Governor Bowman Highlights FRB Engagement with FinTech

Federal Reserve Board ("FRB") Governor Michelle W. Bowman reviewed the FRB's response to emerging financial technologies in the banking industry.

In a speech at the VenCent Fintech Conference, Ms. Bowman said that new financial technology is "changing fundamental aspects of bank operations." She said that these advancements have potential benefits for both consumers and banks, and that tech is becoming more prominent as both consumers and banks become more reliant on it to provide crucial services such as mobile banking and algorithm-based credit and risk assessments. She added that some banks have also started using technology that allows nonbank technology firms to provide financial services.

Ms. Bowman highlighted the FRB's efforts to better understand the relationships between banks and FinTech firms so that regulation does not hinder innovation. These FRB efforts include (i) proposed guidance by the OCC and the FDIC to "assist in the management of risks involved in third-party engagement;" (ii) guidance designed to assist community banks in assessing risks when considering new relationships with tech companies; (iii) a white paper exploring different types of partnerships that community banks and tech companies can enter; and (iv) outreach to community banks, tech companies and other relevant market participants.

Ms. Bowman also discussed (i) the heightened demand for engagement with crypto-assets, (ii) the increased use of artificial intelligence in banking, and (iii) the future of the Federal Reserve's FedNow Service and Central Bank Digital Currencies ("CBDCs"). She said customers are currently trending toward nonbank crypto-asset firms to conduct crypto-related transactions as opposed to traditional banks. In response, she said that the Federal Reserve is working on publishing supervisory expectations regarding crypto activities so that banks may begin offering those services. She also mentioned that the Federal Reserve is currently collecting information on CBDCs and plans to publish its findings.

Ms. Bowman emphasized the need for clear guidelines to help both consumers and banks navigate the difficulties of emerging financial technologies. She said that more work remains to be done to ensure these new technologies are implemented in a safe manner.