Basel Committee’s Fintech ‘Sound Practices’ Reflect ABA Feedback

The Basel Committee on Banking Supervision yesterday published a list of “sound practices” for how banks and bank regulators might handle fintech-driven changes in the banking industry. Like the committee’s consultative document published last summer, yesterday’s release outlines 10 key recommendations for banks and bank supervisors to address the challenges of fintech.

As the American Bankers Association and the International Banking Federation noted in comment letters, the new document emphasized the rapid pace of change in fintech and the challenges of crafting a consistent supervisory response. “Given the uncertainty of these factors, the BCBS recognizes that it should first contribute to a common understanding of risks and opportunities associated with fintech in the banking sector by describing observed practices before engaging in the determination of the need for any defined requirements or technical recommendations,” the committee said. “The BCBS also acknowledges that fintech-related issues cut across various sectors with jurisdiction-specific institutional and supervisory arrangements that remain outside the scope of its bank-specific mandate.”

The committee’s recommendations — which are not mandatory guidance but which may inform future guidance or regulations from U.S. regulators — specifically urged banks to: ensure that they have effective governance structures, risk management and IT processes in place; establish appropriate processes for monitoring third-party risk; and cooperate with regulators to develop appropriate standards for banking services delivered by both banks and fintech companies. The recommendations also emphasize the importance of collaboration between bank regulators. For more information, contact ABA’s Rob Morgan.