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
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
FSB Reports Assess NBFI Sector and Progress on LIBOR Transition
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.
