FDIC 'dismantled' tech office, GOP lawmakers say

Bloomberg News

WASHINGTON — Top Republicans on the House Financial Services Committee are preparing to send a letter to the Federal Deposit Insurance Corp. questioning the agency's changes to an office of "innovation," according to a draft of a letter first obtained by American Banker. 

In the last year, the FDIC has overhauled the "FDITech" office, originally established in 2019 under former Chairman Jelena McWilliams to foster a more welcoming environment for banks to adopt financial technology changes. 

According to a September report from the Government Accountability Office, the FDIC eliminated the portion of the office's mission focused on fostering innovation in January 2023, and now  focuses the office on adopting technologies within the FDIC. The office was reorganized as a branch within the agency's Division of Information Technology, and it no longer focuses on external competition or innovation within the financial sector, the GAO report said. 

GOP leaders on the House Financial Services Committee said they are concerned about the direction that the FDIC is taking on innovation, as evidenced by the changes to the innovation office.

In a letter that the lawmakers intend to send on Friday, House Financial Services Committee Chair Patrick McHenry of North Carolina, Subcommittee on Financial Institutions and Monetary Policy Chair Andy Barr of Kentucky and Subcommittee on Digital Assets, Financial Technology and Inclusion Chair French Hill of Arkansas said that the FDIC under the Biden administration, has "moved innovation backwards." 

"We are also concerned that there is no publicly available information detailing how the FDIC's posture on innovation will manifest in examinations," the lawmakers said. 

The Republicans said that the agency "has a troubling history of using extralegal pressures to attain anti-business results." 

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"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," they said. 

The letter follows a number of enforcement actions from the FDIC aimed at bank-fintech partnerships, and increasing scrutiny from federal regulators of banking as a service. 

In November, the FDIC ordered First Fed Bank in Washington to implement a sweeping set of actions to enhance its compliance management related to its banking as a service offerings, alleging unsafe or unsound banking practices primarily related to a specific fintech relationship. Earlier last year, the FDIC similarly slapped Cross River Bank in New Jersey with a consent order, saying it engaged in unsafe or unsound banking practices related to fair lending regulations. 

Alongside the FDIC, the Office of the Comptroller of the Currency and the Fed finalized guidance in June toughening the standards for banks that want to partner with fintechs by requiring banks to implement risk management practices that account for the risks of third-party providers, including consultants, merchant payment processors, cloud computing providers and data aggregators. 

The lawmakers asked the FDIC in its letter to name all financial institutions that received any kind of enforcement action stemming from third-party relationships with fintech companies, and to provide all information sent from FDIC headquarters to regional offices regarding risk management of third-party relationships with fintechs.