[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                    FOSTERING FINANCIAL INNOVATION:
                       HOW AGENCIES CAN LEVERAGE
                        TECHNOLOGY TO SHAPE THE
                      FUTURE OF FINANCIAL SERVICES

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON DIGITAL ASSETS,
                         FINANCIAL TECHNOLOGY,
                             AND INCLUSION

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION
                               __________

                            DECEMBER 5, 2023
                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-60
                           

                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                                    
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
55-099 PDF                 WASHINGTON : 2024 



                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
    Chairman                         JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                    SUBCOMMITTEE ON DIGITAL ASSETS, 
                  FINANCIAL TECHNOLOGY, AND INCLUSION

                    FRENCH HILL, Arkansas, Chairman

FRANK D. LUCAS, Oklahoma             STEPHEN F. LYNCH, Massachusetts, 
TOM EMMER, Minnesota                     Ranking Member
WARREN DAVIDSON, Ohio, Vice          BILL FOSTER, Illinois
    Chairman                         JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 RITCHIE TORRES, New York
BRYAN STEIL, Wisconsin               BRAD SHERMAN, California
WILLIAM TIMMONS, South Carolina      AL GREEN, Texas
BYRON DONALDS, Florida               SEAN CASTEN, Illinois
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
ERIN HOUCHIN, Indiana
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 5, 2023.............................................     1
Appendix:
    December 5, 2023.............................................    37

                               WITNESSES
                       Tuesday, December 5, 2023

Epstein, Ann, Assistant Directer, Office of Competition and 
  Innovation, Consumer Financial Protection Bureau (CFPB)........    11
Gibson, Michael S., Director, Supervision and Regulation, Board 
  of Governors of the Federal Reserve System (Fed)...............     9
Mulholland, Mark, Deputy Chief Information Officer for 
  Management, Federal Deposit Insurance Corporation (FDIC).......    13
Murphy, Donna, Deputy Comptroller, Compliance Risk Policy, and 
  Acting Deputy Comptroller, Office of Financial Technology, 
  Office of the Comptroller of the Currency (OCC)................     4
Szczepanik, Valerie A., Director, Office of the Strategic Hub for 
  Innovation and Financial Technology (FinHub), U.S. Securities 
  and Exchange Commission (SEC)..................................     8
Vice, Charles A., Director, Financial Technology and Access, 
  National Credit Union Administration (NCUA)....................     6

                                APPENDIX

Prepared statements:
    Epstein, Ann.................................................    38
    Gibson, Michael S............................................    43
    Mulholland, Mark.............................................    49
    Murphy, Donna................................................    61
    Szczepanik, Valerie A........................................    70
    Vice, Charles A..............................................    74

              ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Epstein, Ann:
    Written responses to questions for the record from 
      Representative Hill........................................    78
    Written responses to questions for the record from 
      Representative Timmons.....................................    78
    Written responses to questions for the record from 
      Representative Waters......................................    79
Gibson, Michael S.:
    Written responses to questions for the record from 
      Representative Hill........................................    83
    Written responses to questions for the record from 
      Representative Foster......................................    81
    Written responses to questions for the record from 
      Representative Waters......................................    86
Mulholland, Mark:
    Written responses to questions for the record from 
      Representative Hill........................................    88
    Written responses to questions for the record from 
      Representative Davidson....................................    93
    Written responses to questions for the record from 
      Representative Waters......................................    92
Murphy, Donna:
    Written responses to questions for the record from 
      Representative Hill........................................    95
    Written responses to questions for the record from 
      Representative Waters......................................    96
Szczepanik, Valerie A.:
    Written responses to questions for the record from 
      Representative Hill........................................    97
    Written responses to questions for the record from 
      Representative Timmons.....................................   100
    Written responses to questions for the record from 
      Representative Waters......................................   101
Vice, Charles A.:
    Written responses to questions for the record from 
      Representative Hill........................................   103
    Written responses to questions for the record from 
      Representative Waters......................................   105

 
                    FOSTERING FINANCIAL INNOVATION:
                       HOW AGENCIES CAN LEVERAGE
                        TECHNOLOGY TO SHAPE THE
                      FUTURE OF FINANCIAL SERVICES

                              ----------                              


                       Tuesday, December 5, 2023

             U.S. House of Representatives,
                    Subcommittee on Digital Assets,
                              Financial Technology,
                                     and Inclusion,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. French Hill 
[chairman of the subcommittee] presiding.
    Members present: Representatives Hill, Lucas, Emmer, 
Davidson, Rose, Steil, Timmons, Flood; Lynch, Foster, Sherman, 
Casten, and Nickel.
    Ex officio present: Representatives McHenry and Waters.
    Also present: Representative Himes.
    Chairman Hill. Good morning. The Subcommittee on Digital 
Assets, Financial Technology, and Inclusion will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    I want to thank all of our witnesses for being here today, 
and I now recognize myself for 4 minutes for an opening 
statement.
    Today's hearing is entitled, ``Fostering Financial 
Innovation: How Agencies Can Leverage Technology to Shape the 
Future of Financial Services.'' The story of America is about 
technological innovation and the application of the American 
work ethic and capital. Over our 250-year history, steam, rail, 
telephone, air, radio, television, fission, IT, the chip, 
vaccines--all of these things are possible because we allow 
innovation. We facilitate it in our society. Today, new and 
emerging technologies like digital assets, distributed ledgers, 
quantum computing, and greater use of artificial intelligence 
(AI) are dominating the discussion.
    We have to remind ourselves that innovation has always been 
at the heart, too, of, financial services. In fact, financial 
technology, or fintech as we call it, is hardly new. With the 
advent of the credit card in 1950, the first ATM in 1967, the 
first electronic securities exchange in 1971, computer-based 
access to bank accounts in the 1980s, and peer-to-peer (P2P) 
payments in the 1990s, innovation has always been transforming 
the relationship between consumers, businesses, and their 
financial services providers and their money.
    But today, we want to talk about how government agencies, 
while they are not frequently at the forefront of innovation, 
they definitely can stop innovation dead in its tracks. We 
recall President Reagan's very fond conversation about what he 
thinks government thinks of the economy, ``If it moves, tax it. 
If it keeps moving, regulate it. And if it stops moving, 
subsidize it.'' And that is the challenge we always have in 
here, in Congress, is making sure that we facilitate 
innovation, and that we work with our regulators to do that.
    Over the years, Congress has added ombudsmen in agencies 
just to represent the people who are regulated, to make sure 
they get a fair shake. We have added cost-benefit analysis 
through the Administrative Procedure Act, to make sure that the 
rules that are pronounced actually make sense and have some 
common sense associated with it. And, of course, we apply our 
oversight capability, which we are doing today.
    It was only a few years ago that some of your agencies 
began establishing specific offices dedicated to facilitating 
responsible innovation, and many of you lead those offices at 
your respective agencies. This hearing is the first time that 
the committee has called upon each of you to testify about your 
agency's work related to innovation. And regrettably, when I 
look at the Government Accountability Office's (GAO's) recent 
report, maybe some of that progress is lacking, so we will have 
a good discussion about that today.
    Let me recap some of the actions taken by President Biden's 
regulators. The Federal Reserve announced a Novel Activities 
Supervision Program in August for enhanced supervision on new 
activities related to fintech and digital assets. The National 
Credit Union Administration (NCUA) established its Office of 
Financial Technology and Access in January of this year. While 
the Office is engaging with stakeholders and hosting public 
presentations, it has yet to establish a workforce planning 
process to ensure the staff have the knowledge and skills 
necessary to carry out its mission over fintech.
    The Consumer Financial Protection Bureau's (CFPB's) Office 
of Innovation was founded in 2018, to encourage consumer-
friendly innovation, but was replaced in 2022 by the Office of 
Competition and Innovation, and two of the most innovation-
forward policies that had been previously established were 
discontinued.
    The Office of the Comptroller of the Currency (OCC) was the 
earliest regulator to establish an Innovation Office back in 
2016, but that office was dissolved into the Office of 
Financial Technology in March, and the individual who 
reportedly lied about his extensive industry experience and 
education was placed at the helm. So maybe, we should have some 
oversight of that too.
    I look forward to the discussion today, and I now yield to 
the ranking member of the subcommittee, Mr. Lynch, for 5 
minutes for an opening statement.
    Mr. Lynch. Thank you, Mr. Chairman, for holding this 
important hearing to explore how financial regulators play an 
important role in fostering and regulating innovation in the 
financial services space. I would like to thank our witnesses 
for their willingness to share their agencies' expertise and 
their critical work with this committee.
    Under the Trump Administration, several regulators 
established Offices of Innovation to purportedly encourage 
innovation and prevent unnecessary regulatory barriers. 
However, in practice, it became evident that some of these 
offices were simply a vehicle for lowering regulatory 
standards. Agencies issued rules that received significant 
pushback from consumer advocates and were the subject of 
litigation initiated by State regulators.
    For example, the CFPB issued a handful of no-action letters 
that were criticized for protecting individual companies from 
enforcement action when they broke the law, leading to the risk 
of consumer harm. Additionally, the OCC attempted to issue 
fintech charters, which would have allowed nonbank fintech 
companies to operate like a bank without being subject to 
comprehensive depositor oversight.
    If we truly value innovation, we should want regulators to 
police bad actors who are evading laws so that innovative 
companies, playing by the rules, can have a level playing field 
to be profitable while also working in the interest of 
consumers. I am encouraged that under the current 
Administration, regulators have transitioned these Offices of 
Innovation to focus greater attention on market monitoring, 
competition, and integrating innovation into existing 
regulatory functions.
    The CFPB has focused on improving competition in data 
protection through its data portability rulemaking. The SEC's 
Strategic Hub for Innovation and Financial Technology (FinHub) 
engages in understanding distributed ledger technology and 
artificial intelligence.
    I also applaud the ways regulators have explored and 
cautioned against the risks of digital assets. In January, the 
Fed, the FDIC, and the OCC issued a joint statement that 
cautioned banks against involvement in crypto assets, citing 
heightened liquidity, volatility, and fraud risks. The collapse 
of FTX and of Silvergate Bank last year, a prominent banking 
partner for crypto companies illustrates the need for this type 
of guidance.
    Additionally, both the OCC and the FDIC have used their 
innovation functions to increase scrutiny over bank-fintech 
partnerships and the ways that can lead to regulatory evasion. 
In October, the Federal Reserve issued an enforcement action 
against Metropolitan Commercial Bank for failing to properly 
oversee its fintech partner, MovoCash. An investigation found 
that as early as January 2020, fraud actors opened fraudulent 
MovoCash accounts to improperly route direct deposit and 
government benefits. More than $300 million of pandemic 
unemployment benefits were misdirected to fraud actors.
    Moreover, innovation does not need to come solely from the 
private sector, and we should be encouraging government 
agencies to innovate to improve financial access and 
opportunity. With 130 countries, representing 98 percent of the 
global GDP, exploring a government-issued central bank digital 
currency (CBDC), the U.S. should not risk falling behind. I 
find it ironic that many of my colleagues on this subcommittee 
want regulators to encourage innovation, and yet are pushing 
legislation that shuts down a CBDC before agencies have 
adequately researched and explored it.
    There are countless other services that government can 
provide, in coordination with the private sector, to expand 
financial inclusion, and we should be encouraging this type of 
exploration.
    I am eager to learn more about the ways agencies are 
encouraging innovation in the financial sector, and I yield 
back.
    Chairman Hill. The gentleman yields back. The Chair now 
recognizes the Chair of the full Financial Services Committee, 
Mr. McHenry of North Carolina, for 1 minute.
    Chairman McHenry. I want to thank you, Mr. Hill, and to 
each of you, I want to thank you for the task and the important 
job you have undertaken. Fostering innovation at institutions 
and firms under your supervision is vital and important. Since 
my legislation to modernize and streamline how innovators 
interact with regulators, many agencies have established 
offices focused on innovation. That is welcomed and positive.
    However, I am increasingly concerned that those offices, 
your offices, are not operating as intended. It is critical 
that firms, financial institutions of all sizes, and 
entrepreneurs can go to market with innovative products sooner, 
while maintaining important consumer protections. These offices 
should not be used to smother innovation and technology or 
simply ignore it.
    It is also important that we have the highest-quality folks 
in charge of those offices. It is clear the Administration 
cannot continue to only regulate by enforcement, and I 
encourage each of you to stay focused on your mission and to 
work to provide regulatory certainty for the industry, 
regulators, and consumers.
    Thank you, Mr. Chairman. I yield back.
    Chairman Hill. I thank the chairman.
    Today, we welcome the testimony of Ms. Donna Murphy, the 
Acting Deputy Comptroller for the Office of Financial 
Technology, and the Deputy Comptroller for Compliance Risk 
Policy at the Office of the Comptroller of the Currency; Mr. 
Charles Vice, the Director of Financial Technology and Access 
at the National Credit Union Administration; Ms. Valerie 
Szczepanik, the Director of the SEC's Strategic Hub for 
Innovation and Financial Technology; Dr. Michael Gibson, the 
Director of the Federal Reserve Board's Division of Supervision 
and Regulation at the Board of Governors here at the Federal 
Reserve System; Ms. Ann Epstein, the Assistant Director of the 
Office of Competition and Innovation at the CFPB; and Mr. Mark 
Mulholland, the Deputy Chief Information Officer for Management 
at the FDIC.
    We thank each of you for taking the time to be with us 
today. Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony, and without objection, 
each of your written statements will be made a part of the 
record.
    Ms. Murphy, you are recognized for 5 minutes to give your 
oral remarks.

