New FDIC Guidance Affecting Fintech

By Jed Weiner

On June 6, 2023, the Federal Deposit Insurance Corporation (FDIC) issued Interagency Guidance on Third Party Relationships (“Guidance”) to serve as risk management guidance for banks. The Guidance for banks will impact fintech businesses servicing banks. The Guidance may also apply to fintech businesses providing services to banks without a contract in place or compensation paid. The guidance is not a legal mandate, but may be a reference point in agency evaluations of the soundness of a bank operations.

Under the Guidance, banks should analyze the risks associated with a fintech vendor and tailor risk management practices accordingly.

Fintech vendors supporting high risk activities should get more scrutiny. High risk activities include activities that (i) cause a bank to face substantial risk if the fintech business fails to meet obligations; (ii) substantially affect customers; or (iii) substantially affect a bank’s financial condition or operations.

Bank management of fintech vendors should follow a continuous, five stage life cycle that includes: (i) planning, (ii) due diligence and third-party selection, (iii) contract negotiation, (iv) ongoing monitoring and (v) termination.

For more information on the impact of the Guidance on fintech businesses, please contact Jed Weiner, corporate attorney and grIP Founder at jweiner@gripventure.com. Jed is Vice-Chair of the American Bar Association’s Fintech Subcommittee.