Bank Association Urges The US Regulators To Take An Active Role In Fintech Oversight

The Bank Policy Institute and the Clearing House Association recently said that the US financial services regulators should take the reins of fintech oversight in the country. It also criticized them for expecting the banks to police the sector on their own.

Regulators Need To Become More Involved With Overseeing Fintech

Earlier in 2024, after the collapse of Synapse, the US regulators introduced a new proposal that was meant to overhaul the way bank-fintech relationships are governed. The Office of the Comptroller of the Currency then sent a request for information, and several financial entities responded.

Those that did include the Federal Reserve, the Federal Deposit Insurance Corporation, as well as the Bank Policy Institute and the Clearing House Association. All of these entities supported the idea of stronger fintech oversight being necessary.

The association wrote a letter in which it said that it believes that the combination of direct agency oversight of fintechs and consumer education is necessary to achieve the shared goal of more effective risk management in the sector. 

It also criticized the current approach where the agencies are placing all responsibility for ensuring appropriate risk management in fintech on the banks. To them, this approach suggests that compliance is a bank issue primarily and that it shouldn’t be a major concern for the fintech sector.

The Independent Community Bankers of America also wrote its own letter in which it said that the regulatory framework, as it is right now, has significant shortcomings. The Community pointed out that the current framework suggests the use of “just in time” reviews, supervised use of variables, and enhanced examination of novel technologies.

Additional Requests For The Regulators

In addition to greater regulatory involvement, the group also called for the use of economies of scale to map and monitor critical and complex third-party relationships more thoroughly and effectively. This can be done by using shared due diligence and standard-setting organizations, according to the group.

Meanwhile, Penny Lee, the chief executive of the Financial Technology Association, urged regulators to recognize the benefits of the partnerships. They should also reconsider certain rulemakings that could remove access to innovative financial services, thus affecting tens of millions of users, but also entrepreneurs and small businesses.

Lee specifically highlighted two proposed FDIC rules —  the brokered deposit and custodial deposit accounts rulemakings. Both could have major unintended consequences, the letter warned, saying that it could prevent users of all types from accessing innovative financial products.