strengthened the foundations of our dual banking system as state banks created innovative products and services that ultimately led to the strong and vibrant state banking system we know today. 

And it was New York that early-on pioneered such innovations as the insurance of paper currency, so-called "free chartering" of banks by any qualified group of citizens – which was a precursor to deposit insurance -- and the creation of a central clearing house whose collective strength enabled the state, and ultimately the nation, to weather many of the world's most severe financial crises. In 1838, New York enacted its Banking Law and by 1860 some 18 states had enacted their own version of “free chartering” or “free banking” modeled on New York’s law. 

But even with these innovations in their column, state banks were not immune from attack. By the time of the Civil War, President Abraham Lincoln's Treasury Secretary Salmon P. Chase, a vocal proponent of replacing state banks with a system of national banks, spear-headed the effort to convince Congress to pass the National Bank Act of 1863, resulting in the issuance of a common currency through national banks, andthe dual banking system endured.

Subsequently, the federal government tried again to impede state banking, by adding a provision to tax state bank notes. For a period of time, this caused many state banks to be unable to compete with federal counterparts -- until the states again innovated by offering a new instrument: demand deposits, such as checking accounts, which led to a surge in state charters. By 1893, the tally of national and state-chartered banks was equal at 3,807 each. And, today, due to continuing state regulatory advancements and innovation, 78 percent of banks in the U.S. are state chartered.

This resilience by the states, this courage to innovate, and this desire to excel at providing an ever-widening array of safe and sound innovative products, flows through the blood of our New York state chartered and licensed institutions, and those of the many states who are present at this forum today.    

The states’ innovations and successes in keeping pace with and indeed ahead of the curve is also demonstrated by our decades of regulating nondepository institutions, including many companies that use financial technology to serve consumers. Nondepositories are a broad and important category of financial services, and federal regulators have never supervised them. Instead, the states have traditionally taken the lead in regulating nondepositories.  

So, as nondepository institutions rose up to address certain consumer needs, New York’s laws and regulations adapted and expanded along with them. To cite just two examples:  

One, New York’s Banking Department (one of DFS’s predecessor agencies) began licensing money transmitters in 1964, when the legislature enacted a new law covering money transmitters. The goal was then – and still is now -- to ensure that operations are carried out safely and soundly and that consumers are protected. Requirements have been expanded over time and today include holding sufficient capital, safely held in permissible investments, as well as having a surety bond that protects against certain losses. Like all banks and licensed financial services providers, money transmitters providing services in New York are subject to regular examinations and receive oversight to ensure that they meet standards and improve operations, while serving and protecting consumers under a compliant business structure.  

In 1977, New York created a Transmitter of Money Insurance Fund, paid into through assessments on all New York licensed money transmitters, and available to make customers whole -- in cases where a money transmitter receives money for transmission but fails to transmit that money. Over time, additional regulatory standards have been developed, in areas including consumer disclosure, the use of agents, and cybersecurity, all intended to further ensure sound operations and the protection of consumers.

A second example of New York’s leadership in the nondepository space is virtual currency. DFS started looking into virtual currency in 2013, long before it was on the radar for most of the financial services world. At the time, Bitcoin was fluctuating around $100. One concern DFS had at the time was that startups -- like the Mt. Gox exchange operating in Japan -- were not prepared to protect customers and had deficient operations that put customer funds at risk.  

Another concern was that these then unregulated small businesses were not respecting anti-money laundering laws. DFS recognized early on that standards needed to be set that would help improve operations and safety, and we therefore created a channel for growing in the right way: respecting legal obligations required of all financial services companies and protecting customers by developing a sound infrastructure.

DFS held public hearings on virtual currency in January 2014 and invited companies to submit proposals for chartering a virtual currency exchange, as the problems at Mt. Gox -- then handling 70 percent of Bitcoin exchanges -- continued to spiral out of control.  DFS then issued drafts of Virtual Currency Regulation, making the Bitcoin license final in June 2015.

Companies that have since received licenses from DFS include the largest virtual currency exchanges in the United States and in Japan. Virtual currency remains a novel and far from stable area of activity. Its suitability as a payment system remains to be seen. But while it has presented a challenge to traditional financial services, it has spurred innovation. And DFS and the states have helped set the standards through our application and examination processes to ensure that customer protection is taken seriously, and cybersecurity and AML standards are respected. 

By setting standards, we have made it possible for both startups and traditional financial service providers to pursue innovation in this area -- as well as in areas of traditional finance where innovation had slowed down. Indeed, regulatory standards help insure that the competition among new entrants is not a race to the bottom -- where services that seem cheap or convenient turn out to hide fatal flaws -- flaws like those that led to hacking, massive losses, and eventually the bankruptcy of Mt. Gox.  

Strong standards are important to our markets and consumers, as well as the companies that want to be best in class in providing financial services. The regulatory structure that we created for virtual currency has helped our licensed companies attract greater interest from customers, investors, and potential financial services partners seeking to pursue further innovation, while protecting market integrity by stringent standards applicable to all law-abiding business enterprises.

At DFS, we are stewards of New York’s status as the financial capital of the world, as well as its status as the place where the state banking system was born and where progressive consumer protections thrive at the same time. Our work on fintech reflects our support for our state-chartered banking system and of the growth of nondepositories, with a focus on ensuring a level playing field where everyone conducting the same types of activities complies with the same rules.  

Of course, fintech is an abbreviation of the term financial technology, which alone does not encompass any particular industry or sector. Fintech can refer to myriad products, like apps, software, and other programs, which many industries use and continue to improve upon. If you use a smartphone to check your bank balance or deposit a check, that’s fintech, used by your local bank. Certain kinds of fintech can be utilized quite effectively (when used responsibly) to bring banking services to hard-to-reach consumers.  

