US regulators must take reins on fintech oversight - bank associations

Earlier this year, in the wake of the collapse of Synapse, US regulators set out proposals for an overhaul of how bank-fintech relationships are governed.

Replying to a request for information from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve, the Bank Policy Institute and the Clearing House Association have backed the idea of stronger fintech oversight.

“We believe the combination of direct agency oversight of fintechs and consumer education is imperative to achieve our shared goal of effective fintech risk management,” the associations write in their letter.

“The current approach, in which the agencies place all responsibility for ensuring appropriate fintech risk management on the banks, suggests that compliance is primarily a ‘bank issue’ and need not be a major concern for the fintech.”

In a separate letter, the Independent Community Bankers of America says that the current regulatory framework has "significant shortcomings" and suggests the use of ‘just in time’ reviews, enhanced examination of novel technologies, and supervised use of variables.

The group also calls for the use of economies of scale to more effectively map and monitor the complex or critical third-party relationships through the use of shared due diligence and standard setting organisations.

In contrast, the Financial Technology Association CEO Penny Lee writes: “We urge regulators to recognize the benefits of these partnerships and reconsider rulemakings that could cut off access to innovative financial services for tens of millions of consumers, small businesses, and entrepreneurs.”

The letter highlights two specific proposed FDIC rules - the brokered deposit and custodial deposit accounts rulemakings - which could have "unintended consequences and undermine access to innovative financial products".