FinXTech Intel 2023 report final 2 - Flipbook - Page 27
“One banker engages with banks like his own to better understand how
products are working for them before adopting new technologies. For
example, when his bank was considering shifting key processes to a
fintech’s open banking platform, he sent a team to visit another community
bank that had recently completed the process. He expressed that this
visit allowed his team to better understand feasible timelines for product
implementation. If his bank has established a 12-month timeline for
product implementation, he would eliminate from consideration products
that other banks adopted over two or three years.”
Federal Reserve Board’s Report on Community Bank Access to Innovation through Partnerships
“[Technology] developments are creating an increasingly var-
the institution will handle any changes in the operating or
ied and complex set of arrangements, which are significantly
regulatory environment around emerging products and ser-
more intricate than the standard bank outsourcing relation-
vices, and IT operational resilience.
ships of yesteryear,” said Acting Comptroller of the Currency
Michael Hsu in a 2022 speech.
In response, the agency has adjusted its bank information
technology examinations to ensure “banks have an effective
This increasing complexity is slowly showing up in supervi-
risk management framework in place for fintech partnerships
sory findings at community banks, according to the Federal
generally and, more specifically, digitalization,” he said. These
Reserve’s Fall 2022 Supervision and Regulation Report.
exams also include assessments on ransomware, artificial intel-
Outstanding supervisory findings “increased slightly” at com-
ligence, cloud computing and distributed ledger technology.
munity banks from the end of 2021 to June 2022. “The most
cited supervisory findings at [community banks] continue to
pertain to information technology and operational risk, at 32
percent of outstanding … findings,” the Fed wrote.
Of course, the risk from the fintech partnership is related to
the partnership itself, and certain partnerships carry more
risk than others. Most banks aren’t pursuing complex partnerships, says Shevlin. Instead, they’re generally looking for
The Fed cited “operational risk” as its 2022 and 2023 super-
vendors that can provide tools or applications like digital
visory priority for community banks, and broke that into two
account opening, loan originations or monitoring systems.
categories: information technology and cybersecurity, and
fintech and crypto-related activities.
To help understand how fintechs are changing the risk profile
of banks, Hsu said in the 2022 speech that the OCC has been
The majority of the supervisory concerns at the Office of
working on a way to “subdivide” and classify various com-
the Comptroller of the Currency relate to “fundamental
mon bank-fintech arrangements into groups based on their
elements of risk management … board oversight, gover-
“safety and soundness risk profiles and attributes.” The aim
nance, and internal controls,” said Hsu in November 2022
is that examiners and banks will both have “a clearer focus
Congressional testimony. Common findings include insuffi-
on risks and risk management expectations.”
cient information security controls at banks, issues with how
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