Fintech group urges FDIC to renew innovation efforts

After three Republican lawmakers questioned changes to the Federal Deposit Insurance Corp.'s office of innovation in a letter sent Friday to Chairman Martin Gruenberg, the American Fintech Council piled on Monday with its own letter criticizing a "lack of effective communication and industry engagement" from the FDIC.

The two letters focus on the FDITech office, established in 2019 to foster a more welcoming environment for banks to adapt to financial technology changes. The office was repurposed in 2022, following a proposal to eliminate the office altogether.

Now, the American Fintech Council is asking the FDIC to "carefully consider its posture towards innovation in financial services and to pursue additional efforts to connect with responsible financial services companies," according to the letter signed by Ian Moloney, senior vice president and head of policy and regulatory affairs for the council.

In the letter, Moloney also proposed the council could act as a collaborator with the FDIC and other regulators looking to spur technological innovation in financial services.

"Given our shared goals, the American Fintech Council stands ready and willing to work with FDIC to develop pragmatic regulatory frameworks that are properly adapted to the modern banking system, improve the resilience of the banking system, and ensure that regulated banks effectively serve their consumers," the letter reads.

FDITech in January 2023 shed its focus on fostering innovation and is now housed within the FDIC's IT services, focusing instead on adopting tech within the FDIC, according to a September report from the Government Accountability Office.

A budget proposal in 2022 supported by Gruenberg would have removed all of the office's funding, and according to the proposal, FDITech had a 12-person staff at the start of 2022 and was unstaffed by the end of the year. 

FDITech got no mention in the FDIC's annual report in 2022, and the agency stopped mentioning FDITech in public statements in February 2022, when it mentioned the office in a press release about a tech sprint meant to help measure the effectiveness of digital identity proofing.

Despite the changes to the FDITech office, the American Fintech Council said it still believes there are opportunities for various divisions and offices within the FDIC to effectively collaborate.

"By finding opportunities to effectively collaborate, we believe that the FDIC can join its fellow state and federal regulators in effectively attaining its innovation goals for both policy and examination staff so they can adequately understand and interpret the trends, consumer benefits, and risk profiles of regulated entities pursuing innovative business models, products, and services," the letter reads.

In an earlier letter from the Republican lawmakers sent Friday, Representatives Patrick McHenry of North Carolina, Andy Barr of Kentucky and 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."

"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.