STATEMENT OF DONNA MURPHY, DEPUTY COMPTROLLER, COMPLIANCE RISK 
  POLICY, AND ACTING DEPUTY COMPTROLLER, OFFICE OF FINANCIAL 
  TECHNOLOGY, OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)

    Ms. Murphy. Thank you, Chairman Hill, Ranking Member Lynch, 
Chairman McHenry, and members of the subcommittee. I am pleased 
to appear today to discuss the activities and initiatives of 
the Office of the Comptroller of the Currency's Office of 
Financial Technology.
    I am currently serving as the Acting Deputy Comptroller for 
the Office of Financial Technology, in addition to my permanent 
position as Deputy Comptroller for Compliance Risk Policy. In 
my acting capacity, I oversee the agency's work relating to the 
analysis and evaluation of financial technology innovations, 
trends, emerging risks, and implications for OCC-supervised 
banks. My team of financial technology policy specialists 
supports the development of policy guidance, outreach, 
training, and supervision resources for fintech-related 
business models, platforms, and applications.
    Over the years, the OCC has adapted its supervisory 
approach to address the many technological innovations by OCC-
supervised banks and to support responsible innovation in the 
banking industry. In 2016, the OCC became the first Federal 
banking agency to establish a dedicated Office of Innovation, 
in order to provide a framework for activities related to 
financial technology innovation.
    For the last 6 years, the Office of Innovation has also 
conducted outreach, such as designated office hours, in which 
stakeholders, including technology firms, banks, trade 
associations, academics, and consumer groups, interact with the 
agency. Information gained from this outreach facilitates our 
supervisory approaches to supporting banks and responsibly 
innovating through the use of advanced technologies.
    In October 2022, the OCC announced that it would build upon 
this work by creating the Office of Financial Technology, which 
incorporates the former Office of Innovation. The new office is 
focused on supporting responsible innovation and ensuring high-
quality guidance and supervision for banks' financial 
technology implementation.
    The OCC's current financial technology focus includes 
matters involving bank-fintech partnerships, and artificial 
intelligence, digital assets and tokenization, as well as other 
new and changing technologies and business models that affect 
OCC-supervised banks. Banks' relationships with third parties, 
including fintech companies, continue to expand. The use of 
third parties has significant potential benefits, but strong 
third-party risk management is essential to avoid harm to 
consumers or weakening of bank safety and soundness.
    Earlier this year, the OCC, the FDIC, and the Federal 
Reserve published interagency guidance on third-party 
relationships in risk management. This document reminds banks 
of their responsibility to operate in a safe and sound manner, 
in compliance with applicable laws and regulations, regardless 
of whether their activities are performed in-house or 
outsourced.
    The OCC also recognizes the considerable and growing 
interest by the banking industry in a wide range of uses for 
artificial intelligence. When used appropriately, AI 
applications such as chatbots, enhanced credit screening, and 
fraud detection systems have the potential to strengthen safety 
and soundness, improve banks' ability to address financial 
crime, and increase access to the banking sector for consumers. 
Banks also are exploring newly-developed kinds of AI such as 
generative AI, which can be used to generate text, images, or 
other outputs from a given prompt. OCC-supervised institutions 
are approaching generative AI with caution, and its use is not 
widespread in the Federal banking system.
    For all uses of AI in the banking sector, the OCC remains 
focused on the potential risks of adverse outcomes if bank use 
of AI is not properly managed and controlled. We continue to 
perform robust, risk-based supervision, monitor the industry, 
and conduct research to ensure that the agency keeps pace with 
financial sector changes.
    In addition, the OCC recognizes the potential of other 
technologies, including distributed ledger technology, and we 
maintain a careful and cautious approach to their use while 
industry standards develop and legal and ethical questions are 
addressed.
    Overall, however, the financial industry's attention in the 
digital asset space appears to be shifting to the tokenization 
of assets and liabilities. Tokenization is driven by solving 
real-world settlement problems and shows promising potential. 
In February, the OCC will host a symposium on tokenization to 
explore its legal foundations, use cases, and risk management 
and control considerations.
    My written statement also discusses ways financial 
technology innovation can be used to increase access to 
traditional financial services, and it describes some of the 
OCC's efforts to support this very important objective.
    In closing, rapid financial technology innovation requires 
a robust approach by financial regulators. The OCC is committed 
to helping banks innovative, while evolving in a safe, sound, 
and fair manner.
    Thank you, and I would be happy to answer questions about 
the OCC's work to support financial technology.
    [The prepared statement of Deputy Comptroller Murphy can be 
found on page 61 of the appendix.]
    Chairman Hill. Thank you very much.
    Mr. Vice, you are recognized for 5 minutes.

 STATEMENT OF CHARLES A. VICE, DIRECTOR, FINANCIAL TECHNOLOGY 
    AND ACCESS, NATIONAL CREDIT UNION ADMINISTRATION (NCUA)

    Mr. Vice. Chairman Hill, Ranking Member Lynch, and members 
of the subcommittee, thank you for inviting me to discuss the 
National Credit Union Administration's efforts to foster 
financial technology. I am Charles A. Vice, Director of the 
NCUA's Office of Financial Technology and Access. I began my 
career in 1990, with the Federal Deposit Insurance Corporation, 
serving as an examiner for 18 years. In 2008, I was appointed 
Commissioner of the Kentucky Department of Financial 
Institutions, a position I held for 14 years before joining the 
NCUA on January 1, 2023.
    During my 3 decades of experience, I have seen the 
resiliency of the credit union and banking industries in the 
face of such challenges as Y2K concerns, the Great Recession, 
natural disasters, and the COVID-19 pandemic. I have seen how 
technology can be both a benefit and a risk that must be 
properly managed. On one hand, technology can improve 
efficiency, facilitate better communication with members, and 
offer round-the-clock services. On the other hand, technology 
represents risks that must be managed, monitored, and 
mitigated. The NCUA understands this fine balance.
    The NCUA's Office of Financial Technology and Access 
identifies barriers, challenges, and opportunities credit 
unions face in adopting and using technology to provide 
financial services to their members. In 2023, the NCUA board 
adopted the Financial Innovation Rule which provides additional 
flexibility for federally-insured credit unions to use advanced 
technologies and opportunities offered by the financial 
technology sector. The proposed rule received supportive 
comments from the public during the notice-and-comment period 
and was finalized in September.
    In addition, the NCUA is committed to promoting effective 
and efficient use of the emerging technology. The agency has 
implemented several initiatives, including a virtual 
examination program and a digital asset working group. With the 
virtual examination program, the NCUA is exploring methods to 
use technology to improve examination and supervision 
procedures.
    The NCUA's Digital Asset Working Group is an agency team 
that develops guidance for the credit union industry's use of 
distributed ledger technology in offering digital asset and 
cryptocurrency services to members.
    The NCUA is also evaluating digital identification 
technology. The use of digital identification can be a useful 
tool for verifying identity, and a number of States have issued 
mobile driver's licenses. Some credit unions have completed 
successful pilot tests using digital identification and are in 
the process of updating their policies and procedures to 
incorporate this technology for onboarding new members.
    In 2024, ACCESS, which is an acronym for Advancing 
Communities through Credit, Education, Stability, & Support, is 
spearheading an initiative to improve access to financial 
services in financial deserts. This will highlight 
opportunities for the agency to assist regions where credit 
union services are limited or certain segments of the 
population are underserved.
    The initiative will also identify outreach opportunities, 
ensuring the NCUA's actions are timely, relevant, and 
impactful. The ACCESS team will pilot a program to target 
outreach for three communities in 2024. As part of the pilot, 
the NCUA will catalog and track the impact of the agency's 
financial inclusion efforts and identify additional gaps and 
opportunities to foster financial inclusion.
    Finally, the NCUA's lack of supervisory authority over 
credit union service organizations and third-party vendors is a 
noteworthy vulnerability for the industry. If Congress 
reauthorizes the NCUA's third-party vendor authority per the 
NCUA Board Chair's request, the agency will adopt a program and 
prioritize examinations based on identified risks.
    Thank you for the opportunity to testify about the NCUA's 
efforts to foster financial technology and financial inclusion. 
This concludes my comments.
    [The prepared statement of Director Vice can be found on 
page 74 of the appendix.]
    Chairman Hill. Thank you so much.
    Director Szczepanik, you are recognized for 5 minutes to 
give your oral presentation.

  STATEMENT OF VALERIE A. SZCZEPANIK, DIRECTOR, OFFICE OF THE 
STRATEGIC HUB FOR INNOVATION AND FINANCIAL TECHNOLOGY (FINHUB), 
         U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

    Ms. Szczepanik. Thank you. Chairman Hill, Ranking Member 
Lynch, Chairman McHenry, and members of the subcommittee, thank 
you for inviting me to testify before you today about the SEC's 
Strategic Hub for Innovation and Financial Technology, also 
known as FinHub. It is my honor to appear before you today to 
discuss FinHub's work. I am testifying today in my official 
capacity as Director of FinHub, but my testimony does not 
necessarily reflect the views of the Commission, the 
Commissioners, or other members of the SEC staff. I am also 
pleased to see in attendance those who represent similar 
functions to mine among the SEC's regulatory partners.
    I have served as the head of FinHub since it was launched 
in 2018, and became its Director when, in 2020, it was 
designated as a standalone office reporting to the SEC Chair. 
FinHub was designed to be an agile hub-and-spoke structure with 
eight full-time staff at the hub and experts from the agencies' 
divisions and offices in order to create a rapid communication 
and coordination network across the agency and to avoid 
siloing. In this way, FinHub utilizes and augment's the 
agency's expertise concerning leading-edge technologies and 
innovations that foreshadow the future direction of the 
financial industry.
    FinHub helps the agency achieve its mission to protect 
investors, maintain fair and orderly and efficient markets, and 
facilitate capital formation by helping coordinate the agency's 
oversight of and responses to emerging financial technologies 
across numerous areas, including distributed ledger technology 
and digital assets, automated investment advice, digital 
marketplace financing, and artificial intelligence. FinHub 
identifies and analyzes emerging financial technologies, builds 
and enhances the agency's expertise, and engages with market 
participants, regulators, and other organizations to advance 
the SEC's mission.
    More specifically, FinHub has three major functions. First, 
we are an external resource. Innovators and other members of 
the public can seek engagement with the SEC staff through 
FinHub concerning technology, business models, and regulatory 
issues. We also conduct active outreach with fintech 
communities across the country, participating in outreach 
events such as conferences, classes, and tech sprints. Our 
website provides a clearinghouse of information regarding the 
SEC's activities in fintech, and we encourage market 
participants to use the materials on our website as a resource 
and to reach out to staff if they want to discuss issues.
    Second, we are an internal resource in that we evaluate the 
impact of rapidly-evolving and often unpredictable technology, 
and we onboard the knowledge, tools, and data that we need in 
order to provide subject matter expertise within the agency. 
FinHub is a dedicated and specialized resource, staffed not 
only with attorneys but also with those having expertise in 
computer science, financial analysis, and data research and 
analytics.
    We invest FinHub's time and resources to cultivate a deep 
fintech expertise so that other Commission staff can quickly 
benefit from our input and analyses, allowing them to perform 
their day-to-day work. FinHub is committed to understanding the 
technologies that impact our markets, and we are taking 
proactive steps to make sure that the SEC staff has a hands-on 
opportunity to work with new technology.
    Third, FinHub is a liaison. We actively monitor domestic 
and international developments related to fintech, and we have 
an ongoing engagement, both domestic and foreign, to actively 
monitor, understand, and respond to emerging issues.
    FinHub's role is to help the agency strike the right 
balance between fostering beneficial and responsible innovation 
in our capital markets, on the one hand, and preventing 
potentially harmful and illicit practices against investors, on 
the other. The goal is to promote and maintain investor 
confidence and integrity in our markets as the markets 
incorporate financial innovation. We hope that through 
thoughtful engagement with innovators and others, and through 
understanding emerging technologies, we strike the right 
balance.
    I believe that industry participants and others who take 
the time and effort to engage with the SEC staff and with the 
staff of our fellow regulatory agencies will play a critical 
role in shaping the future of fintech and ensuring that the 
U.S. capital markets continue to adhere to the high standards 
that have made them so deep, liquid, fair, and attractive for 
decades.
    On a personal note, before I became a lawyer I earned my 
degree in engineering. It has been my great privilege to 
combine my passion for science, the law, and public service in 
my current role, and I am particularly grateful for the 
opportunity to serve with extraordinarily-dedicated members of 
my staff and the staff who work with FinHub from across the 
Commission. These colleagues are fully committed to serving 
their country and to the agency's mission and are a source of 
inspiration to me.
    Thank you, and I look forward to answering any questions 
you may have.
    [The prepared statement of Director Szczepanik can be found 
on page 70 of the appendix.]
    Chairman Hill. Thank you very much.
    Director Gibson, you are now recognized for 5 minutes for 
your oral presentation.

