Be careful of the company you keep — and the technologies you use.
According to The Wall Street Journal, that is the takeaway from the Office of the Comptroller of the Currency (OCC)’s message for big banks in its semiannual report on risks facing the industry, especially when it comes to taking on new financial technologies for products.
FinTech firms — which, in many cases, appeared on the landscape as banks’ competitors because of their ability to offer faster, easier access to financial services like online credit or money transfers — are now evolving into bank partners. That is a scenario, the OCC warns, that should have banks showing particular caution.
Because competition and partnerships are driving banks to take more “strategic risks,” according to the OCC, those risks are of particular interest to the banks’ regulator.
“Strategic risk is elevated, as banks make decisions to expand into new products or services, consider new delivery channels or otherwise search for sustainable ways to generate returns,” said Keith Noreika, acting comptroller. In addition, he noted his agency “will pay close attention to these key risk areas over the next six months.”
FinTech firms and their products are still new and require greater care by banks, according to the OCC’s warning, particularly when it comes to underwriting loans for consumers and small businesses.
“Credit risk is relatively stable overall,” said Noreika. “Nonetheless, we must remain vigilant.”
As the OCC warns traditional banks to be more cautious in their approach to the up-and-comers entering the field, it is also evaluating whether it will be creating the first national bank charter for FinTech firms.
That proposal is notably controversial and has already touched off lawsuits from state banking regulators. As of yet, Noreika and the OCC have made no official comment on those charters, though the acting controller is expected to provide further explanation in a July 19 speech.
Noreika will serve as acting head of the OCC until the U.S. Senate confirms President Donald Trump’s nominee for comptroller, Joseph Otting.