Hsu also raised concerns about unknown risks or “nasty surprises” arising out of bank-fintech arrangements. board oversight, governance, and internal controls” and that common issues involve insufficient information security controls, change management issues particularly with emerging products and services, and IT operational resilience.” Mr. He discussed the supervisory concerns raised in bank technology examinations, stating that a majority are related to “fundamental elements of risk management, e.g. Hsu expressed significant concern about the safety and soundness implications of these developments. He observed that “igitalization has put a premium on online and mobile engagement, customer acquisitions, customization, big data, fraud detection, artificial intelligence, machine learning, and cloud management” and that “these activities require expertise and economies of scale that most banks do not have.” Noting that BaaS is not an issue limited to large banks, he commented that banks and fintechs, “in an effort to provide a ‘seamless’ customer experience, are teaming up in ways that make it more difficult for customers, and regulators, and the industry to distinguish between where the bank stops and the tech firm starts.” In remarks yesterday to The Clearing House and Bank Policy Institute Annual Conference, Acting Comptroller Hsu discussed the growth “of banking-as-a-service (BaaS),” meaning arrangements in which a nonbank offers banking services to its customers as a way of adding value to its products and services. Although bank lending partnerships with fintechs continue to receive OCC attention, recent remarks by OCC officials indicate that OCC scrutiny is now also directed at partnerships outside of the lending arena.
Since the beginning of Michael Hsu’s tenure as Acting Comptroller of the Currency, bank/fintech partnerships have been a focus of OCC concern.
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