   STATEMENT OF MICHAEL S. GIBSON, DIRECTOR, SUPERVISION AND 
 REGULATION, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 
                             (FED)

    Mr. Gibson. Chairman Hill, Ranking Member Lynch, and 
members of the subcommittee, thank you for the opportunity to 
discuss supervision and regulation as it relates to innovation 
in the financial system.
    The Federal Reserve is committed to supporting responsible 
innovation, both by the firms we oversee directly and in the 
financial system broadly. We recognize that innovation can 
reinforce the safety and soundness of banks and the stability 
of our financial system, increase operational efficiencies, and 
reduce costs.
    However, innovation can also lead to risks, some of which 
are familiar and others more novel. The Federal Reserve Board, 
alongside the other Federal bank regulatory agencies, has a 
statutory responsibility to supervise banks to help ensure they 
operate in a safe and sound manner and in compliance with all 
applicable laws. In keeping with that mission, we require the 
banks we oversee to identify and manage the risks associated 
with the new technologies they use.
    Our approach to supervising and regulating innovation in 
banking is based on the following overarching principles. 
First, activities that present fundamentally the same risks 
should be regulated in the same way, regardless of where or how 
the activity occurs or the terms used to describe the activity.
    Second, the Federal Reserve has not taken and does not take 
a position on to whom banks can offer services so long as they 
remain within the confines of the law. Banking organizations 
are neither prohibited nor discouraged from providing banking 
services to customers of any specific class or type, as 
permitted by law or regulation.
    Third, we have sought to be transparent about our 
expectations and approaches to novel activity supervision and 
regulation to provide a pathway for responsible innovation.
    Finally, we recognize that we also must continue to learn, 
which is why we engage in regular outreach.
    In keeping with these principles, the Federal Reserve 
recently announced the creation of a Novel Activities 
Supervision Program to focus on the supervision of novel, 
technology-driven activities at banks. These activities include 
those involving crypto assets, distributed ledger technology, 
and complex, technology-driven bank partnerships with nonbank 
fintechs, each of which I discuss further in my written 
testimony. By dedicating a team of supervisory experts to these 
activities, our aim is to provide clarity as well as timely, 
consistent, and relevant feedback to the institutions we 
supervise.
    The Federal bank regulatory agencies have also recently 
issued guidance on third-party risk management, which lays out 
the agencies' supervisory expectations for all types of third-
party relationships, including relationships with financial 
technology companies.
    I would like to pivot now to artificial intelligence, which 
banks are leveraging for a variety of applications, such as 
fraud monitoring and customer service. While the technology 
offers several benefits, it also poses risks, including data 
challenges, explainability, bias, cybersecurity, and consumer 
protection. Federal Reserve staff continue to work closely with 
the other Federal bank regulatory agencies to track and learn 
more about emerging practices regarding banks' use of AI and 
related risk management.
    Finally, it is important to note that innovation is not 
confined to the private sector. The Federal Reserve is focused 
on finding opportunities to use innovative technology to 
enhance our supervision of the banking industry. We are 
evaluating industry-leading technology to determine if adoption 
of such tools will enhance our supervision technology and 
increase efficiency.
    The Federal Reserve is committed to supporting responsible 
innovation while also working to ensure that any risks 
associated with novel financial products and services are 
properly managed.
    Thank you. I look forward to your questions.
    [The prepared statement of Director Gibson can be found on 
page 43 of the appendix.]
    Chairman Hill. Thank you very much.
    Ms. Epstein, you are now recognized for 5 minutes for your 
oral remarks.

    STATEMENT OF ANN EPSTEIN, ASSISTANT DIRECTER, OFFICE OF 
   COMPETITION AND INNOVATION, CONSUMER FINANCIAL PROTECTION 
                         BUREAU (CFPB)

    Ms. Epstein. Good morning, Chairman Hill, Ranking Member 
Lynch, and distinguished members of the subcommittee. Thank you 
for the opportunity to appear before you today.
    Today's hearing is well-timed and critical, as innovation 
is rapidly changing the competitive landscape, bringing new 
opportunities and challenges for consumers, and financial 
services more holistically. A competitive and innovative 
financial sector is critical for our economy, for our global 
competitiveness, and to create choice for consumers. Advances 
in technology can improve our lives when done within a vibrant, 
competitive marketplace that maximizes consumer choice and 
safety.
    The CFPB has significantly ramped up efforts to facilitate 
market competition to ensure that consumer financial markets 
are fair, transparent, and competitive. The Office of 
Competition and Innovation is part of this broader initiative 
to monitor for any obstacles to new entrants and to support 
competition. I oversee this monitoring through conversations 
with many firms in the fintech ecosystem and through gathering 
data on new business models.
    When the CFPB first opened its doors just over a decade 
ago, technology companies in consumer finance were an emerging 
trend. They were an anomaly. The world has since evolved. 
Today, many traditional financial services companies see 
themselves as technology companies, and large technology 
companies, many with built-in customers and scale from other 
business lines, are providing consumer financial services, 
particularly in the payment space. Newer technologies, such as 
generative AI, are increasingly being used to market financial 
products and provide customer service, with potentially 
unexpected outcomes. It is vitally important that we examine 
what this means for consumers and for the industry.
    As technology has increased in importance, the CFPB has 
expanded our own in-house expertise. For example, we have added 
a chief technologist and developed a technologist program that 
recruits for technical expertise in areas such as data science, 
AI and UX design, and embeds this expertise throughout the 
CFPB.
    The CFPB is also playing a role in setting up new rules for 
the road in this landscape to ensure that the future state of 
financial services is open to innovation. In October, the CFPB 
published a proposal for the Personal Financial Data Rights 
Rule, as required under Section 1033 of the Consumer Financial 
Protection Act. We believe this rule, which would create new 
standards that facilitate sharing consumer financial data, will 
create an environment in which new entrants can thrive, while 
simultaneously allowing consumers greater control and choice.
    We have also focused on ensuring that newer technologies 
are used in ways that comply with existing laws. For example, 
if AI is used in loan underwriting, it must confirm with 
existing rules that require lenders to provide consumers with 
adverse action notices that explain reasons for loan denial. 
Without transparency, consumers cannot effectively protect 
their rights and understand the reasons why they may have been 
declined for credit. The requirement also plays a vital role in 
helping to detect and deter illegal discrimination.
    We also work to encourage the development of innovative new 
technology products and services that will provide real value 
to consumers. My office is running a tech sprint, where private 
companies use data to build technology products, in this case 
to help consumers make more-informed credit card choices. Tech 
sprints are a tool used by the CFPB to foster the creation of 
private tools and to get feedback from external parties.
    Two weeks ago, we announced that the CFPB would be working 
with the Independent Community Bankers of America (ICBA) to 
test adjustments to mortgage disclosures in the unique context 
of construction loans. This has potential benefits across the 
housing market, and in particular to Americans living in rural 
areas where existing housing stock is often in scarce supply 
and new homes are seldom built on spec, but rather require up-
front capital from the borrower. Construction loan disclosures 
have historically been more oriented toward the purchase of 
existing homes that do not require significant funds for 
renovation.
    My office approved a proposal from the ICBA that will allow 
lenders to apply to do in-market testing of these new 
disclosures. This is the first application under the trial 
disclosure policy and a great illustration of how we can work 
together with industry to identify and address real market 
needs supporting American families and communities.
    Finally, I would like to highlight the importance of 
collaboration and consistency across the regulatory framework. 
My office chairs an organization called the American Consumer 
Financial Innovation Network, where we meet regularly with 
States on innovation topics. We are also a coordinating group 
member of the Global Financial Innovation Network. Along with 
most of the other regulators on this panel, we are able to 
share approaches to similar challenges with regulators across 
the globe.
    In summary, my office, and the CFPB as a whole, is focused 
on advancing a more sophisticated approach to competition and 
innovation in support of our statutory mission to ensure that 
the market for consumer financial services is fair, 
transparent, and competitive.
    Thank you for the opportunity to appear before you. I look 
forward to responding to your questions.
    [The prepared statement of Assistant Director Epstein can 
be found on page 38 of the appendix.]
    Chairman Hill. Thank you very much.
    And Mr. Mulholland, you are now recognized for 5 minutes.

STATEMENT OF MARK MULHOLLAND, DEPUTY CHIEF INFORMATION OFFICER 
  FOR MANAGEMENT, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

