Michael Hsu, Acting Comptroller of the Currency, a significant U.S. bank regulator, warned on Wednesday that the growth of fintech services and digital banking could lead to long-term financial risks and possibly a crisis.

“I believe fintechs and big techs are having a large impact and warrant much more of our attention,” Hsu told a New York conference, noting the encroachment of fintech companies into the traditional financial sector, including via partnerships with banks, was creating more complexity and “de-integration” across the banking sector.

“My strong sense is that this process, left to its own devices, is likely to accelerate and expand until there is a severe problem, or even a crisis,” Hsu said.

In an effort to offer a seamless customer experience, banks and tech companies are collaborating in ways that make it more challenging for regulators to determine where the bank ends and the tech firm begins, according to Hsu. Additionally, he said, bank partnerships with fintechs are growing as valuations for fintech companies decline and financing costs rise.

According to Hsu, this raises concerns about customer protection as well as IT risks related to information security and resilience.

“I worry increasingly about the ‘unknowns’ and am concerned that the less familiar risks of this digital transition are unlabeled and thus unseen. As we learned from the 2008 financial crisis, risks that are unseen have a tendency to grow and later to be the source of nasty surprises,” said Hsu.

Gene Ludwig, a former Comptroller of the Currency, previously issued a warning about the fact that fintech regulations are much less stringent than those that apply to banks.

“The non-banking industry is getting away with murder,” said Ludwig, who is now a managing partner of Canapi Ventures, a venture capital firm.

If we don’t take action, Ludwig predicted, non-banks “will get us into the next financial crisis.”

Since cryptocurrencies have fallen off in recent months due to concerns that interest rate hikes will put an end to the era of cheap money, U.S. regulators have been reluctant to permit banks to invest in them. A number of cryptocurrency businesses have declared bankruptcy.

Hsu warned that the market is very “hype-driven” and noted that the unrest had “all of the hallmarks of a classic run” on an interconnected industry with issues.

(Adapted from NDTV.com)

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