Barr, Hill: Why is FDIC moving backwards on fintech guidance, financial innovation?

In their capacity serving on the U.S. House Financial Services Committee, U.S. Reps. Andy Barr (R-KY) and French Hill (R-AR) are delving into how the Federal Deposit Insurance Corporation’s (FDIC’s) regulatory agenda pertains to innovation in the financial services sector.

“As you are aware, financial technology (fintech) firms provide access to innovative products and services by partnering with highly regulated financial institutions to meet the evolving needs of consumers and businesses of all sizes,” the lawmakers wrote in a Feb. 2 letter sent to FDIC Chairman Martin Gruenberg. “Yet, during your tenure, the FDIC has moved innovation backwards.”

Rep. Barr and Rep. Hill, along with House Financial Services Committee Chairman Patrick McHenry (R-NC), wrote that Gruenberg has “dismantled the external facing portion of the agency’s FDITech Office,” and shifted FDITech’s mission to focus solely on adoption of technologies within the FDIC.

“Moreover, under your direction, FDITech was also reorganized within the agency’s Division of Information Technology,” they wrote. “Thus, it no longer focuses on competition or innovation within the financial sector.”

Reps. Barr, Hill, and McHenry are also concerned that there is no publicly available information detailing how the FDIC’s stance on innovation will manifest in examinations and if this change will be in compliance with the FDIC’s compliance exam manual, according to their letter.

“The FDIC has a troubling history of using extralegal pressures to attain anti-business results,” they wrote. “We are concerned that the FDIC’s approach could, within the examination processes or otherwise, be used to prevent the development of innovative products and services that benefit consumers and businesses.”

The committee members requested that Gruenberg provide answers to several questions regarding how the FDIC will provide regulatory guidance for burgeoning fintech firms and financial innovators moving forward.

For instance, they asked the chairman to provide the number of financial institutions, by year, that were issued a consent order, memo for board review, or subject to any other agreement involving the risk management of third-party relationships with fintech companies, and to describe how a financial institution’s growth impacts the FDIC’s decision to begin a board review of the bank, among other questions.

The FDIC chairman has been requested to provide answers to the lawmakers by Feb. 29.