FDIC’s Innovation Office Changes Scrutinized by House GOP
House Financial Services Committee chair Patrick McHenry, R-N.C., joined fellow committee Republicans in a letter to the Federal Deposit Insurance Corp. decrying the agency’s changes to the FDITech office that scuttled a program created under former agency chair Jelena McWilliams that was aimed at encouraging bank/fintech partnerships.
In the last year, the FDIC has overhauled the “FDITech” office, originally established in 2019 under former Chairman Jelena McWilliams to foster a more welcoming environment for banks to adopt financial technology changes. According to a September report from the Government Accountability Office, the FDIC eliminated the portion of the office’s mission focused on fostering innovation in January 2023 and now focuses the office on adopting technologies within the FDIC. The office was reorganized as a branch within the agency’s Division of Information Technology, and it no longer focuses on external competition or innovation within the financial sector, the GAO report said.
Concerns of GOP Lawmakers
GOP leaders on the House Financial Services Committee said they are concerned about the direction that the FDIC is taking on innovation, as evidenced by the changes to the innovation office. In a letter that the lawmakers intend to send on Friday, House Financial Services Committee chair Patrick McHenry of North Carolina, Subcommittee on Financial Institutions and Monetary Policy chair Andy Barr of Kentucky, and Subcommittee on Digital Assets, Financial Technology and Inclusion chair French Hill of Arkansas said that the FDIC under the Biden administration has “moved innovation backwards.”
“We are also concerned that there is no publicly available information detailing how the FDIC’s posture on innovation will manifest in examinations,” the lawmakers said. The Republicans said that the agency “has a troubling history of using extralegal pressures to attain anti-business results.”
Increase in Scrutiny and Enforcement Actions
The letter follows a number of enforcement actions from the FDIC aimed at bank-fintech partnerships and increasing scrutiny from federal regulators of banking as a service. In November, the FDIC ordered First Fed Bank in Washington to implement a sweeping set of actions to enhance its compliance management related to its banking as a service offerings, alleging unsafe or unsound banking practices primarily related to a specific fintech relationship. Earlier last year, the FDIC similarly slapped Cross River Bank in New Jersey with a consent order, saying it engaged in unsafe or unsound banking practices related to fair lending regulations.
Alongside the FDIC, the Office of the Comptroller of the Currency and the Fed finalized guidance in June toughening the standards for banks who want to partner with fintechs by requiring banks to implement risk management practices that account for the risks of third-party providers, including consultants, merchant payment processors, cloud computing providers, and data aggregators.
Frequently Asked Questions
1. What changes did the FDIC make to the FDITech office?
The FDIC made changes to the FDITech office, eliminating the portion of its mission focused on fostering innovation and shifting its focus to adopting technologies within the FDIC. The office was reorganized as a branch within the agency’s Division of Information Technology.
2. Why are GOP lawmakers concerned about the FDIC’s changes?
GOP lawmakers are concerned that the FDIC’s changes indicate a backward movement in innovation. They worry that the agency’s approach could hinder the development of innovative products and services that benefit consumers and businesses.
3. What enforcement actions has the FDIC taken against bank-fintech partnerships?
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 its banking as a service offerings. Cross River Bank in New Jersey was also issued a consent order for engaging in unsafe or unsound banking practices related to fair lending regulations.
4. What guidance did the OCC and the Fed provide regarding banks partnering with fintechs?
The OCC and the Fed issued guidance that toughened the standards for banks partnering with fintechs. The guidance requires banks to implement risk management practices that consider the risks associated with third-party providers, including consultants, merchant payment processors, cloud computing providers, and data aggregators.
For more information on banking innovations, visit [VisBanking.com](https://visbanking.com/).
To learn about our pricing plans, visit [VisBanking.com/pricing](https://visbanking.com/pricing/).
Request a demo of our innovative banking solutions at [VisBanking.com/request-demo](https://visbanking.com/request-demo/).
