Financial technology could take over an important part of the market fast. It is important that regulations not be used to stop progress. To make sure of that, there should be a regulatory safe harbor saying any financial technology that meets three conditions beyond the usual one of in fact doing what it seems to be telling users that it is doing should definitely be allowed:
- The technology is based on accounts that are 100% backed by central bank reserves. Obviously, this means that central banks have to make reserve accounts readily available to new fintech companies.
- All records of all transactions using the technology, and all complaints received by the company are immediately available in easy-to-read electronic form and can be freely inspected by the government without a warrant. That is, everyone using the technology signs a contract that makes everything they do with the technology totally transparent to the government.
- Funds held on behalf of customers have a nonzero interest rate tied to a market-based measure of prevailing short-term interest rates. (This is to make sure the technologies are robust to possible negative interest rate situations.)
This is not at all to say that all new financial technologies must meet these three criteria. But there should be absolutely no prior restraint of anything that does meet these three conditions and the usual “doing what you seem to be saying you will do” condition. The “total transparency to the government” rule should make it easy to detect problems as they arise.