Three leading US banking authorities – Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) – have issued joint advice for financial institutions on risk management associated with FinTech firm partnerships.
They have stressed on performing detailed due diligence, maintaining efficient supervision, and ensuring robust risk management throughout the collaboration. It’s crucial that any working with FinTech firms be cohesive with the bank’s strategic objectives, comply with its risk appetite and abide by relevant laws and regulations.
Furthermore, the authorities have emphasized the necessity of having strong data security measures to safeguard customer information. They have recommended that financial organizations set clear expectations with their FinTech partners about performance metrics and compliance standards.
The regulators have flagged potential issues related to providing banking products and services involving third parties. Efficient risk management procedures have been suggested to mitigate these issues.
Regular review of associated processes for identifying and managing potential risks has been emphasized as crucial too. Applying existing standards and best practices to ensure safe operations is another strategy they advocated for. This is particularly aimed at minimizing risks associated with third-party transactions.
The authorities expect their guidance will help traditional banks leverage innovative solutions provided by FinTech firms without exposing themselves to avoidable risk.
Alongside this, the regulators have put out a request for information to gain a deeper understanding of and feedback on the intricate dynamics of bank-FinTech partnerships.
Guidance for bank-Fintech collaboration risks
This focus is on services related to deposits, payments, and loans. The aim is to help guide future regulatory steps in these areas.
There’s been an observable rise in collaborations between traditional banks, credit unions, and emerging FinTech companies lately. This trend is seen as valuable, signalling a shift towards cooperation between banks and FinTech companies as they adapt to consumer preferences, financial hurdles, and regulatory challenges.
Charlie Youakim, CEO of Sezzle, praised the innovation bank and FinTech partnerships bring. He believed such alliances bridge the gap between traditional banking and technological innovations, offering customers highly efficient, personalized financial services.
Youakim also acknowledged how these partnerships are driving increased customer expectations. Customers now want prompt, transparent, and secure banking services, achievable through collaborations between banks and FinTech firms.
In conclusion, the partnership between traditional banks and FinTech companies not only provides an upgraded banking system but also promotes flexible and inclusive financial opportunities. Youakim believes this shift will pave the way towards a more digitized financial world.