    Mr. Mulholland. Chairman Hill, Ranking Member Lynch, and 
members of the subcommittee, I am pleased to appear before you 
today at the hearing on, ``Fostering Financial Innovation: How 
Agencies Can Leverage Technology to Shape the Future of 
Financial Services.'' My name is Mark Mulholland, and I am the 
Deputy CIO for Management at the FDIC.
    I have worked for the Federal Government for more than 34 
years, having started with the General Services Administration 
in 1989. In 1996, I began working for the FDIC's Office of 
Inspector General, where I performed audits of the FDIC's 
programs and operations with a particular emphasis on 
information technology and security. In August of 2021, I 
transferred to the FDIC's Chief Information Officer 
Organization, or CIOO. In my current role, I oversee the CIOO's 
budget and financial operations, procurement and contract 
management activities, internal review and risk management 
programs, and human resources management.
    The FDIC relies heavily on technology to carry out its core 
mission of maintaining stability and public confidence in our 
nation's financial system. In 2023, the FDIC budgeted almost 
$500 million to support the development, enhancement, 
modernization, and maintenance of its IT infrastructure systems 
and data. IT modernization is a top priority at the FDIC. The 
FDIC is currently implementing a multiyear IT modernization to 
brings its IT environment into alignment with modern IT 
practices and standards, as well as with key Federal 
priorities, including the Federal Cloud Smart Strategy.
    Under the IT modernization program the CIOO is working to 
migrate and modernize its systems and data from legacy, on-
premise data centers to cloud technology platforms that offer 
enhanced IT capabilities, security, and resiliency. The IT 
modernization program includes an objective to modernize our 
risk management supervision and compliance examination business 
processes and systems.
    In June of this year, the FDIC began operating the first 
major supervisory application that supports consumer compliance 
of Community Reinvestment Act (CRA) examinations in the cloud. 
The CIOO is also partnering with the FDIC's Division of Risk 
Management Supervision on a new, multiyear effort to modernize 
the FDIC's core risk management-related systems using cloud 
solutions.
    I also want to mention FDITECH, a key component within the 
CIOO organization. FDITECH focuses on the adoption of 
innovative technologies within the FDIC itself. For example, 
FDITECH is partnering with the Division of Risk Management 
Supervision to expand the use of machine learning to analyze 
reports of examinations and other information of individual 
institutions to identify risks across the banking sector. 
FDITECH is also evaluating the benefits and risks of potential 
applications of distributed ledger technology both at the FDIC 
and in the banking sector.
    Finally, the FDIC recognizes that financial technology 
innovation in the banking sector offers a number of important 
and potential benefits such as enhanced operations, reduced 
costs, improved delivery of services, and greater financial 
inclusion through expanded access to credit and other banking 
services. At the same time, technology innovation presents 
risks that financial institutions must effectively manage, such 
as consumer protection, privacy, and data risks.
    To ensure the FDIC understands the benefits of financial 
technology innovation and is prepared to address the associated 
risks, the FDIC routinely engages with industry stakeholders 
through a number of channels. For example, the FDIC issues 
periodic requests for information about innovative 
technologies, reviews the use of technology in individual banks 
and select service providers through the examination process, 
and discusses technology issues with bankers through such 
forums as the FDIC Advisory Committee on Community Banking.
    The FDIC has also established various internal committees, 
working groups, and component organizations within the FDIC 
that focus on financial technologies. Collectively, these 
activities help to inform the FDIC's supervisory strategies and 
regulatory policymaking.
    That concludes my opening statement, and I would be happy 
to answer any questions that you may have.
    [The prepared statement of Deputy Chief Information Officer 
Mulholland can be found on page 49 of the appendix.]
    Chairman Hill. Thank you very much for your testimony. We 
will now turn to Member questions, and I will recognize myself 
for 5 minutes.
    Ms. Epstein, you referenced the Global Innovation Network, 
and Ms. Szczepanik, you talked about sort of coordination 
responsibilities over at the Commission. Do the six of your 
offices get together on a regular basis, not to talk about 
global comparisons internationally and host a big meeting with 
a nice dinner, but do you meet on a regular basis about common 
innovation issues?
    Who wants to answer that question, or try to?
    Ms. Murphy. I can start. Our offices and other parts of our 
agencies meet on a regular basis.
    Chairman Hill. With a bias towards seeing how we can 
advance innovation.
    Ms. Murphy. With a discussion of how we can advance 
innovation, what risks we are seeing, what use cases we are 
seeing in the industry, on both an internal basis and an 
external basis.
    Chairman Hill. So, for example, Director Gibson, do any 
exam preferences that you find from your Innovation Office get 
coordinated through the Financial Institutions Examination 
Council (FFIEC) so that there is one approach to examining on 
these topics?
    Mr. Gibson. We share a lot of information through FFIEC on 
examination procedures. On these particular topics, I would say 
the sharing is more from the staff who are specialists in 
innovation.
    Chairman Hill. You have issued this Novel Activities 
Supervision rule, and I am curious, how do you see that 
fostering innovation, Director Gibson?
    Mr. Gibson. We did establish a Novel Activities Supervision 
Program earlier this year, and the goal is really to make sure 
that our examiners who are engaging with firms that are doing 
these innovative activities have the expertise and the training 
in order to effectively supervise them, understand both the 
benefits that the firms are seeking with the innovative 
technologies, and that the firms are managing the risks.
    Chairman Hill. Mr. Vice, you have been a bank examiner for 
a long time, and then Kentucky Commissioner, so you have seen 
the good news and bad news out of bank examination out in the 
real world. Some of your colleagues here maybe have not had 
that great experience. Do you not think boards of directors 
have, under the CAMELS examination process, the responsibility 
for all of the things that are in the Novel Activities rule to 
justify a third-party agreement, to have somebody do a website 
or to solicit mortgage applications through an app? Do we not 
already have that? Is the Novel Activities rule really needed? 
Do you not think boards have that responsibility?
    Mr. Vice. The board would be responsible for the operation 
of the bank.
    Chairman Hill. And they are supposed to convince their 
supervisors that they have the right capital plan for that, the 
right budget, and the right skills and abilities, right?
    Mr. Vice. I think it is incumbent upon the agency to make 
sure that we have staff who are knowledgeable and experienced 
to go in----
    Chairman Hill. Yes, I think the agencies have all done a 
good job over the last 25 years of training their own staff to 
come in and do an IT, internal-external penetration testing and 
look at due diligence files for fintech. That has been a big 
improvement by the agencies.
    I am very concerned that this rule, without real clarity, 
is going to create more confusion, and the idea of 
preauthorizing it to take on a task when it is not material to 
the bank, for example, in the judgment of the board, I think 
could be overkill.
    Director Gibson, could that create confusion and bog people 
down if it is not done right?
    Mr. Gibson. I think there is always that potential, but we 
definitely want to send skilled examiners to engage with boards 
of directors and bank management so they can have a good 
dialogue.
    Chairman Hill. On the third-party risk management 
questions, I thought it was good that you are meeting together 
and working together on that as a group. But I am hearing 
anecdotally from community banks, particularly, that they are 
receiving substantially more exam questions this year than they 
did in previous years.
    Director Gibson, have you heard that from your field 
examiners, bank comments in that vein?
    Mr. Gibson. What we have heard is that given all the 
turmoil in the banking industry this year, and the heightened 
risks, that we are definitely focusing on those risks, and 
those conversations have been taking place.
    Chairman Hill. You say, on page 7 of your guidance, that 
agencies will develop additional resources to assist smaller, 
noncomplex community banks to manage third-party risk. When are 
those resources going to be published?
    Mr. Gibson. Our staff are working on that, and we hope to 
publish something soon, similar to what we have done with other 
rules or guidance.
    Chairman Hill. So, you put out a rule, and you make people 
responsible for it, but do not first give them the guidance on 
how to comply with it. Is that how I should read that?
    Mr. Gibson. We are definitely engaging with firms as the 
guidance has come out, and we do hope to provide additional 
resources very soon.
    Chairman Hill. Good. I yield back the balance of my time.
    I now recognize the ranking member of the subcommittee, Mr. 
Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman. Again, thank you all 
for your service. I really do appreciate it. And thank you for 
your guidance.
    There is a dichotomy in the fintech world, and I suppose 
that applies to crypto as well. In finance, our institutions, 
our banks are guided by--we have a rules-based system, right? A 
lot of our financial statutes, our regulatory regimes, come out 
of disasters. Mr. Mulholland, thousands of bank failures 
created your agency, and Ms. Szczepanik, yours as well. The Fed 
itself was created after the panic of 1907. So, we had 
financial disasters, and then we had responding statutory 
language to try to correct that, and those experiences created 
every single one of your agencies.
    On the tech side, however, the motto for Mark Zuckerberg at 
Facebook was, move fast and break things. That is not a good 
approach for a bank. So, you have this clash of cultures. One 
is rules-based, and the other one is, move fast and break 
things, and that is playing out in the fintech world. And it is 
going to be a decision, at some point, of how do we blend those 
two cultures in a way that protects consumers and depositors 
and investors, yet allows us to adopt all of this innovation?
    Mr. Gibson, you have this new Office of--what is it called?
    Mr. Gibson. The Novel Activities?
    Mr. Lynch. Yes, I was looking for that--Novel Activities 
Supervision Program, which aims to better supervise banks that 
are engaging in novel activities. How are you evaluating the 
risks? We have seen some notable disasters. FTX was a complete 
collapse. Thankfully, 90-something percent of the investors 
were non-U.S. citizens, because they had to operate offshore, 
so that was a success for our regulatory framework, I think. 
But how are we dealing with some of these risks, and how are we 
evaluating those in real time?
    Mr. Gibson. When banks are dealing with either complex 
fintech partnerships or with crypto assets, some of these new 
areas that post novel risks, as I said, there are definitely 
some benefits to the innovation that we can see, but there are 
also risks. Now, we are definitely seeing some of those risks 
materialize with some of the complex arrangements that banks 
are making with some of these fintech companies, and sometimes 
that has, in some cases, obscured the risk to the bank, because 
the fintech partner has the information about the end customer 
that the bank lacks. And in some cases, we have seen risks such 
as Bank Secrecy Act/Anti-Money Laundering (BSA/AML) risks that 
materialize when banks do not have strong information on their 
customers. So, that is just one example of the risks that have 
materialized.
    Mr. Lynch. We do have a fair number of criminal activities 
that are favoring cryptocurrency, for example. We have a lot of 
these hacks by criminal operations that seek to be paid in 
cryptocurrency. That seems to be a favorite use of that 
technology. Is that guiding at all your approach to this?
    Mr. Gibson. Banks themselves are not holding those crypto 
assets, but banks have been dealing with crypto-related 
companies, and we have seen risks such as liquidity risk. We 
have seen that the deposits from those crypto-related companies 
have been unpredictable, and that has caused risks to banking 
organizations.
    Mr. Lynch. Yes. Explain to me how this office, this program 
evaluates the technology itself, the architecture, and is that 
exploration helpful given the fact that there are, I think, 130 
countries out there that are exploring a CBDC right now?
    Mr. Gibson. Our examiners are going to be focused on the 
bank's evaluation of the technology and whether the risks are 
well understood and managed. So, we are less into the details 
of the technology as bank examiners; we are more into ensuring 
compliance with the laws and regulations.
    Mr. Lynch. I see. Okay. Thank you.
    Mr. Chairman, I yield back.
    Chairman Hill. The gentleman yields back.
    Mr. Lucas of Oklahoma is recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    Ms. Szczepanik, as you know, the SEC recently proposed a 
rule regarding the use of predictive data analytics used by 
broker-dealers and investment advisors. Many respondents are 
concerned that the proposed rule is overly broad in what is 
considered a covered technology. I quoted the rules definition 
to SEC Chair Gensler during his appearance before this 
committee: ``A covered technology is defined as an analytical 
technology or computational function, an algorithm, model, 
correlation matrix, or similar method or process that 
optimizes, predicts, guides, forecasts, or directs investment 
behaviors and outcomes.''
    Could you discuss what your office's role was in crafting 
this, what role you played?
    Ms. Szczepanik. Sure. Thank you. What the FinHub does is 
act as a subject matter expert across the Commission, as the 
Commission staff engages in various activities like rulemaking 
or examination, policymaking or enforcement, as examples. So, 
for any particular rulemaking, the staff who are working on the 
rule may come to the FinHub staff and ask us, how do particular 
things work, what is under the hood of this technology? Often, 
