Federal banking agencies extend comment period on bank-fintech risks

WASHINGTON — Federal banking agencies on Friday extended the comment period on guidance and a request for information on bank-fintech arrangements after receiving a request to do so.

The agencies are reviewing arrangements involving potential risks of third-party fintech partnerships for banking products and services. They didn’t say who made the request for the extension.

“After reviewing the request, the agencies find it appropriate to grant the request and extend the comment period by an additional 30 days,” an agency release noted. “An extension of the comment period will provide additional opportunity for the public to consider the request, prepare comments and address the questions posed by the agencies.”

Banks now have until Oct. 30 to provide feedback on the proposed rule, which highlights the potential risks tied to third-party arrangements, especially those involving fintech partnerships for deposit products and services.

Initially released by the three federal banking agencies in July, the proposal came alongside a request for information on the risks associated with bank-fintech collaborations, with the original comment period set to end in September.

A release at the time noted, “The agencies are considering whether additional steps could help ensure banks effectively manage risks associated with these various types of arrangements.”

Banks sometimes rely on third parties to maintain the deposit and transaction system of record, process payments, deliver customer service and perform regulatory compliance and other functions, the joint statement said in July.

Regulators have suggested that banks thoroughly vet third-party partners for reliability, establish clear contracts that lay out the roles and responsibilities of each party and monitor the management information systems used by third parties.

While the statement provides a roadmap for how banks could manage risks, it does not alter existing regulations or supervisory expectations.

Regulators have been working to better understand bank-fintech partnerships, particularly in the wake of middleware provider Synapse Financial’s bankruptcy in April. 

That situation left tens of millions of dollars in consumer deposits frozen. It has also led to more regulatory scrutiny of banks in similar partnerships. The Federal Reserve in June issued a cease-and-desist order against Synapse partner Evolve Bank related to gaps in its anti-money-laundering, risk management and consumer protection programs.

Earlier this year, FDIC board members Jonathan McKernan and Rohit Chopra, who is also director of the Consumer Financial Protection Bureau, suggested that regulators consider issuing more specific third-party risk guidance.

Others, like Federal Reserve Gov. Michelle Bowman, have taken a more skeptical posture, approving of the effort to collect information but not quite convinced of the need for new regulations on banks in connection with these partnerships.