- The Federal Deposit Insurance Corp. (FDIC) is seeking public input on potentially establishing a standards-setting organization that would devise best practices for fintechs and other tech companies that want to work with banks, the regulator said this week in a release.
- The regulator also is considering instituting a voluntary certification program to assess the tech partners' compliance with standards, help standardize due diligence practices and reduce associated costs.
- The move may benefit community banks, which — compared to larger institutions — have smaller budgets and fewer personnel to devote to technological innovation.
Released as part of the FDiTech initiative, the request for information aims to "reduce the regulatory and operational uncertainty" that may keep banks from joining forces with innovators.
That's the same philosophy behind another regulator's effort to promote innovation. The Consumer Financial Protection Bureau (CFPB) issued a no-action letter in 2017 to online lender Upstart that lets the bureau observe the company’s alternative credit data model while shielding the startup from enforcement action.
"Fostering innovation in the financial sector is a top priority for the FDIC," Chairman Jelena McWilliams said in a press release Monday. "We have to remove unnecessary regulatory impediments that banks must overcome when developing or deploying new technologies."
Under the idea the FDIC is floating, a tech company could apply for one certification that would be accepted at a number of banks, rather than spending time and resources chasing individual agreements.
But the initiative could help flatten the innovation curve for community banks, where, McWilliams said in October, "the cost to innovate is in many cases prohibitively high."
"They often lack the expertise, the information technology, and research and development budgets to independently develop and deploy their own technology,” McWilliams said of community banks. "That is why partnering with a fintech that has already developed, tested, and rolled out new technology is often a critical mechanism for a community."
The FDIC is accepting comments for 60 days from publication in the Federal Register.