LAS VEGAS – Lenders that use alternative data for underwriting should tread carefully until regulation has a chance to catch up, said executives at a securitization conference yesterday.
“We want to support business and don’t want to stifle innovation, but we have to move in a measured way,” Rostin Behnam, commissioner of the Commodity Futures Trading Commission, said Monday at SFIG 2019. He noted that “existing statutory structures and rulebooks don’t necessarily address, deal with, or contemplate this intersection between finance and technology.”
Within the structured finance industry, alternative data is thought of as “both a threat and an opportunity,” said panel moderator Steve Moffitt, a managing director at Goldman Sachs.
The opportunity is simple: Other forms of data, such as employment and education information, can be used to extend capital to consumers who might otherwise appear uncreditworthy. Even though those capabilities exist, Behnam said, there needs to be explicit permissions granted from a regulatory perspective and a clear framework of controls to avoid abuse.
However, the regulatory process often moves at a slower pace than the rest of the market. That said, “the slate is blank from a [Washington,] D.C. perspective, and there’s a real willingness to engage and learn from the private sector so that D.C. can keep up with the innovation and support the innovation,” Behnam said.
To be successful, policymakers need engagement from the market, which goes beyond alternative data uses. “Whether it’s AI, payment systems, cryptoassets, or blockchain, the policymakers and regulators in D.C. are really thinking about this with an open mind,” the commissioner said. It involves “understanding and appreciating the risks that may exist, and also wanting to embrace an environment where fintech startups and existing companies can start to utilize this technology, demonstrate use cases, and ultimately implement the technology to the larger economy,” he added.
Behnam called on companies within the market to participate, educate, engage, and advocate for technology. “That requires transparency, it requires trust above all else,” he said. “It can be done, it just takes time.”
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