US regulator cites fintech as risk to banking system

US regulator cites fintech as risk to banking system

Emerging financial technology poses a threat to US banks that are unable to compete with this developing field, according to an official report from the US Office of the Comptroller of the Currency (OCC).

 The OCC has released a semi-annual report into risks to the banking system since 2012 and in its latest report, fintech is ranked alongside bank account scandals such as the one involving Wells Fargo and Brexit as the biggest risks for US banks and their operations.

“Strategic planning remains important as banks adopt innovative products, services, and processes in response to the evolving demands for financial services and the entrance of new competitors, such as out-of-market banks and fintech firms,” the OCC said. "Failure to innovate to meet evolving needs or financial services may place a bank at a competitive disadvantage."

In December the OCC announced plans to create a new chartering system for fintech firms which will bring them into a federally regulated banking system and allow them to operate across state lines.

The move raised concern from a number of incumbent US banks concerned that they will be competitively disadvantaged but the Comptroller Thomas Curry has insisted that it is preferable to have fintechs enter the federal banking system "through a clearly marked front gate, rather than in some back door, where risks may not be as thoughtfully assessed and managed to bring them into a federally regulated banking system".

The OCC's report also mentions the growing operational risks facing banks as a result of "changing cyber security threats" and "an increased reliance on third party relationships".

Comments: (1)

Gerard Hergenroeder
Gerard Hergenroeder - Payments Shark - Millersvile 06 January, 2017, 15:392 likes 2 likes

One of the biggest consequences of the great recession is the emergence of Fintechs that have arisen from a lack of innovation within the U.S. banking system. Fintechs have stepped in to do things that banks would have traditionally done 25 years ago. Bank management has been forced to concentrate on making the regulators happy for the past 10 years.

What happens if the regulatory burden is eased on the banking community? In theory capital would be available to enable innovation. The question then is whether today's bank management has the capacity to act more like a Fintech Vs a bank. At some point Fintechs could look more like banks, and banks look like Fintechs. It will be interesting watching this convergence in the next 10 years.