Federal Agencies Issue FinTech Guidance For Community Banks

Guidance published in collaboration with several federal agencies was recently handed down to offer voluntary counsel for community banks launching partnerships with FinTechs, according to a recent report.

The Federal Deposit Insurance Corporation (FDIC), the U.S. Federal Reserve (Fed) and the Office of the Comptroller of the Currency (OCC) collaborated to develop the 20-page report, called “Conducting Due Diligence on Financial Technology Companies: A Guide for Community Banks.”

The report is intended to assist community banks when considering partnerships with FinTech platforms. “This guide is intended to be a resource for community banks when performing due diligence on prospective relationships with FinTech companies,” according to the guide.

The regulators indicated that use of the information is voluntary, and the scope doesn’t address all third-party risks.

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While acknowledging the growing number of community banks teaming up with third-party FinTechs, the guidance also makes note of how the partnerships can boost efficiency and lower overall expenses, while also “bolstering competitiveness.”

But the collaborations have risks, according to the guide. “Assessing the benefits and risks posed by these relationships is key to a community bank’s due diligence process,” the agencies noted. 

Per the guide, banks are instructed to consider a FinTech’s “public records and media coverage” as well as its history. It also recommends examining the leadership board to ensure that the FinTech’s management has the talent to handle what is ahead. 

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“A FinTech company, its directors or its management may have varying levels of expertise conducting activities similar to what a community bank is seeking,” according to the guide. “Understanding a FinTech company’s qualifications and strategic direction will help a community bank assess the FinTech company’s ability to meet the community bank’s expectations and support a community bank’s objectives.”