US financial services regulators need to take charge of fintech oversight rather than relying on banks to monitor the sector independently, according to the Bank Policy Institute and the Clearing House Association.
Earlier this year, following the collapse of Synapse, US regulators proposed an overhaul of the governance of bank-fintech relationships. In response to a request for information from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve, both associations supported the need for increased fintech oversight.
They stated, “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.” They also criticized the prevailing approach, which places the onus of fintech risk management solely on banks, suggesting it minimizes the responsibility of fintechs.
Meanwhile, the Independent Community Bankers of America pointed out that the current regulatory framework has notable “shortcomings.” They recommend implementing ‘just in time’ reviews, enhanced examination of new technologies, and a supervised approach to variable usage. They have also advocated for leveraging economies of scale to better map and monitor complex third-party relationships through shared due diligence and standard-setting organizations.
Conversely, Penny Lee, CEO of the Financial Technology Association, emphasized the need for regulators to acknowledge the advantages of bank-fintech partnerships. She cautioned against rulemaking that could limit access to innovative financial services for millions of consumers, small businesses, and entrepreneurs. Her letter specifically cited two proposed FDIC rules—brokered deposits and custodial deposit accounts—that could have “unintended consequences and undermine access to innovative financial products.”