September 7, 2021
Authored by: Douglas Thompson
Innovation is a key to competitive advantage and keeping pace with consumer digital banking preferences. Increasingly, banks are engaging the services of fintech’s who can deliver certain information and services in a more agile environment, putting banking services at consumers’ fingertips. Some banks are entering into strategic alliances to ensure their platforms keep a competitive edge in the coming months and years. From a risk management and regulatory supervision/enforcement perspective, banks need to understand the specific services and capabilities of their partners and the risks involved. Last month, the OCC, the FDIC and the Federal Reserve released a joint bulletin “Conducting Due Diligence on Financial Technology Companies: A Guide for Community Banks.” OCC Bulletin 2021-40.
In the Bulletin, the OCC highlights: “During due diligence, a community bank considers how the fintech company may assist the bank in meeting its strategic objectives and determines whether the relationship aligns with the bank’s risk appetite. A community bank evaluates whether the proposed activity can be implemented in a safe and sound manner, consistent with applicable legal and regulatory requirements. To augment existing resources, leverage specialized expertise, and gain efficiencies, community banks might collaborate or engage external resources when evaluating a proposed relationship with a fintech company.”
The OCC also refers community banks to its prior third-party vendor management and supervision requirements, but notes importantly, that the new Bulletin is a separate “resource for bank management.”