FED Outlines Observations on Effective Fintech Risk Management
FED published the Consumer Compliance Supervision Bulletin for December 2019, which outlines the observations of FED regarding promoting effective fintech risk management. In the Bulletin, FED highlights that most banks can use their existing experience in compliance management to evaluate a new fintech collaboration or fintech activity. This resource is intended to enhance the understanding of common fact patterns and emerging risks to enable institutions to manage fintech risk appropriately and efficiently. This issue of the Bulletin contains an article that provides some general guideposts, to banks, for engaging in innovation while promoting effective risk management.
FED is committed to working with banks as they engage in responsible innovation to meet customer expectations, offer competitive products and services, and develop appropriate collaborations that fit the business model and risk appetite of a bank. FED highlights, in the Bulletin, that banks can consider several areas to manage the risks of a fintech collaboration. These areas include board and senior management oversight; effective policies, procedures, and training; risk monitoring; and third-party oversight. The Bulletin also contains a list of various FED resources related to fintech.
With respect to risk monitoring, strong institutions typically develop risk-monitoring and auditing processes that are sufficient to identify and address the potential risks of the fintech collaboration. The risk monitoring programs are monitored proactively to identify weaknesses and promptly make changes to minimize the risk of violations and consumer harm. Where the fintech business model relies on algorithms, machine learning, or artificial intelligence, strong institutions typically ensure that they understand the risks and controls for these models. With respect to third-party oversight, strong institutions typically understand that they will need to evaluate the activities of the fintech firm as though the bank itself performed the activities. Strong oversight controls include comprehensive contract provisions, appropriate compensation and incentive structures, and clear performance metrics.
Related Link: FED Bulletin
Keywords: Americas, US, Banking, Fintech, Consumer Compliance Supervision Bulletin, Artificial Intelligence, Machine Learning, Third-party Arrangements, FED
Previous Article
BoE Proposes Stress Testing Exercise for Climate Change RisksRelated Articles
EBA Publishes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.