On February 2, 2024, three Republican members of the House Financial Services Committee sent a letter to Federal Deposit Insurance Corporation (“FDIC”) Chair Martin Gruenberg expressing concern regarding what the congressmen perceive to be the FDIC’s attempts to reduce engagement with industry participants on financial technology and innovation. The letter was sent by the Committee Chairman, Patrick McHenry, the Chairman of the Financial Institutions and Monetary Policy Subcommittee, Andy Barr, and the Chairman of the Digital Assets, Financial Technology and Inclusion Subcommittee, French Hill.

The congressmen state that the dismantling of the external facing portion of the FDIC’s FDITech Office is of particular concern. According to the congressmen, as a result of the dismantling, the Office’s previous focus on competition and innovation in the financial sector has been changed so that the Office is now focused solely on the adoption of technologies within the FDIC.

The congressmen also express concern regarding the lack of publicly available information “detailing how the FDIC’s posture on innovation will manifest in examinations and whether this change will comply with the FDIC’s Compliance Examination Manual.” They state that the FDIC “has a troubling history of using extralegal pressures to attain anti-business results” and that they 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.”

To better understand the FDIC’s strategy in addition to its examination and supervisory actions toward financial institutions and fintechs, the congressmen request additional information that includes the following:

• Starting in 2021, the number of financial institutions, by year, that were issued a consent order, memo for board review, or subject to any other agreements involving the risk management of third-party relationships with fintech companies and whether such actions were related to the third-party’s arrangement with subcontractors or other parties;
• A description of how the growth of a financial institution affects the FDIC’s decision to begin a board review of the bank;
• All information sent by FDIC Headquarters to the regional offices regarding risk management of third-party relationships with fintech companies starting in 2021;
• A description of how the FDIC enforced infractions related to third-party risk management practices prior to 2020 and how its enforcement has changed since 2020 and why; and
• A description of how the FDIC ensures that financial institutions have an independent, fair, and consistent appeals review regarding third-party risk management practices.

The letter also asks the FDIC to provide a description of how it engages with industry participants despite not having a dedicated innovation office to conduct external outreach. In addition, the letter requests information regarding the nature of such engagements, their frequency, and the specific FDIC divisions and offices, including the titles of the FDIC representatives who engage with industry participants regarding specific third-party relationships with fintech companies.

The congressional representatives’ letter is of particular relevance given the FDIC’s heightened scrutiny of bank-fintech partnerships. Regulatory action can stifle innovation if enforcement guidelines are not clear. The information requested in the letter could help provide additional clarity regarding the expectations of regulators for the sector. The congressmen ask the FDIC to provide responses by February 29, 2024.

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