FDIC Mulls Standards Body to Streamline Bank-FinTech Oversight

The Federal Deposit Insurance Corporation (FDIC) is exploring the creation of an industry-led standards organization, the Banking Innovation Standards Development Organization (BISDO), to streamline oversight of bank-FinTech partnerships. The proposal, detailed in a July 21 draft term sheet, would establish BISDO alongside a certification program called Risk-Assessed, Manageable Partnerships (RAMP).

This initiative aims to standardize information banks assess when vetting and overseeing third-party service providers, potentially reducing duplicative reviews and improving consistency.

BISDO's framework would standardize key areas such as third-party risk management, governance, cybersecurity, operational resilience, and consumer compliance. However, it is crucial to note that certification would supplement, not replace, each bank's responsibility for deciding if a provider fits their specific risks and for integrating systems, monitoring performance, and maintaining oversight.

The proposed program would likely benefit community banks with limited compliance resources and providers, as it would provide clearer expectations and allow for the sharing of assessment costs across multiple relationships. Nonetheless, concerns remain regarding the absence of a safe harbor, which could diminish the incentive for supervised institutions to participate in the program despite its evidence of sound risk management.

Key questions still need to be resolved, including the governance structure of BISDO, how stakeholders will share authority, funding mechanisms, the initial scope of standards, and the methodology for certification. The FDIC is collaborating with major banking and FinTech trade groups and may provide seed funding. The Office of the Comptroller of the Currency is also expected to join the effort.

The FDIC's move to explore this standards body follows heightened scrutiny of banking-as-a-service arrangements and is reminiscent of an idea previously proposed under former FDIC Chair Jelena McWilliams. The ultimate success of BISDO will be determined by its ability to reduce duplicative reviews while preserving bank accountability.