FDIC’s Changes to Tech Office Questioned by GOP Lawmakers
Top Republicans on the House Financial Services Committee are preparing to send a letter to the Federal Deposit Insurance Corp. (FDIC) questioning the agency’s changes to its office of “innovation.” The lawmakers are concerned about the direction the FDIC is taking on innovation and have expressed their concerns in a draft letter obtained by American Banker.
The Changes to the FDITech Office
In 2019, former FDIC Chairman Jelena McWilliams established the FDITech office with the aim of fostering a more welcoming environment for banks to adopt financial technology changes. However, the FDIC has recently overhauled the office, eliminating its focus on fostering innovation and redirecting it to adopting technologies within the FDIC itself.
According to a report from the Government Accountability Office (GAO) in September, the FDIC eliminated the innovation-focused mission of the FDITech office in January 2023. The office was subsequently reorganized as a branch within the agency’s Division of Information Technology, with no emphasis on external competition or innovation within the financial sector.
GOP Lawmakers’ Concerns
House Financial Services Committee Chair Patrick McHenry, Subcommittee on Financial Institutions and Monetary Policy Chair Andy Barr, and Subcommittee on Digital Assets, Financial Technology and Inclusion Chair French Hill expressed their concerns in the letter to the FDIC. They argue that the agency, under the Biden administration, has taken steps backward in terms of innovation.
The lawmakers are particularly troubled by the lack of publicly available information detailing how the FDIC’s approach to innovation will affect examinations. They also raise concerns about the agency’s history of using extralegal pressures to achieve anti-business results. The fear is that the FDIC’s approach could stifle the development of innovative products and services that benefit consumers and businesses.
Enforcement Actions and Scrutiny
The letter from the GOP lawmakers comes in response to a number of enforcement actions taken by the FDIC aimed at bank-fintech partnerships. The agency has been increasing its scrutiny of banking as a service, which has led to orders for enhanced compliance management at some financial institutions.
In November, the FDIC issued a sweeping set of actions to First Fed Bank in Washington, alleging unsafe or unsound banking practices related to its banking as a service offerings. Similarly, Cross River Bank in New Jersey was slapped with a consent order earlier in the year for engaging in unsafe or unsound banking practices related to fair lending regulations.
The Office of the Comptroller of the Currency (OCC) and the Federal Reserve (Fed) have also been involved in tightening regulations for banks partnering with fintechs. They released guidance in June that requires banks to implement risk management practices for third-party providers, including fintech companies.
Frequently Asked Questions
Q: What is the FDITech office?
A: The FDITech office was established by former FDIC Chairman Jelena McWilliams in 2019 to encourage banks to adopt financial technology changes.
Q: What changes were made to the FDITech office?
A: The FDIC eliminated the innovation-focused mission of the FDITech office in January 2023, and it now focuses on adopting technologies within the FDIC itself.
Q: Why are GOP lawmakers questioning the changes to the FDITech office?
A: GOP lawmakers are concerned that the changes represent a step backward in terms of innovation and could stifle the development of innovative products and services.
Q: What enforcement actions has the FDIC taken regarding bank-fintech partnerships?
A: The FDIC has issued orders for enhanced compliance management at financial institutions, alleging unsafe or unsound banking practices related to banking as a service offerings.
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