A trio of federal agencies have issued community banks guidance with regard to evaluating financial technology (fintech) relationships.
The Federal Reserve System Board of Governors, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency produced Conducting Due Diligence on Financial Technology Firms: A Guide for Community Banks as a means of aiding community banks in assessing fintech company risks. It serves as a resource for community banks when performing due diligence measures.
The guidance addresses six areas of due diligence community banks should consider when exploring fintech company arrangements: business experience and qualifications, financial condition, legal and regulatory compliance, risk management and control processes, information security, and operational resilience.
Amid the due diligence process, community banks collect and analyze information to determine whether third-party relationships support community bank strategic and financial goals and if the relationship can be established safely and soundly, in accordance with applicable legal and regulatory requirements.
The Federal Reserve System Board of Governors indicated a community bank tailors how it uses guide information, based on specific circumstances; the risks posed by each third-party relationship; and the related product, service or activity offered by the fintech company. The Fed added that the basic concepts may be useful for various sized banks and other types of third-party relationships.