we find ourselves analyzing a certain blockchain, a smart 
contract, artificial intelligence, and how applications work, 
and what those risks are, so we provide that subject matter 
expertise to the people working on the rulemaking.
    Mr. Lucas. In your testimony, you described the necessary 
balance between fostering innovation and preventing harm. Can 
you discuss the potential negative consequences if the 
financial regulators, or the SEC in particular, upset this 
balance by being hostile, so to speak, to certain kinds of 
technology?
    Ms. Szczepanik. Sure. I think the agency's approach, and 
many of the approaches probably of the folks here at the table, 
is to get the right balance. We cannot have innovation happen 
at the expense of investors or market integrity, so offices 
like the FinHub encourage people to come in and speak with us 
about how the Federal securities laws apply. For example, we do 
not give interpretations or legal advice but we can talk to 
them about risks that we see, or ask questions, or answer their 
questions about their projects.
    In that way, through that engagement, we hope to provide a 
little bit of a platform for public and private engagement to 
reach a level playing field, I think, where people understand 
this is what the innovation is trying to achieve, but the 
regulatory agencies have missions and have very important 
public policy objectives to maintain.
    Mr. Lucas. Mr. Gibson, you outlined in your testimony how 
banks can benefit from generative AI, along with the associated 
risks. Could you discuss how your office coordinates with other 
bank regulating agencies on AI and machine learning practices, 
including how your office engages with agencies with 
technological expertise, such as the National Institute of 
Standards and Technology (NIST)?
    Mr. Gibson. We do engage with other regulators and other 
agencies, and with respect to NIST, they put out a lot of 
standards on technology that are very useful, and they tend to 
apply across the entire economy, and we tend to focus on the 
financial sector. A lot of times, we are taking NIST standards 
and seeing how they apply in the banking industry.
    Mr. Lucas. Speaking of NIST, in preparing for this hearing, 
I was fascinated to come across the fact that in 1920, NIST 
conducted extensive research on the design and construction of 
your Federal Reserve Bank vaults, including the gold vaults in 
New York City. I just found that to be fascinating, how a 
century ago, we were engaged in that. And it's an example of 
how when we bring experts from across the government together 
to address complex challenges, the results really do stand the 
test of time.
    I would like to also focus and shift a bit to the CFPB's 
approach to emerging technology. Ms. Epstein, could you 
identify some of the actions taken by the CFPB's Office of 
Competition and Innovation that have encouraged--let's look at 
the positive side--companies to innovate?
    Ms. Epstein. Sure. I had used, for example, a specific 
example in my testimony related to a tech sprint. This is our 
fourth tech sprint that we are doing today. This particular 
tech sprint is engaging with market participants to bring data 
that we have related to credit card terms and conditions to 
encourage better consumer shopping. We know that we are not, as 
a Federal regulator, in the greatest position to bring that 
data to consumers, so we are engaging with the private 
marketplace to identify for them what market innovations could 
come from this particular data that we are putting out. It also 
helps us, because it gives us feedback as to how our data and 
our technology that we use to produce this data is useful or 
not useful, is it the right latency, is it those kinds of 
things. That is one example. This is our fourth tech sprint, so 
we have done this on other occasions, for other types of tech 
sprints, as well.
    Mr. Lucas. My time has expired. Thank you, Mr. Chairman.
    Chairman Hill. Thank you, Mr. Lucas.
    Mr. Sherman is recognized for 5 minutes.
    Mr. Sherman. Thank you. Mr. Gibson, one of the functions of 
the Fed is to oversee the ACH system by which we wire money 
from one account to another, and the greatest fear that you 
come up with whenever you are dealing with buying or selling a 
home is that the buyer will be tricked into sending the money 
to the wrong account. People send an email to somebody. In 
effect, their prospect of ever owning a home is on the line. 
They have their down payment, and they get an email saying, 
``Send the money to account number 12345,'' and it is signed by 
their escrow agent, and of course, it is phony, and the money 
ends up in the hands of a Nigerian prince.
    For about a decade, or the better part of a decade, I have 
been asking Chairs of the Federal Reserve in this room to do 
what Britain did quite some time ago, and that is have payee 
matching, so that when you send the money to an account, it 
also has a name. That would pretty much eliminate this 
practice. For the better part of a decade, the Chairs of the 
Fed have said, ``We are not going to do that but we are doing 
something else that will solve the problem.'' And then I ask 
them, ``What?'', and they smile and walk away.
    When are we going to solve this problem, so that when you 
wire money to account number 12345, it is supposed to be going 
to Encino Escrow, and you are not tricked into using the wrong 
number?
    Mr. Gibson. I agree that sort of fraud is a problem.
    Mr. Sherman. Why do we not have a payee matching system? 
Why do we not have a system where, when you wire the money it 
is to a person as well as an account? When I write a check, I 
put the name of the payee on the check. I do not just write in 
a number. I know we are dealing with high technology here. This 
is something we could have done in the last century. Why do we 
not have payee matching?
    Mr. Gibson. I do not have the answer on this specific 
question.
    Mr. Sherman. Okay. Well, neither has anyone else the last 
five times I have asked this question over the better part of 
this decade. Can you get me an answer?
    Mr. Gibson. Yes, I am happy to work with you on that.
    Mr. Sherman. Have you done any calculation as to how much 
harm is done by the present system versus the costs of doing 
what the U.K. has done and have payee matching?
    Mr. Gibson. Generally, in the area of fraud, we see a lot 
of fraud taking place, and a lot of risk, and banks putting a 
lot of----
    Mr. Sherman. Why don't you do something about it?
    Mr. Gibson. We are happy to work with you on that specific 
issue, and I----
    Mr. Sherman. I would believe you if your predecessor's 
predecessor--if Fed officials had not been telling me that for 
the last 10 years and then not doing anything. And them working 
on consists of telling me, ``Oh, well, we know the problem and 
we will get back to you.''
    Let's talk about this every week. I look forward to your 
call next week, and every week until we solve this problem. 
This is just crazy.
    Now, I will turn to the bank regulators. If you make an 
unsecured loan to an individual, you evaluate that in one way, 
as a bank asset, another way if it is a loan secured by 
valuable assets, such as Fortune 500 stock. If a loan is 
secured by crypto, is that viewed as an unsecured loan or is 
that security regarded as valuable? I will ask Ms. Murphy.
    Ms. Murphy. In that kind of circumstance that you describe, 
we would have to look at the specifics of the loan. There is 
very, very limited activity of that type in the national 
banking system.
    Mr. Sherman. You are saying banks do not make loans secured 
by crypto accounts?
    Ms. Murphy. In order to engage in that type of activity, 
our banks would have to engage with their examiners, and there 
is very limited activity----
    Mr. Sherman. What do your examiners do? Do they value it as 
a fully secured loan or a completely unsecured loan if it is 
secured by Bitcoin or Hamster coin, or do you just not know?
    Ms. Murphy. I am not aware of a specific instance where we 
have valued loans in that way, and I would have to get back to 
you about that.
    Mr. Sherman. Please do get back to me.
    I will ask the same question of Mr. Mulholland, and I will 
also ask whether any of the FDIC-insured banks hold crypto as 
an asset on their balance sheet for which you give them credit?
    Mr. Mulholland. Thank you for the question, Congressman. 
The FDIC and the other regulators have issued guidance with 
respect to holding, as principal, crypto assets and using those 
as a principal for lending activities, and cautionary language.
    Mr. Sherman. Do you list it as an asset, based on its 
supposed value today?
    Mr. Mulholland. I am actually working in the CIOO 
organization, so I am not on the supervision----
    Mr. Sherman. So, you also do not know the answer to that.
    Mr. Mulholland. But I would be happy to get back to you.
    Mr. Sherman. Thank you.
    Chairman Hill. The gentleman yields back.
    Next, the gentleman who wants very badly for Army to beat 
Navy this weekend, the gentleman from Ohio, Mr. Davidson, who 
is also the Vice Chair of our subcommittee, is recognized for 5 
minutes.
    Mr. Davidson. Thank you, Mr. Chairman. And thank you to our 
witnesses for being here today.
    Mr. Gibson, I did a quick Google search for open jobs at 
the Federal Reserve, and the regional banks are using the 
keyword, ``CBDC,'' or key acronym. It looks like the San 
Francisco Fed and the Boston Fed are hiring for CBDC 
development roles, programmers. Can you provide an update for 
the panel on the Federal Reserve's development of a United 
States central bank digital currency?
    Mr. Gibson. The Federal Reserve is doing research on CBDC 
technologies, trying to understand the technologies themselves 
and how they might be useful. It is research and 
experimentation at this point, and it is not an implementation 
of a CBDC.
    Mr. Davidson. When you hire people who write code, it 
starts seeming like you are developing and building versus 
researching. What is the nature of the research--we are going 
to build it and test fire it and see how it works?
    Mr. Gibson. I think the research is to understand the 
technology, understand the different approaches that people are 
talking about, understand the risks. It is a research effort.
    Mr. Davidson. Near implementation, but we will run it for a 
while and see if it really works, or are you building something 
that would be functional, or it is just research?
    Mr. Gibson. We are a long way off from thinking about the 
implementation of anything related to a CBDC.
    Mr. Davidson. Thank you. Mr. Gibson, I sent a letter to Fed 
Chair Powell regarding Custodia Bank's denial of a master 
account for, ``Custodia Bank proposed to engage in novel and 
untested crypto activities that include issuing crypto assets 
on an open, public, and/or decentralized network.''
    Shortly after this denial, the Fed created what has been 
referenced several times now, the Novel Activities Supervision 
Program, to focus on digital assets, projects using distributed 
ledger technology, and bank-fintech partnerships. This program 
started in August, and I am curious if you could give us an 
update on the activities there?
    I will say, I would also like to know how the discovery 
process is going, because I took the rare step of joining an 
amicus brief of a company because, technically, Custodia met 
every element of the stated requirement for a master account, 
and they even promised to hold 108 percent of the assets on the 
books. They were not lending against the assets. They simply 
wanted to provide custody for the assets, thus the name, 
Custodia.
    Have you done any work to figure out how there is risk 
involved in essentially a trust company holding with reserves 
beyond the value of the assets? Have you solved it?
    Mr. Gibson. In terms of terms that we are actually 
supervising, we are definitely looking at the risks of their 
activities, and----
    Mr. Davidson. But you have chosen not to supervise the ones 
that are actually working in fintech. Essentially, you have 
said, ``It is a big club, and you are not in it, so don't ask 
again.''
    Mr. Gibson. If you are asking about the Custodia 
application, the board did evaluate that application against 
the statutory factors and the board's order on Custodia is 
public. The order explains the findings on the statutory 
factors.
    Mr. Davidson. It is similar. The OCC made progress. 
Anchorage is in, but nobody else. Essentially, it is a club you 
are not in. Have you solved this riddle as to how somebody can 
provide custody for an asset, not lending against it, just 
custody? Has anyone figured this out? Because the market has, 
but the regulators have not.
    Ms. Murphy. If that is a question for me, I would say that 
we have been looking at this issue. Obviously, we do have one 
bank that has been chartered with that as a primary business 
model. And one of the things that is challenging in that area 
is compliance with the anti-money laundering laws and 
regulations. There is a lot of progress being made there, 
through financial technology innovations----
    Mr. Davidson. It seems that it would be easier to track 
something that is on a public blockchain than something that is 
moving through swift accounts. It is similar kinds of 
instructions.
    The market really understands this. I am disappointed that 
the regulators have essentially decided in Choke Point 2.0, 
3.0, 20.0, whatever, but basically, you guys are not playing.
    I am curious about the FDIC's approach to third-party risk 
management. Mr. Mulholland, you talked about it in your opening 
remarks and in one question. But how are traditional financial 
institutions, third-party risk management processes being 
examined, particularly with respect to fintech, and is there 
any difference between normal activities and fintech 
partnerships?
    Mr. Mulholland. Thank you for the question, Congressman. 
Yes, I did mention the third-party guidance and also due 
diligence guidance that has been issued by the regulatory 
agencies to help assist banks in doing selection for third 
parties, such as fintechs, as well as the ongoing monitoring to 
ensure----
    Mr. Davidson. Yes, my time has expired, and I apologize for 
leaving you too little time to respond, but I would love to 
follow up with you on that. Thank you.
    Mr. Mulholland. Certainly. Thank you.
    Chairman Hill. If you could respond to the gentleman's 
question in writing, that would be very helpful to him.
    We now turn to Mr. Casten of Illinois for 5 minutes.
    Mr. Casten. Thank you, Chairman Hill, and to all of our 
witnesses here today.
    Ms. Szczepanik, I hope you will humor me. I want to get 
kind of nerdy here, and hopefully, I do not get too far in the 
weeds. There was some reporting that Chair Gensler, last July, 
