Financial regulatory body OCC adopts 'supply chain approach' for examining banking and fintech sectors: Hsu

The Office of the Comptroller of the Currency (OCC) has rebranded its Office of Innovation to the Office of Financial Technology, reflecting the growing importance and complexity of fintech in the banking industry.

In a recent statement, Acting Comptroller of the Currency, Michael Hsu, highlighted the rapid evolution of the financial technology sector. He emphasised that the landscape is no longer an area of innovation, but a part of the regular banking landscape.

Hsu also acknowledged the challenges that come with this evolution. He stated that while third-party guidance can ensure high standards, it may not be sufficient as things evolve. Arrangements involving multiple fintech partnerships are more complicated, and will likely garner more scrutiny from the OCC. These relationships can create a dynamic where banks may work indirectly with fourth- or fifth-party firms, as fintechs and vendors outsource their own services.

The OCC is considering how to adjust its oversight to account for a new "supply chain" of financial services. Hsu suggested that a more "supply chain" mindset may be helpful in ensuring adequate oversight. To stay on top of the complex and constantly changing financial technology sector, Hsu acknowledged that it requires a significant amount of energy.

The OCC has increased its scrutiny of third-party risk in recent months, issuing joint guidance in June on how firms should monitor relationships with fintechs and other third parties. Banking-as-a-service relationships, where a financial institution provides the underlying banking services to a fintech or neobank, are more straightforward, according to Hsu.

However, the rapid growth and constant evolution of the BaaS landscape poses a challenge for monitoring. Michael Hsu stated that this trend, towards more outsourcing of tasks to fintechs and other vendors, necessitates a significant amount of attention and resources from bank regulators like the OCC.

Despite these challenges, the OCC is committed to keeping pace with the growth and complexity of the financial technology sector. Hsu reiterated that the OCC has a good overall sense of what's going on in the financial technology sector, but acknowledged its complexity and constant change.

At the moment, the search results did not identify any specific Fintech companies currently under strong focus by the OCC due to their involvement in Banking-as-a-Service partnerships. However, the OCC's increased focus on the financial technology sector reflects its recognition of the sector's growing importance in the industry.

The expansion and rebranding of the OCC's Office of Innovation to the Office of Financial Technology is a reflection of the growing importance of fintech in the banking industry. The OCC is working diligently to ensure that it can provide effective oversight in this rapidly evolving sector.

Financial regulatory body OCC adopts 'supply chain approach' for examining banking and fintech sectors: Hsu