Security Concerns Prompt Fed To Strengthen Big Tech Oversight

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Ongoing security concerns have prompted the Federal Reserve to further scrutinize big tech firms that serve the banking industry, The Wall Street Journal (WSJ) reported on Thursday (Nov. 21), citing a senior official.

Richard Ashton, deputy general counsel for litigation, enforcement and system matters, said at a conference in New York that the Federal Reserve is considering an audit of tech firms’ compliance policies and governance structures. The probe would concentrate on tech firms that provide data storage to financial institutions (FI). 

“How far the authority goes to conduct examinations, I think, is something we are closely looking at,” Ashton said. “Is it something that we can look at the governance structure at these third-party providers? Can we look at their overall compliance management program?”

The Bank Service Company Act gives financial regulators the power to audit third-party vendors that offer banking services, Ashton said. As banks continue to use tech firms for data management, Ashton thinks regulators could fortify their oversight.

Although financial institutions are obligated to address potential risks vendors may pose, regulators could end up having additional oversight responsibilities when banks use the same vendor, Ashton said.

The Annual Conference held Nov. 19-21 is run by The Clearing House (THC) and the Banking Policy Institute (BPI). It provides a forum for banking industry leaders to learn about the changing regulatory and payments landscapes.

Last year, THC partnered with the Financial Services Roundtable to form BPI in order to shape policy, conduct research and act as advocates for the leading banks in the U.S. Members of the nonpartisan group include universal banks, regional banks and major foreign banks doing business in the U.S. 

In August, politicians asked the Financial Stability Oversight Council (FSOC) to look into tighter oversight of Big Tech cloud services in the financial sector. They specifically mentioned Amazon Web Services, Microsoft Azure and Google Cloud – which make up about 57 percent of the market – saying they should be considered as critically important as payment and settlement services.