had indicated that the SEC should consider the use of AI for 
compliance and regulation. In September, Chair Gensler 
testified to the Senate that the SEC is using AI models to do 
market surveillance. And I am wondering if you could just speak 
briefly to how the SEC is using AI right now, and specifically, 
how you are sort of training datasets on AI to think about 
that--briefly, because I want to dig into some other points?
    Ms. Szczepanik. Sure, and there are some materials on our 
website, at FinHub's website, talking about how the Commission 
staff has used AI in the past, typically things like natural 
language processing and machine learning to analyze datasets 
and market data and other data to, for example, flag 
aberrations or trends to inform what the Commission staff is 
doing across-the-board.
    I will note that there is pending guidance that we are 
awaiting from the Office of Management and Budget (OMB) that 
will come out to give guidance to the agencies throughout the 
government about the internal use of AI, and we will be 
monitoring the progress of that guidance and incorporating that 
going forward.
    Mr. Casten. And are you making public what datasets you are 
using to train the AI?
    Ms. Szczepanik. To my knowledge, that is not public, but I 
can follow up with you.
    Mr. Casten. Okay, and that is not a leading question--I do 
not know if it should be or not. But I ask because there has 
been some reporting of private sector actors who are now using 
AI to do it. I think there is a risk thinking AI in Bloomberg 
that are putting this model sort of in anticipation of some 
climate disclosure rules, looking at big datasets.
    And what I am wondering--and I am not expecting you to 
comment on the climate disclosure rules right now--but to the 
extent those models are using the same datasets that your 
models are using, that would seem to be mutually beneficial for 
compliance. To the extent they are different, it would seem to 
create headaches. And I am just wondering what you are thinking 
about that?
    Ms. Szczepanik. Sure. What I can say is that in FinHub, we 
typically try to bring the people in who are producing new 
types of technology so that we understand how it is being used, 
what it is capable of, how our registrant population may use 
it, how investors might use it, and how fraudsters might use 
it.
    That is the type of outreach and learning we are going 
through now with respect to this new generative AI. And as I 
mentioned before, our internal use will be guided by future 
guidance and we will be monitoring and evaluating that guidance 
going forward.
    Mr. Casten. Okay. I raised the climate piece, number one, 
because I am a broken record on climate, but also because it 
strikes me that if we think about this as looking for market 
manipulation, things people normally think the SEC does, I 
suppose that data is--not to oversimplify--available to anybody 
who has a Bloomberg terminal and can plug in the data. But as 
we get to responsibilities that you have to have companies 
accurately reporting risks and using other public databases, 
there is this whole rich, ethical conversation we are having 
about who is vetting the databases, and is there a single 
database, and who is preparing those, and who is making sure 
the data is good.
    Ms. Szczepanik. Yes, and that is something that our Chair 
is keenly focused on, and he has talked about how he believes 
that this technology is transformative but also carries with it 
some risks, and those risks, as you mentioned, have to do with 
bias, explainability, how robust is the model, how can it be 
used to deceive, is it being used in a way that is creating 
conflicts of interest? These are all things that the staff is 
really going to be focused on, and me, as the Director of 
FinHub.
    Mr. Casten. Yes, and a rich conversation about the ethics. 
I am focused on the datasets just because you can run different 
models on the same dataset and hopefully, if the models are 
good, get consistent answers, but if the datasets are 
different, there is conflict.
    Just the last thing on that point. The Chair has warned the 
financial institutions that they are going to rely on a limited 
number of AI platforms, but I think he has been very open, and 
I think very thoughtful, about saying that your regulation is 
at the level of a given entity, but if those entities are now 
relying on a single set of cross-company platforms, if the 
problem is with that platform, do you all have the tools to 
assess these questions? Do you need help from Congress? How are 
you thinking about this question, if there is dataset 
integrity, from ethics or otherwise, and it spans a lot of 
different companies?
    Ms. Szczepanik. I think you have identified one of the 
issues that the Chair has raised about micro concerns and macro 
concerns. This macro concern about concentrations and what can 
happen if everyone is using the same dataset or there is 
herding behavior, that is something that the staff will be 
looking at closely as well.
    Mr. Casten. Okay. I hear the tapping that I am out of time.
    Chairman Hill. The gentleman's time has expired.
    Mr. Casten. I yield back. Thank you.
    Chairman Hill. The Chair now recognizes the Majority Whip 
of the House, Mr. Emmer, for 5 minutes.
    Mr. Emmer. Thank you, Mr. Chairman, and thanks to our 
witnesses for joining us today.
    When Bill Hinman was the Director of the SEC's Division of 
Corporation Finance, he gave a speech on June 14, 2018, 
entitled, ``Digital Transactions: When Howie Met Gary.'' In 
this speech, he famously discussed how tokens can morph from 
securities to non-securities, and he stated that Ether is not a 
security.
    Ms. Szczepanik, you reviewed and commented on drafts of 
this speech, did you not?
    Ms. Szczepanik. Yes, I did.
    Mr. Emmer. When reviewing a draft, you said that providing, 
``less detail,'' in the speech was better because the concept 
of a token morphing from a security to a nonsecurity was a new 
concept and would generate a lot of discussion. Do I have that 
correct?
    Ms. Szczepanik. I believe so.
    Mr. Emmer. So, you thought the SEC should give less clarity 
to the market rather than more. I understand you thought the 
token morphing concept would generate a lot of discussion, but 
when the industry complains about a lack of clarity, I see it 
was a deliberate policy preference. Does the current SEC Chair 
share that view?
    Ms. Szczepanik. I cannot really testify about the current 
Chair's view. What I can say is that the determination whether 
any particular asset is a security is a facts- and 
circumstances-based determination. And what I do, as the 
Director of FinHub, with my staff, is to provide facts to the 
folks at the SEC who are making that determination, and it is 
typically going to be the Division of Corporation Finance.
    Mr. Emmer. Reclaiming my time, because that is a perfect 
segue, has FinHub issued any guidance since Chair Gensler took 
office, to clarify how the securities laws apply to crypto?
    Ms. Szczepanik. As I mentioned, FinHub's role is really to 
be a subject matter expert.
    Mr. Emmer. Reclaiming my time, ma'am, I am asking a very 
specific question. Has FinHub issued any guidance?
    Ms. Szczepanik. FinHub typically gets involved with other 
divisions and offices at the agency who are issuing 
statements----
    Mr. Emmer. Reclaiming my time, I take it the answer is no, 
because it is no. It seems to be rulemaking through enforcement 
action.
    In his speech, Mr. Hinman announced that Ether was not a 
security, is not a security. Is that your view today?
    Ms. Szczepanik. I cannot comment on a particular asset.
    Mr. Emmer. Just to back up for a second, you provided 
feedback on the speech, and so did Brett Redfearn, who was then 
the Director of the SEC's Division of Trading and Markets. Yet, 
first, the SEC argued in court that the speech was Mr. Hinman's 
own personal opinion. Then, the SEC argued that the speech was 
the opinion of only the Division of Corporation Finance, which 
Mr. Hinman led.
    But why would people across the SEC, from FinHub to the 
Division of Trading and Markets, comment on a speech that has 
the views of only one person or only one division? That does 
not make any sense.
    Ms. Szczepanik. I hope you can appreciate that I cannot 
comment on pending matters that are in litigation or 
investigation.
    Mr. Emmer. Okay. Fair enough. The Southern District of New 
York even called the SEC's arguments hypocrisy, that the SEC 
would argue that the speech is not relevant to the market's 
understanding of how the SEC will regulate crypto, while it is 
a fact that Mr. Hinman obtained legal advice from SEC counsel 
in drafting his speech.
    The court said the SEC is adopting its litigation positions 
to further its desired goal and not out of faithful allegiance 
to the law. That is what all of us in Congress have seen, that 
the SEC is not adhering to the law. That is why it keeps losing 
in court.
    Does the Chair of the SEC tell you to adopt positions to 
further a specific goal, his own personal goal, rather than 
allegiance to the law?
    Ms. Szczepanik. Again, I cannot comment on any matters that 
are pending in litigation, but I will say that----
    Mr. Emmer. I do appreciate it. I reclaim my time. I think 
you answered the question.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Hill. The gentleman yields back.
    The gentleman from Illinois, Dr. Foster, is recognized for 
5 minutes.
    Mr. Foster. Thank you, Chairman Hill, for hosting this 
hearing and to our witnesses for joining us today.
    Emerging technologies like artificial intelligence present 
new opportunities to make our financial system more secure, 
inclusive, and efficient. They also present new risks that, if 
not mitigated, can be a threat to consumers and the U.S. 
economy. One of the most immediate of those threats is that 
deep fakes created with generative AI models can mimic an 
individual's appearance or voice. This makes scammers much more 
convincing and makes it harder for financial institutions to 
verify the identities of their customers.
    Now, countries like India, Estonia, Korea--there is a long 
list--have taken national steps to provide citizens who wish 
with a secure form of digital identification that could be 
presented online. A secure digital ID, biometrically synced to 
your smartphone, allows individuals to remotely verify that 
they are who they say they are, saving costs, reducing the 
likelihood of fraud, and allowing individuals to defend 
themselves against deep fake identity fraud.
    Mr. Vice, in your testimony you mentioned that the NCUA is 
evaluating digital ID technology and that, in fact, some credit 
unions have completed successful pilot tests of this 
technology. Could you describe the experience of the credit 
unions that you referenced? For example, were the credit unions 
able to streamline the process of onboarding new members?
    Mr. Vice. Again I would be reporting what they have 
reported to me, but it gives them a secure method to identify 
and certify someone's identification, and it reduces the time 
to onboard.
    Mr. Foster. Yes. For example, if this was in place during 
COVID, when we had to onboard massive numbers of unbanked 
customers, but the customers had had a secure digital ID, would 
that have been a big improvement in our response to COVID?
    Mr. Vice. One of the things that I was very amazed with 
during the COVID period was how advanced technology had become 
to be able to offer financial services to individuals. As long 
as the tool was used properly, it could have been a help.
    Mr. Foster. The mobile ID rollout in the United States has 
been fragmented, with some States moving much faster than 
others to adopt the technology. Have you identified any 
barriers that are keeping States from adopting this technology, 
and do you see a use in national standards to promote this?
    Mr. Vice. That would be a State decision that the NCUA 
would not be involved with, but definitely pointing to NIST, 
and the standards have been established by NIST on the digital 
identification.
    Mr. Foster. Yes. Do any of our other witnesses have any 
comments on this area, the utility of a national standard for a 
secure digital ID provided by States?
    No one is jumping for the microphone. Okay.
    Ms. Epstein, several States, including Arizona, Colorado, 
Maryland, and Georgia, currently issue mobile IDs attached to 
their smartphone. Has the CFPB received any requests from 
financial institutions regarding the use of the mobile ID for 
identity verification in consumer finance?
    Ms. Epstein. I am not aware of any particular request.
    Mr. Foster. Okay. And do you believe that a secure digital 
ID might protect consumers and save them time when addressing 
areas such as consumer online transactions and so on?
    Ms. Epstein. I think we have certainly seen, in our 
consumer complaint database and other forums, that scammers and 
other types of identity theft continue to be issue throughout. 
So to an extent, that would be helpful, but I do not have any 
particular----
    Mr. Foster. Specific things. Okay.
    Mr. Vice, the NCUA has long advocated for restoration of 
its statutory authority over third-party vendors providing 
services to federally-insured credit unions. Our office has 
been trying to get some action on this for a long time, with 
limited success. But just a few days ago, what we worried about 
actually happened. Roughly 60 credit unions experienced outages 
when a shared third-party vendor was hacked by cyber criminals, 
and because of Congress' inaction on this, you do not have the 
authority you need to make sure the cyber hygiene was what it 
should be.
    Does the NCUA have a regulatory blind spot in that you 
cannot oversee these third-party vendors, and what can we, in 
Congress, do to help?
    Mr. Vice. Yes. It definitely has a regulatory blind spot. 
Our Chair has asked for this authority. The GAO has also 
recommended that the NCUA should have it, in addition to our 
own Inspector General. And one of the things that was talked 
about at the very beginning of this is, do we coordinate with 
each other, and because we do not have that third-party vendor 
authority, in many instances, when things come up we, do not 
have a seat at that table because of the lack of authority.
    Mr. Foster. Thank you. My time is up. I yield back.
    Chairman Hill. The gentleman yields back.
    The gentleman from Tennessee, Mr. Rose, is recognized for 5 
minutes.
    Mr. Rose. Thank you, Chairman Hill, and thank you, Ranking 
Member Lynch, for holding this important hearing today. And I 
want to take this opportunity to wish Chairman Hill a Happy 
Birthday.
    Mr. Vice, the NCUA established the Office of Financial 
Technology and Access earlier this year, which you lead. While 
your office is still relatively new, can you speak about what 
