U.S. Rep. French Hill of Arkansas joined other members of the House Financial Services Committee and representatives from the banking and financial technology sector in Arkansas on Friday at The Venture Center for a congressional “field” hearing to discuss how to promote fintech, venture capital and entrepreneurship in communities not historically home to high-tech industries.
Hill, a Republican who chairs the Subcommittee on Digital Assets, Financial Technology and Inclusion, has been at the forefront of drafting legislation that would create a regulatory framework for digital assets and the evolving fintech sector that would protect traditional banking institutions, investors and consumers while promoting innovation and job creation.
Representatives Wiley Nickel, D- North Carolina, and Mike Flood, R-Nebraska, joined Hill for the more than hour-long hearing, which covered a wide range of topics, including the security risks artificial intelligence poses to the banking sector to promoting the use of fintech in rural communities across the U.S. and passing legislation that would change the accredited investor landscape.
“There is no better way to start the field work by examining the benefits that fintech is bringing to communities and Americans across the country,” Hill said in opening remarks. “As history has shown, financial innovation is the lifeblood of the United States, and has been certainly for the past 75 years.”
Members of the four-person panel included: Susannah Marshall, Arkansas State Bank Department commissioner; Arthur Orduña, The Venture Center executive director; Joel Wheelis, FIS Global’s head of products and services for banking large financial institutions; and Ravi Loganathan, head of financial institution services and president of SardineX Consortium.
Marshall told committee members that she believes it is integral for state banks to be involved with regulatory oversight of digital assets.
“Our firsthand knowledge of what’s going on in our communities and our institutions will not be seen or heard if there’s not a state pathway in future regulation and guidance and legislation around financial services,” Marshall said. “It will not come from [Washington] D.C. It comes from boots on the ground with the state systems, the state regulators, and that my counterparts across the country provide.
“It is of the utmost importance,” she said. “We appreciate and applaud any and all efforts to ensure that any future legislation, whether it’s around stablecoin, or other digital innovations and digital assets, must include that state path.”
Flood, the Nebraska lawmaker, raised questions about the growth of artificial intelligence and its impact on cybersecurity in the banking sector.
“What’s going to happen in terms of [bad] actors is that it’s going to be automated at scale and much higher than what you see today,” Loganathan of SardineX said. “You’re now able to attack an institution at a much faster pace. That’s a significant threat.”
“Our detection capabilities today, and for the majority of financial institutions, are backward-looking risk models,” Loganathan said. “That is no longer sufficient. You need real-time assessment models. What I fear is that many of our institutions are not ready for what is coming, and what AI is doing is accelerating that threat because now the fraud attacks and fraud vectors can be done at a much larger scale.”
Marshall said fintech is proving to be an asset to smaller community banks in rural areas in Arkansas and elsewhere. “I believe fintech should not be categorized for one asset size or the other. It should be able to serve every type of institution, whether it’s a rural bank in southeast Arkansas or a bank in central Arkansas that has operations in 12 other states. I believe all banks can be successful in using fintech.”
Orduña of the Venture Center offered recommendations on building entrepreneur support organizations, or ESOs, nationwide that could lead to flourishing technology ecosystems in communities outside of major tech hubs, like Silicon Valley in California, which still attract most venture capital dollars in the U.S.
He said the government can play a vital role by building communities where entrepreneurs want to live. “Improve the level of innovation and entrepreneurship by improving the community’s quality of life,” Orduña said.
Flood of Nebraska said he agreed with Orduña.
“I was very pleased to hear you say government shouldn’t be a catalyst for these innovations, but it should lead the way with quality of life,” Flood said. “I’m not someone who would have maybe voted for the arts when I was speaker of our Legislature 15 years ago, but I see now the direct connection between the investment in public art and building an entrepreneurial community. I see that on display here in Little Rock.”
“I think it’s outstanding that you highlight that as the appropriate role for the government,” Flood said.
Nickel raised the issue of funding and the challenges startups face with raising money. He said bipartisan legislation is in the works that would allow individuals to invest in startups “regardless of their net worth.”
“Through the accreditation system, only millionaires can be accredited investors, and that doesn’t include your house,” Nickel said.
The proposed legislation would expand the “accredited investor definition to allow people to invest in private securities,” Nickel said.
“You’re touching on one of the most important topics that occupies literally almost all of my time, which is getting these promising businesses access to capital for growth,” Orduña said in response. “I personally will strongly support being able to open and broaden the definition of accredited investors as long as they are aware of the risks of investing in early-stage ventures.”