US banking regulators are seeking input on the governance of outsourced suppliers, including financial technology companies.
In an announcement issued jointly by the Office for the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, the government agencies called for feedback on risk management guidance for banks outsourcing functions to third parties.
The guidance, issued in response to industry demand, is intended to help banks identify and assess risks connected with third-party relationships. Banks have previously called for better government agency alignment on this issue.
The joint statement said the onus was on the bank to ensure that any third-party activity was carried out in accordance with compliance, laws, and regulations, including consumer protection laws.
According to the announcement: “The use of third parties by banking organizations does not remove the need for sound risk management. On the contrary, the use of third parties may present elevated risks to banking organizations and their customers.
“Banking organizations’ expanded use of third parties, especially those with new or innovative technologies, may also add complexity, including in managing consumer compliance risks, and otherwise heighten risk management considerations.”
Many banks have established partnerships with fintechs to meet rapidly growing consumer demand for online services. In May, for example, Customers Bank, Capital Bank, and Community 1st Credit Union all announced that they were buying or partnering with fintechs.
Most recently, First National Bank of Omaha said this week it had established a partnership with fintech Centime, adding an artificial intelligence-powered cash flow control solution to the bank’s online service.
Outsourcing deals and fintech partnerships played a vital role in the distribution of Paycheck Protection Program (PPP) loans and other emergency support during the height of the Covid-19 pandemic last year. New Jersey-based Cross River in particular partnered with multiple fintechs to facilitate more PPP loans than most other lenders in the US.