you have done over the past year and what your office hopes to 
accomplish within the next year?
    Mr. Vice. From a big-picture perspective, I think some of 
the things we have talked about already are very important, and 
that is there is a balance between the use of technology--
technology is a tool, how it is used, is it used in a positive 
manner, is it used to enhance member experience and service and 
offering fair, equitable service--but there are also some risks 
associated with it. We want to take a look at both the balance 
of what technology needs to be adopted, having a lot of 
conversations with not only the credit union industry but also 
the technology industry as well, and then making sure that is 
balanced to make sure that the credit union industry remains 
safe and sound.
    Mr. Rose. Based on your progress so far, would you say that 
you are reactive or being proactive about new technology in 
this space?
    Mr. Vice. My opinion is that I am very proactive.
    Mr. Rose. Okay. Can you give us an example of something you 
have done that you believe is proactive?
    Mr. Vice. There are a couple of things that we are looking 
at, but I have had many conversations with the industry itself, 
with technology companies. One of the things that our board 
member started before I got there, but we are continuing, is to 
have a fintech series where we invite fintech companies in to 
the NCUA to do a virtual presentation on their technology, how 
it is being used, and how it is being used to enhance member 
services and financial inclusion.
    Mr. Rose. Would you say that the attitude of your office at 
this juncture is to try to facilitate implementation of new 
technologies, or do you approach them in a more circumspect 
way?
    Mr. Vice. Our approach, because of the size of our office, 
is to make sure that we are having an impact, that we are 
having relevance, and that we are collaborating; I think our 
main focus is those three things, plus maintaining that 
balance.
    Mr. Rose. Thank you. Ms. Murphy, last year, the OCC 
solicited academic and policy-focused research on the impact of 
fintech entities on banking and the markets for lending, 
deposit taking, and payment services. Do you believe that a 
constructive dialogue with the financial industry is a good way 
to stay informed on new developments?
    Ms. Murphy. Yes, I do.
    Mr. Rose. And does your office prioritize input from 
stakeholders when considering how to approach and regulate 
financial innovations?
    Ms. Murphy. Yes, we do.
    Mr. Rose. Can you give me an example of how that has led to 
a productive outcome?
    Ms. Murphy. The Office of Financial Technology regularly 
engages with stakeholders across the industry, including both 
fintech companies, banks we supervise, consumer advocates, and 
academics, as you mentioned, and we disseminate and make sure 
that information is used to support our policymaking and 
guidance. For example, in the recent third-party risk 
management guidance that was produced, the Office of Financial 
Technology was supportive of the part of the agency that had a 
lead on that.
    Mr. Rose. Kind of playing off of the question I asked Mr. 
Vice, do you think that the posture of the agencies should be 
to be reactive to new developments or to be proactive in 
hastening their adoption?
    Ms. Murphy. I think it has to be a balance between the two. 
We are proactive in reaching out and engaging and ensuring that 
we are keeping up with what is happening in the industry. It is 
a constantly-evolving process. But we are also reacting to what 
is going on in terms of our banks' approach, their supervisory 
teams, and we support their efforts to explore innovation, 
explore new financial technology, and then help to ensure that 
they are identifying the risks and managing the risks that are 
associated with it.
    Mr. Rose. Based on what you have seen so far, what scares 
you the most, from a regulatory perspective, that you see 
happening in the fintech innovation space?
    Ms. Murphy. I think that the challenges in the cybercrime 
area are the ones that we are most concerned about. The 
criminals are constantly evolving their technology approaches, 
and there is a need for the regulators to be constantly 
vigilant, which we are, and we are very much coordinated on an 
interagency basis in that area.
    Mr. Rose. And in keeping with that observation, do you 
think the OCC has the resources it needs to stay ahead of the 
fraudsters?
    Ms. Murphy. We are constantly updating and evolving our 
resources. The challenges continue to change, and we continue 
to change with it, and I think we have good programs in place 
to make that happen.
    Mr. Rose. Thank you. Mr. Chairman, I yield back.
    Chairman Hill. The gentleman yields back.
    The gentleman from North Carolina, Mr. Nickel, is 
recognized for 5 minutes.
    Mr. Nickel. Thank you, Chairman Hill. Happy Birthday. Also, 
thanks to Ranking Member Lynch.
    Ms. Szczepanik, as you know, I am the Democratic lead on 
the Improving Disclosure for Investors Act, or eDelivery, which 
passed out of this committee with bipartisan support and would 
make it easier for investors to receive documents 
electronically. This is a much-needed innovation for consumers, 
businesses, and the environment.
    We would save two million trees a year with just that one 
small change. In recent years, numerous government agencies 
have made great strides in minimizing wasteful paper usage. As 
far back as 2016, the Social Security Administration eliminated 
paper as the primary method of delivering statements to 
Americans. In 2020, the Department of Labor permitted e-
delivery of 401(k) documents to retirement plan participants. 
In 2023, the Thrift Savings Plan defaulted to electronic 
delivery of quarterly statements. And the IRS, through its 
recent Paperless Processing Initiative, as required under the 
Inflation Reduction Act, has already achieved the goal of 
enabling 94 percent of filers to send tax documents digitally.
    Ms. Szczepanik, knowing that an overwhelming majority, 79 
percent, of retail investors have opted to receive investment-
related documents electronically, can you please explain why 
the SEC's rules still require an investor to receive paper 
documents when they open new investment accounts, and why has 
your office not pushed to update these rules?
    Ms. Szczepanik. Thanks for the question, and I agree that 
evolving technologies can present new ways to have investors 
interface with the markets, including with issuers and funds, 
for example. At the FinHub, we invite people to come in. We 
have had what we call peer-to-peer meetups, and these are 
events where we pull people in to talk about innovations in 
particular areas. One of those areas was in investor engagement 
and investor connectedness to the markets and issuers.
    We will continue to pull people in and try to talk about 
new technologies in this area and invite staff around the 
Commission who are thinking about things like disclosure by 
issuers or funds as they think about potential rulemakings or 
changes to the rules of the Commission.
    Mr. Nickel. Thank you for your answer, but with respect, I 
am just a little incredulous at your response and what the SEC 
is doing here. You are the Director of the Strategic Hub for 
Innovation and Financial Technology. eDelivery was considered 
an innovation years ago. I would argue that your office is 
behind at the expense of investors and our planet. Why are you 
not focused specifically on this issue?
    Ms. Szczepanik. The FinHub is not a policymaking part of 
the agency, nor is it a rulemaking part. We provide the subject 
matter expertise to others at the agency, so I will have to 
respectfully defer to them.
    Mr. Nickel. Do you think we should be using eDelivery 
instead of paper?
    Ms. Szczepanik. As I said, there are many technologies that 
we are evaluating as they are coming to market, and we will 
continue to do that.
    Mr. Nickel. I am also concerned about the SEC's proposed 
rule on predictive data analytics and the adverse effects it 
will have on innovation and retail investors. The proposal's 
scope is extremely broad and could be applied to virtually any 
technology used by broker-dealers and investment advisors. The 
proposed rule seeks to eliminate the risk of investor harm 
resulting from conflicts of interest between financial 
institutions and clients when working with AI. I agree, and I 
think that is a great goal, but this the scope, this proposal 
would lead to higher costs for brokers and advisors, which will 
be passed along to investors, and fewer technology and online 
tools for investors and lower rates of retail participation and 
financial inclusion.
    Ms. Szczepanik, how involved was your office in creating 
this rule?
    Ms. Szczepanik. As I said, when rulemaking is undertaken by 
the staff at the Commission, by the various divisions that 
undertake rulemaking, the FinHub is often called on to talk 
about the technology being considered. So, we would provide 
technical assistance to staff working on rules about emerging 
technologies, how they work, how they are being used in the 
market, and what risks they might present.
    Mr. Nickel. We have seen the reports explaining that the 
U.S. blockchain developer market is shrinking and that China is 
quickly advancing. The U.S. must remain the global leader in 
all segments of financial services, including digital assets. 
This technology moving overseas only puts U.S. consumers at 
risk.
    In your role at FinHub, are you doing anything to promote 
innovation in blockchain technologies here in the United 
States?
    Ms. Szczepanik. Sure. We promote innovation in a number of 
ways. One of them is to invite folks like entrepreneurs, 
innovators, and their advisors to come talk to the staff about 
issues they are facing, including in digital asset, distributed 
ledger technology. We also do a number of outreach events, 
going to industry conferences, tech sprints, build-a-thons, 
that kind of thing, to encourage beneficial innovation.
    Mr. Nickel. My time has expired, and I will follow up in 
writing.
    Ms. Szczepanik. Thank you.
    Chairman Hill. Thank you, Mr. Nickel. Your time has 
expired.
    Now, we turn to the gentleman from Nebraska, Mr. Flood, for 
5 minutes.
    Mr. Flood. Thank you, Mr. Chairman. Also, Happy Birthday 
from everybody in Nebraska.
    I would like to focus my questions today on the Federal 
Reserve's Novel Activities Program. This supervision program 
applies to all banks that are members of the Federal Reserve 
System, regardless of size. The Federal Reserve would require 
State member banks to go through a supervisory, nonobjection 
process in order to issue stablecoins or custody digital 
assets.
    I specifically have interest in this topic and this program 
because I wrote and passed legislation in Nebraska, as a State 
Senator there, that would allow State-chartered banks to 
custody digital assets, and legislation that would also allow 
State-chartered banks to issue stablecoins. The Federal Reserve 
has published five broad parameters it will use to determine 
the relative risk of these activities.
    I would like to start with a kudos, and a thank you. I 
reached out to Kelly Lammers, the Director of the Nebraska 
Department of Banking and Finance, in advance of this hearing, 
and he assured me that he has been in very productive 
conversations with the Federal Reserve on the Novel Activities 
Program. I thank you for maintaining an open dialogue with the 
State of Nebraska. I am exceptionally proud of our Department 
of Banking and Finance, and Nebraska is a leader on this issue. 
Dr. Gibson, I thank you.
    Just to kind of get into the questions here, the Nebraska 
Department of Banking and Finance has already issued several 
examination manuals that walk through how to comply with State 
law in great detail. They know these issues very well, and they 
are already working on solutions that create a pathway for 
innovation, while also ensuring the safety and soundness of the 
banks in our State.
    Dr. Gibson, can banks expect further guidance on exactly 
how the Federal Reserve non-objection process will work, and 
will more guidance and examination manuals be issued, and will 
those be publicly available?
    Mr. Gibson. All of our examination materials are publicly 
available, and we have issued guidance and statements around 
the supervisory nonobjection process to try to make it clear to 
firms, if they want to investigate that or undertake that 
activity, what are the steps they can go through. And we do 
partner with the States, because as the supervisor of State 
member banks, we are always in partnership with the State 
supervisor on our examinations and our oversight.
    Mr. Flood. Do you foresee more guidance coming out, or is 
the Federal Reserve pretty confident with what it has right 
now?
    Mr. Gibson. We are always looking at areas where more 
transparency or explanation could be helpful, but we have 
issued quite a few guidance statements over the past year or 
two in this area, so for now, there is nothing imminently 
coming out, no.
    Mr. Flood. When you put together this guidance for banks 
across the State or the nation, do you look to State laws to 
see where they are at, States like Nebraska, to kind of give 
you an idea as to how you should put your program together?
    Mr. Gibson. If we are examining a particular new activity, 
we are going to be doing that. In the context of State member 
bank supervision, we are going to be partnering with States, 
and we feed back what we learned from those exam activities 
into our guidance and policy process. We are always learning 
from what is happening out in the States, and we take that into 
account when we make our own guidance.
    Mr. Flood. How many examiners are dedicated to the Novel 
Activities Program? If the number of banks interested in these 
activities increases due to State pathways being created across 
the country, will the Federal Reserve have the resources and 
the bandwidth to be able to examine these institutions and work 
with them?
    Mr. Gibson. I think we will. So far, we have allocated 
dedicated examiners to our Novel Activities Supervision 
Program, and they have specialized training in these 
activities. So, we are using those examiners already on exams, 
partnering with our local supervisory teams, and if that 
activity scaled up, we would plan to add more resources.
    Mr. Flood. I find that interesting because we could be 
looking at a new pool of applicants for examiners, given the 
digital innovation effort. Where do you see that coming from? 
And when you look to hire new examiners, are you finding a 
renewed interest in this area, given that we are talking about 
digital currency, digital assets?
    Mr. Gibson. We have staffed our Novel Activities Program 
