Fintech
FDIC’s McKernan Says Fintech Banking Guidelines Need More Clarity
Amid increased regulatory scrutiny of banking-fintech partnerships and a series of recent enforcement actions, regulators are now calling for more guidance on how to manage these collaborations.
Speaking Wednesday at a conference hosted by Semafor in Washington, D.C., Jonathan McKernan, a member of the board of directors of the Federal Deposit Insurance Corp., said there is room for specific guidance on activities under current regulations. Interagency guide on third party relations.
The guidelines could articulate “more clearly, even some black-and-white rules of the road,” he said. Banks need to constantly monitor to ensure fintech partners are meeting obligations and identify gaps, McKernan said, noting that often doesn’t happen.
He did not comment on the fallout from the Bankruptcy of the synapse case, in which more than 100,000 customers were excluded from the current accounts of partner banks due to disputes over user balances, stressing that the development of the facts in the case is still in its early stages.
McKernan echoed comments made Wednesday morning by Consumer Financial Protection Bureau Director Rohit Chopra about the governance challenges of banking-fintech partnerships.
“A lot of banks are marketing themselves as the bank of choice for fintechs, and sometimes that leads to situations where there’s a kind of ‘move fast and break things’ mentality, or things aren’t really buttoned up,” Chopra said. “In some circumstances, that’s fine. In other circumstances, like Evolve [Bank]-The Synapse fiasco is simply catastrophic.”
Another area of concern for bank-fintech partnerships, McKernan said, is the improper use of the FDIC logo in fintech advertising. The agency has finalized a new rule in December that governs the use of official FDIC signs and advertising claims. It clarified the agency’s regulations on deceptive advertising, misrepresentations of deposit insurance coverage, and misuse of the FDIC name or logo.
“I don’t want this issue to unduly hamper innovation or help consolidate incumbents, but some have taken advantage of the deposit insurance issues, the logo issues, in ways that have created some confusion among customers to their detriment,” he said, noting that he hopes the agency is “vigorously enforcing” the rules.
FDIC as a Champion of Innovation
McKernan argued that the FDIC can position itself as a driver of innovation in financial services, with regulation that does not further entrench incumbents in their positions.
“There’s definitely a lot of potential for innovation to help reduce barriers to entry,” he said.
Some of the largest financial institutions have dominant market positions tied to traditional payment systems and other systems that are ripe for “creative disruption,” he noted.
A Path Forward on the FDIC’s Cultural Problems
With Acting Comptroller of the Currency Michael Hsu, McKernan led a panel that oversaw an investigation into allegations of sexual harassment and other interpersonal misconduct at the FDIC. He called the path forward challenging, with a change in leadership needed to credibly implement changes.
“If we don’t do that, I think it’s really going to be a challenge to our ability to ensure safety and robustness, consumer protection. [and] financial stability mission,” he said. “Our inspector general has highlighted human resources issues, and retention in particular, as one of our biggest strategic risks. These issues will only get worse if we don’t address our very real and very serious and shocking cultural issues.”