Fintech Innovation at California's Newest Financial Regulator Webinar Recap

On October 1, 2021, DWT's Department of Financial Protection and Innovation (DFPI) Taskforce hosted a discussion with Christina Tetreault, the Deputy Commissioner of the DFPI's Office of Financial Technology Innovation (OFTI), to get her perspective on the new office.

Tetreault provided insights on the creation of the OFTI, its organization, and its priorities. A particular focus for the office is the intersection of people, technology, and money. A recording of the full discussion is available here.

Why Was the OFTI Created?

Tetreault noted that the OFTI was created, according to the California Consumer Financial Protection Law, to address the "great promise to the more effective and efficient provision of consumer financial products and services" and the related risks to consumers. The OFTI is intended to clarify the expectations for entrepreneurs to responsibility operate, while creating innovative products and services for Californians.

How Is the OFTI Organized and Structured?

The office currently has four roles:

• The Deputy Commissioner of the OFTI (Tetreault).
• Senior Counsel (Adam Wright, who recently joined the OFTI).
• An analyst, who will assist with engagement, supporting staff during office hours, working with a researcher and hopefully pulling together convenings.
• A researcher, who will have deep experience pulling together and designing future-focused research.

Moreover, the researcher will have market monitoring functions complementary to DFPI's market monitoring, which is modeled on the Consumer Financial Protection Bureau's organization. Initial topics of focus will include lending, Regulatory Technology (RegTech), different applications of machine learning, payments, and so on.

Priorities

There are currently three priorities for the office:

• Standing up the OFTI: This means establishing regular office hours and the functions of the OFTI, as well as developing the co-creation process—which will be determined by the roles of the four members of the OFTI.
• Determining Priorities for Impact: The office's priorities are still to be determined. However, Tetreault made clear that removing obstacles is a clear priority for the OFTI but that her office needs help identifying those obstacles in order to address them. Another priority for the office is to make insights actionable, but the ultimate authority on policy directions will come from the DFPI's Commissioner.
• Getting the Office's Name in the Public Sphere: Meeting with people inside and outside of the DFPI is a key priority. Tetreault sees the effectiveness of the office directly linked with how well it works with internal and external stakeholders.
  
  The OFTI will seek to conduct "in-reach" within the rest of the DFPI to see what their colleagues are doing and how they can help. Moreover, she has an expectation that meetings will be not be one-off events but, rather, a series of dialogues.

Activities / Functions

For the activities and functions of the OFTI, there were three main themes:

• Engagement: Though the OFTI will not offer legal advice, it nonetheless intends to meet with companies, their lawyers, trade associations, academics, and others to see what they know, what they need and what questions they have. Tetreault emphasized the OFTI's open door-policy, with one clear exception: enforcement. Enforcement conversations need to be strictly separated from those with the OFTI.
  
  The OFTI will take all other inquiries or complaints and route them to the DFPI Ombudsman, the General Counsel, or Customer Support Office as appropriate. Tetreault plans to create a newsletter to facilitate ongoing engagement.
• Research: The OFTI seeks to research the process of business formation, what is ahead for businesses and consumers, and where opportunities and risks reside. The research will take in massive amounts of data and convert it into a more accessible, digestible form.
• Synthesis and Education: Tetreault stated that the intent of the office is to take and apply the OFTI's research through education sessions and dialogue on hot topics. Ideally this would create a collaborative ecosystem producing responsible innovation.

Other Takeaways

In addition to the topics covered above, there were a number of other relevant points covered in the discussion.

• Assumptions From the OFTI: The office assumes companies want to be compliant and that consumer protection is not necessarily at odds with innovation.
• Buy Now Pay Later (BNPL): In response to a question about the DFPI's stance on BNPL, Tetreault explained that the state has already taken action on this issue (e.g., including entering MOUs with several BNPL providers), but the OFTI is happy to connect people with info on this topic.
• Cryptocurrency: The OFTI has seen a huge spike in consumer interest in digital assets. It has also seen a rise in consumer complaints, most commonly those about fraud with cryptocurrency being the medium of exchange. In particular, Tetreault noted that young consumers and consumers of color are growing investors in this area, and the OFTI is extremely interested in this area.
• Money Transmission Modernization Act: One member of the DFPI served on the Conference of State Bank Supervisor's committee that drafted the model legislation, suggesting that it may be an area of focus, but Tetreault did not confirm.
• Mortgage and Renter Relief: The state is committed to get relief on rent, mortgages, and utilities through the "Housing is Key" website.

We will continue to monitor the OFTI's developments and are eager to follow its progress under Tetreault.