mostly with internal examiners who have some expertise, and 
then get more training. We also hire from outside as well, so 
it is a mix for us.
    Mr. Flood. That makes sense. It sounds safe and sound. I 
appreciate your work. And I appreciate you having and 
maintaining such a good dialogue with the State that I 
represent. That Federal-State partnership is important, and you 
should be credited for doing that.
    With that, thank you, and I yield back.
    Chairman Hill. The gentleman yields back.
    The ranking member of the Full Committee, Ms. Waters of 
California, is recognized for 5 minutes.
    Ms. Waters. Thank you so very much. I guess I would like to 
direct this question to Ms. Szczepanik.
    We have recently seen another large crypto company, 
Binance, held accountable for breaking the law. This time, 
Binance knowingly engaged in money laundering, violated U.S. 
sanctions, and did not register as a money transmitter. For 
example, it knowingly refused to report more than 100,000 
suspicious transactions to law enforcement. Binance has been 
ordered to pay $4 billion, which includes the largest fine ever 
for Treasury to levy, to settle various criminal violations, 
and its CEO has pled guilty to criminal charges. This comes on 
the heels of Sam Bankman-Fried's conviction for stealing from 
FTX customers. This also comes after the SEC filed a lawsuit 
against Binance and its U.S. subsidiary for the sale of 
unregistered securities, fraud, conflicts of interest, and lack 
of disclosure.
    How does the SEC's FinHub research and evaluate illicit 
activity in the crypto system? How do you assist the SEC in 
ensuring that other bad actors in the crypto space are held 
accountable?
    Ms. Szczepanik. Thank you for the question. FinHub and its 
staff are made up not only of attorneys but also specialists in 
computer science, in data analytics, and in financial analysis, 
and we use those skills and special resources to scan the 
market. So, we understand what is happening in the digital 
asset market. We have the tools and technology that we need to 
do so. And we are looking proactively to analyze trends we see 
that may present harms to investors in the market, and we are 
passing that information along to our colleagues who are 
engaging in the activities of the Commission, for example in 
the Examinations, Enforcement, or Rulemaking Divisions, as they 
consider what needs to be done to protect investors in the 
markets.
    We also participate as subject matter experts on a number 
of domestic and international bodies that are addressing such 
things, including the Financial Stability Board (FSB), he 
International Organization of Securities Commissions (IOSCO), 
and the Financial Action Task Force (FATF).
    Ms. Waters. Thank you very much. I am going to ask what 
could be a sensitive question, but I hope you will try and help 
me with this. These crypto companies are coming to Congress and 
to the Members of Congress. Some Members of Congress are truly 
interested in the role that crypto is going to play in the 
world, and particularly in the United States, but many of them 
need more information. They need more education. Have any of 
you thought about holding some special sessions with Members of 
Congress to talk about the problems and the pitfalls that may 
occur and give some information that would help them not to 
believe that somehow they should be advancing, or even 
advocating, because maybe they just do not know enough? How 
could you help us with that?
    Ms. Szczepanik. We are happy to provide that assistance 
through our Office of Legislative and Intergovernmental Affairs 
(OLIA). I would invite Members to reach out to OLIA if they 
want technical assistance on such matters.
    Ms. Waters. Do you know whether or not crypto companies are 
making huge contributions to Members of Congress?
    Ms. Szczepanik. I cannot comment about that particular 
issue.
    Ms. Waters. I said it was going to be sensitive. But what 
other ways can you help us?
    Ms. Szczepanik. That is a great question. We stand ready to 
provide any technical assistance through our Office of 
Legislative Affairs, and the FinHub itself provides a 
repository of information concerning activities that the 
Commission engages in, with respect to distributed ledger 
technology, digital assets, and a number of other technologies 
on our FinHub website, so there are a number of resources 
there.
    Ms. Waters. I thank you for being here today, and I 
appreciate your testimony, but I would like to try and organize 
small groups of Members of Congress to be able to ask more 
questions and get more involved in what is really going on with 
some of these companies. So if any of you are willing to 
participate at any time with smaller groups, where you can 
answer more specific questions, I would appreciate it very 
much.
    And I yield back the balance of my time.
    Chairman Hill. The gentlewoman yields back.
    The Chair recognizes the gentleman from South Carolina, Mr. 
Timmons, for 5 minutes.
    Mr. Timmons. Thank you, Mr. Chairman.
    The Office of Innovation was created by the CFPB in 2018 
during the tenure of then-acting Director Mick Mulvaney. Its 
primary objective was to focus on creating policies to 
facilitate innovation, engage with entrepreneurs and 
regulators, and review outdated or unnecessary regulations.
    However, in 2022, Director Chopra replaced this entity with 
the Office of Competition and Innovation, making a departure 
from its predecessor's focus. The new office is more inclined 
toward generating reports termed, ``issue spotlights,'' which 
concentrate on specific innovative products and services.
    The hallmark to the CFPB's former Office of Innovation were 
the No-Action Letter and Compliance Assistance Sandbox 
programs, both of which limited regulatory uncertainty by 
allowing companies to offer innovative financial products to 
consumers upon approval from the CFPB. In September of 2022, 
both policies were allowed to expire under the current 
leadership.
    Ms. Epstein, do you believe that letting these policies 
expire would facilitate innovation within the financial 
industry, and what policies has the office introduced to foster 
an opportune environment for innovative companies and products 
in the wake of the No-Action Letter and Sandbox programs 
expiring?
    Ms. Epstein. Thank you for the question. First, I did want 
to point out that we still do have the only Federal-level 
sandbox in existence, and as I mentioned in my testimony, we do 
have a current approval, a recent approval for the Independent 
Community Bankers of America to test disclosures related to 
construction loans, which is, I think, a very exciting place 
where we can innovate with the community bankers to understand 
where there might be improvements in the disclosures----
    Mr. Timmons. Are you saying that the Sandbox program 
deposit insurance did not expire, or you have replaced it with 
something similar?
    Ms. Epstein. There were multiple sandbox policies, so that 
sandbox is still in effect, and we have a current approval. 
Unfortunately, for the two policies that you did mention, they, 
unfortunately, did not yield, in implementation, the expected 
results. So they were, sort of in summary, higher costs than we 
had expected, the benefits were a little more illusory, and 
then, the other piece of this, which was an inadvertent side 
effect, was that we created advantages for the companies in the 
sandbox in a competitive environment, which was not an expected 
or desirable outcome.
    Mr. Timmons. It seems we are moving in the wrong direction, 
so thank you for that. The CFPB's Office of Competition and 
Innovation has a broader initiative than its predecessor, the 
former Office of Innovation. Can you describe how this expanded 
mandate has impacted the Office's interaction with market 
participants? Just generally speaking, are we making it easier 
for people to compete or is it more regulation and less 
streamlining the challenges that they face?
    Ms. Epstein. We continue to engage very fulsomely with the 
entire fintech ecosystem, and try to understand, on a very 
broad level, what are the barriers to new entrants? We talk to 
fintech companies. We talk to venture capitalists, seeing where 
the money is going, where they see, on sort of a broad level, 
some of these things are of issue. We talk to bankers. We talk 
to large groups in the industry. The focus is more on a market 
level as opposed to a particular fintech.
    Mr. Timmons. I appreciate your comments, but I still have 
concerns about the Office's new direction. I have introduced 
new legislation to revert this office back to its original 
form, and I urge your office to once again adopt the No-Action 
Letter and Sandbox policies that were previously in effect, 
which laid the groundwork for innovative companies to thrive.
    One final question. The CFPB does not seem to be feeling 
the Christmas cheer this year. Two crucial comment periods come 
to an end right after the holidays. Can the CFPB and Director 
Chopra commit to saving Christmas by providing comment period 
extensions for both its 1033 and large participant proposals?
    Ms. Epstein. I am not on the rulemaking team, but I am sure 
that the rulemaking team will take all extension requests 
seriously.
    Mr. Timmons. I think some more time would be appropriate. 
With that, Mr. Chairman, I yield back. Thank you.
    Chairman Hill. The gentleman yields back.
    The gentleman from Wisconsin, Mr. Steil, is recognized for 
5 minutes.
    Mr. Steil. Thank you very much, Mr. Chairman. And thanks 
for holding today's hearing.
    Financial innovations help millions of Americans navigate 
wealth, make payments, and manage cash flow, and I think a lot 
of technological developments we have had have been incredibly 
positive. I think the real key here is that we are working with 
the regulatory bodies, as policymakers, to provide clarity, to 
allow innovation to develop here in the United States, and that 
we have a pro-innovation perspective of this.
    I want to start with you, if I can, Ms. Epstein. The CFPB 
has proposed new rules for popular fintech products and 
services, and some of these regulations, in my opinion, will 
have a significant impact on the development of products and on 
competition, broadly.
    I am interested in your role at the CFPB in how you 
interact with the CFPB rulemaking process. Could you walk us 
through your involvement with that, and in the context of the 
larger picture of navigating the rulemaking process at CFPB and 
your role of assisting in innovation?
    Ms. Epstein. Sure. My office is part of the Research, 
Monitoring, & Regulations Division at the CFPB. We fall under 
the monitoring category, so along with the statutory offices in 
markets, which look at specific market segments as well as the 
populations teams, which look at the specific populations and 
the impact on, particularly things like military 
servicemembers, older Americans, and so forth, we are 
specifically looking at some of the more longer-term and 
technological aspects----
    Mr. Steil. Let me dive in if I can, because I like where 
you are going, but we are limited in time. But as it relates to 
the CFPB rulemakings, do you opine on the impact those would 
have on future technological developments?
    Ms. Epstein. Very similar to my colleague, it depends on 
the regulation itself, but we do offer technical assistance 
related to various rulemakings, particularly in terms of 
implementing----
    Mr. Steil. Maybe, I can use an example then. We had CFPB 
Director Chopra here a couple of days ago, and he was talking 
about the CFPB examining earned wage access under a new light. 
It is a highly-developing area where people have access to 
their wages that they have already earned. Do you have 
conversations with your colleagues? What does that look like as 
it relates to an area that is innovating quickly?
    Ms. Epstein. Yes. For example, on earned wage access, we do 
provide information about where the market is developing, the 
different business models----
    Mr. Steil. But do you provide comments as it relates to 
whether or not a rule would actually hinder innovation or 
development?
    Ms. Epstein. We would have input into a rule.
    Mr. Steil. You would. Okay. That is helpful. Thank you very 
much.
    I am going to shift gears, if I can, just because we are 
limited in time, and jump over to our friends at the SEC. Ms. 
Szczepanik, in your opening statement, you were talking about 
how FinHub actively monitors international fintech 
developments, and engages in dialogue with foreign 
counterparts. Can you note any of the specific foreign 
developments that you are seeing from your foreign counterparts 
that we should be looking at developing in the United States?
    Ms. Szczepanik. Sure. At FinHub, we are actively monitoring 
developments as they occur both domestically and 
internationally. We get involved, as subject matter experts, in 
the various work that is being done by international bodies 
that the SEC is involved with, for example, the Financial 
Stability Board, IOSCO, and the FATF. And what I am seeing is a 
broad consensus internationally about the risks that certain 
technologies are posing, and I do see a broad consensus around 
responses to the risks.
    Mr. Steil. Great. So, you see a broad consensus in 
responses. Do you see that in a regulatory framework being set 
forward or in favor of an enforcement-first approach?
    Ms. Szczepanik. What I see is that there are high-level 
recommendations being put forth by these authorities that 
really talk about same activities, same risks, same regulation, 
and that is a guiding principle, as well as technology 
neutrality.
    Mr. Steil. But in the enforcement-first approach I think 
the SEC has taken, do you see your counterparts engaging in a 
similar fashion?
    Ms. Szczepanik. What I see is that there is a broad 
consensus internationally about the risks posed by new 
technology.
    Mr. Steil. But not a broad consensus about how those risks 
should be managed, meaning whether or not a regulatory 
framework being set forward, as we have here in Congress 
legislation that we have moved on, and hopefully the Senate 
will act on, I think that is a better approach than the 
enforcement-first approach we have seen at the SEC.
    I yield back.
    Chairman Hill. The gentleman from Wisconsin yields back.
    I want to thank our good panel today and congratulate you 
on your work and innovation in your agencies in a safe and 
sound way. We look forward to following up with you.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I ask each of you to respond as promptly as you are can.
    This hearing is adjourned.
    [Whereupon, at 11:55 a.m., the hearing was adjourned.]

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                            December 5, 2023

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