FDIC’s Innovation Office Changes Drawing Criticism from GOP Lawmakers
House Financial Services Committee Expresses Concerns over FDIC’s Changes
The Federal Deposit Insurance Corp. (FDIC) is facing criticism from Republican lawmakers over recent changes made to its office of “innovation,” according to a draft letter obtained by American Banker. Led by House Financial Services Committee chair Patrick McHenry, lawmakers are questioning the agency’s decision to overhaul the FDITech office, which was initially established in 2019 to encourage bank-fintech partnerships and foster a more welcoming environment for technological advancements in the banking sector.
The FDIC’s changes to the innovation office have raised concerns among GOP leaders on the House Financial Services Committee. They argue that the agency’s current direction under the Biden administration has taken a step backward in terms of innovation. In the letter set to be sent to the FDIC, the lawmakers express worries about the lack of publicly available information on how the agency’s stance on innovation will affect examinations.
FDIC’s Shift in Focus and Reorganization of FDITech Office
According to a report from the Government Accountability Office (GAO), the FDIC made significant changes to the FDITech office’s mission in January 2023. The office, previously tasked with fostering innovation and facilitating external competition in the financial sector, now primarily focuses on adopting technology within the FDIC. The GAO report highlights that the office has been reorganized as a branch within the agency’s Division of Information Technology, which has raised concerns about its diminished emphasis on external innovation.
Concerns About Potential Implications
The Republican lawmakers express concerns that the FDIC’s approach could hinder the development of innovative products and services that benefit both consumers and businesses. They raise apprehensions about the possibility of the agency using extralegal pressures to achieve anti-business results, citing a troubling history in this regard. As regulators increasingly scrutinize bank-fintech partnerships and banking as a service, the lawmakers question the impact of the FDIC’s approach on the broader financial sector.
Enforcement Actions and Regulatory Guidance
The FDIC has recently taken enforcement actions against banks involved in fintech partnerships, further contributing to GOP lawmakers’ concerns. For instance, First Fed Bank in Washington was ordered to implement enhanced compliance management measures related to its banking as a service offerings. The FDIC alleged unsafe banking practices predominantly tied to a specific fintech relationship. Similarly, Cross River Bank in New Jersey faced a consent order for engaging in unsafe banking practices related to fair lending regulations.
In addition to the FDIC’s actions, the Office of the Comptroller of the Currency and the Federal Reserve issued finalized guidance in June, strengthening the standards for banks seeking to partner with fintech companies. This guidance requires banks to implement risk management practices that account for the potential risks posed by third-party providers, including consultants, merchant payment processors, cloud computing providers, and data aggregators.
Frequently Asked Questions
1. What is the FDIC’s FDITech office?
The FDITech office was established in 2019 to foster a more welcoming environment for banks to adopt financial technology changes. Its main goal was to encourage bank-fintech partnerships and promote innovation in the financial sector.
2. What changes has the FDIC made to the FDITech office?
In January 2023, the FDIC made significant changes to the FDITech office. The office’s mission was altered, focusing primarily on adopting technology within the FDIC rather than fostering external competition and innovation. It was also reorganized as a branch within the agency’s Division of Information Technology.
3. Why are GOP lawmakers criticizing the FDIC’s changes?
Republican lawmakers are concerned that the FDIC’s changes to the innovation office signify a step backward in terms of fostering innovation and encouraging bank-fintech partnerships. They argue that the agency’s approach could hinder the development of innovative products and services that benefit consumers and businesses.
4. What enforcement actions have the FDIC taken against banks?
The FDIC has taken enforcement actions against banks involved in fintech partnerships. For example, First Fed Bank in Washington was ordered to enhance its compliance management related to banking as a service offerings. Cross River Bank in New Jersey also faced a consent order for engaging in unsafe banking practices related to fair lending regulations.
5. What regulatory guidance has been issued regarding bank-fintech partnerships?
The Office of the Comptroller of the Currency and the Federal Reserve issued guidance in June to strengthen the standards for banks partnering with fintech companies. This guidance requires banks to implement risk management practices that consider the potential risks associated with third-party providers.
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