The Bank Policy Institute and The Clearing House Association have submitted a letter to the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve. This letter calls for these banking regulators to take a more direct role in overseeing fintech companies. The request was made in response to a call for information from these agencies.
The associations emphasize that banks should not be burdened with acting as quasi-regulators for fintechs. They argue that direct oversight by regulatory agencies is necessary alongside public education efforts to inform consumers about potential risks associated with nonbank entities.
"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," the associations stated. They further noted that current practices place undue responsibility on banks, suggesting compliance is primarily a "bank issue."
The letter outlines three main recommendations:
Firstly, regulators should directly regulate fintechs rather than relying on banks to manage them independently. Banks are responsible for due diligence under third-party risk management frameworks but should not be expected to police fintechs alone. Regulatory bodies should utilize their authority, including tools like the Bank Services Company Act, to enforce compliance and accountability among fintech companies, particularly in high-risk partnerships.
Secondly, regulatory loopholes exploited by fintechs should be closed. Fintechs often partner with small institutions to avoid regulation, benefiting from exemptions such as those under Regulation II of the Dodd-Frank Act. These loopholes undermine regulations' intent and need addressing.
Lastly, there is a call for increased consumer education regarding what distinguishes banks from nonbanks. Many fintech firms appear similar to banks but lack certain protections like federal deposit insurance. Consumers must clearly understand these differences and risks when obtaining financial products through nonbanks. Regulators should mandate clear disclosures from fintechs and support public education initiatives.
As partnerships between banks and fintech companies grow more common, their nature may not always be apparent to consumers. These collaborations allow fintech firms to offer various banking products directly to end users.
Comments on this request were due by October 30 following its issuance in July 2024. The involved agencies will review feedback before deciding if further rules are necessary.
The Bank Policy Institute represents universal, regional, and major foreign banks operating in the U.S., focusing on policy research and advocacy across several areas including cybersecurity and fraud prevention. Meanwhile, The Clearing House Association offers advocacy on payment-related issues through its longstanding presence in the banking sector.
For further details or access to the full letter text, contact Austin Anton at Bank Policy Institute via email at austin.anton@bpi.com.