When done right, and subject to equivalent rules, this is a very good thing. Fintech, where properly regulated, can enable an institution to underwrite transactions more quickly by allowing for the real-time evaluation of data points – provided that the underwriting is done with regard for risk and consumer protection. And data collection must vigilantly protect consumers from misuse of their data and cyber threats.  

These pillars are the essence of the state bank regulatory framework that has been in existence for a very long time. The use of financial technology alone should not grant one an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers. Our state-chartered community banks are serving New York’s communities, as are our state-licensed nondepository lenders, money transmitters and virtual currency firms. 

A fair playing field is as important as promoting innovation. In fact, a level playing field is essential for innovative companies to enter and strengthen the marketplace, while ensuring that everyone abides by the same rules.

Again, welcome to New York and to today’s CSBS Fintech Forum. We have a robust agenda ahead of us, with panel discussions from various business sectors and standpoints. We want all of the issues put on the table as part of a collaborative, open discussion. We will also end each panel with an opportunity for questions. It is my fervent hope that, by the end of the day, we will have learned something from each other, and that the information discussed here will lead to continued dialogue and positive results, further strengthening the state system.

Record Number of College Students Enter Nationwide Community Bank Competition

Case Studies Evaluate How Community Banks Approach Technology

CSBS has announced a record number of college student teams have submitted case studies for the 2018 Community Bank Case Study Competition. This year’s competition focuses on how community banks are using technology. 

Fifty-one student teams from 45 colleges and universities across the nation met the April 9 deadline. Last year, 33 teams participated. This is the fourth year of the competition, which is open to undergraduate students in all fields of study as an opportunity to gain valuable first-hand knowledge of the banking industry.

“We are very excited to see such a strong interest in community banking from students and academics,” said CSBS Senior Executive Vice President Michael Stevens. “These case studies tell valuable stories about community banks and the role they play in the economy, and we are very interested in what they say about financial innovations.”

The case studies will undergo three rounds of judging by three separate panels of banking experts. The top three scoring teams will be announced on May 10 during the CSBS State-Federal Supervisors Symposium in Jacksonville, Fla. The announcement will be streamed live on the competition website at

The student teams compete for an academic scholarship, a chance to get their work published in an academic journal and an opportunity to attend the sixth annual CSBS-Federal Reserve Community Banking Research Conference, held in St. Louis this October. 

Student teams participating in the 2018 Community Bank Case Study Competition attend the following universities:

  • Alvernia University (Three teams)
  • Arkansas State University (Four teams)   
  • Bowling Green State University
  • Claflin University
  • Concordia College
  • DePaul University
  • East Stroudsburg University
  • Eastern Kentucky University
  • Fairfield University
  • Florida State University
  • Fort Hays State University
  • Grove City College
  • Immaculata University
  • Iowa State University
  • James Madison University
  • Kutztown University (Two teams) 
  • Louisiana State University
  • Mansfield University
  • Marquette University
  • Merrimack College
  • Middle Tennessee State University
  • Mississippi State University
  • Murray State University
  • Nicholls State University
  • Northern State University
  • Ohio State University
  • Penn State Harrisburg
  • Purdue University
  • Saint Vincent College
  • Southeastern Louisiana University
  • Trine University
  • University of Arkansas
  • University of Hawaii at Manoa
  • University of Houston
  • University of Iowa
  • University of Missouri - Kansas City
  • University of Nebraska at Kearney 
  • University of Northern Iowa
  • University of Pittsburgh at Johnstown
  • University of Tennessee at Martin
  • University of Texas at San Antonio
  • University of Wisconsin - Whitewater
  • Ursinus College
  • Western Carolina University
  • York College of Pennsylvania

For more information on the 2018 Community Bank Case Study Competition, visit

FFIEC Issues Joint Statement on Cyber Insurance and Its Potential Role in Risk Management Programs

The Federal Financial Institutions Examination Council (FFIEC) members issued a joint statement to describe matters that financial institutions should consider if they are determining whether to use cyber insurance as a component of their risk management programs. 

The FFIEC members do not require financial institutions to maintain cyber insurance. The evolving cyber insurance market and the shifting cyber threat landscape may, however, prompt financial institutions to consider whether cyber insurance would be an effective part of their overall risk management programs.  

The joint statement notes that cyber attacks are increasing in volume and sophistication and that traditional general liability insurance policies may not provide effective coverage for all potential exposures caused by cyber events. Cyber insurance could offset financial losses from a variety of exposures—including data breaches resulting in the loss of confidential information—that may not be covered by more traditional insurance policies. Financial institution management should assess the scope of coverage of current insurance and consider how cyber insurance may fit into the institution’s overall risk management framework.

As with any insurance coverage, cyber insurance does not diminish the importance of a sound control environment. Rather, cyber insurance may be a component of a broader risk management strategy that includes identifying, measuring, mitigating, and monitoring cyber risk exposure.

Financial institutions may find additional information on risk management and cybersecurity risk management on the FFIEC’s website

Treasury Department Produces Industry Cybersecurity Tabletop Exercise Template

As cybersecurity remains a top-level priority for banks of all sizes, a new tool has been developed to help smaller financial institutions prepare for cyber-attacks.

The Treasury Department designed a Financial Sector Cybersecurity Tabletop Exercise Template to aid small/mid-size financial institutions in strengthening their cybersecurity posture. 

The tabletop exercise template assists companies who wish to use it in considering their own internal processes, as well as discuss how they can most effectively engage in a national, coordinating response to significant cybersecurity incidents among government and industry.  The template is customizable and allows for institutions to tailor the incident scenario to their individual needs.   The template also includes discussion questions that can be used to enhance the dialogue and further explore participants understanding.  

Use of the tool is entirely voluntary and institutions should feel free to modify it to suit their specific needs.