US banks are opening themselves up to increased strategic risk by moving into new products and services as a way to take on emerging fintech rivals, warns the Office of the Comptroller of the Currency (OCC) in a report which also highlights the threat of cyber attacks and an increased reliance on third-party tech service providers.
In its semi-annual risk report, the OCC notes the emergence of a host of fintech firms using clever technology to move into areas, such a payments and lending, traditionally dominated by the banks.
This competition is changing the way that customers and financial institutions approach banking, says the OCC. Banks are looking at new products and services and new, digital, ways of delivering them. In addition, they are increasingly looking to work with and buy fintech upstarts, all of which means that strategic risk "remains elevated".
The OCC has been at the centre of a fintech storm in recent months. Earlier this year it set out plans to issue special purpose banking charters to fintech firms, leading to an acrimonious spat with state supervisors, who argue that the proposals will usurp state rules that already exist to nurture innovation and protect consumers.
The dispute reached a tipping point in April when the Conference of State Bank Supervisors (CSBS) filed a lawsuit in the US district court of Columbia, alleging that the OCC is over-reaching its authority in granting charter status to non-banks.
In its risk report, the OCC also warns about increasing cyber threats, highlighting a trend which saw crooks target third party suppliers last year. This is a particular worry because of a growing reliance on a small group of these third parties.
"These third-party service providers can create concentrated points of failure for certain lines of business or operational functions for a large segment of the banking industry and necessitate appropriate oversight," says the report.
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