In response to feedback from banks and fintech providers, the Federal Reserve, working with other financial regulatory agencies, is developing a fintech vendor due diligence guide for community banks, that would provide specific information about the documents and information they need to successfully complete their due diligence obligations, Federal Reserve Governor Michelle Bowman said in a speech today.
“The guidance would eliminate the need for community banks to navigate multiple supervisory guidance documents on the same issue,” Bowman said during a virtual meeting of the Independent Community Bankers of America. “It is my expectation that the combination of refreshed and aligned interagency guidance and the community bank due diligence guide will meaningfully enhance clarity on supervisory expectations for community bank partnerships with fintech companies.” The Federal Reserve is also planning to release a white paper early next year that documents examples of community bank partnerships with fintech companies and how to manage that partnership.
Bowman added the Fed also will begin proactively sending its service provider supervision program reports to banks starting in the first quarter of 2021 and is also considering whether the rise of artificial intelligence and machine learning in banking might require an adjustment in regulation and supervision. “AI is becoming more prevalent in customer service and machine learning can offer real opportunities to assess risk and find new customers,” said Bowman.