When Fintech Meets Regtech

By Chris Cole and Charles Potts

Consulting BancardUnless you have been living on a desert island for the past few years, you would be hard-pressed to miss the technological revolution that is sweeping our nation’s financial system and the larger global economy.

While a desert island might sound appealing today, especially during a worldwide pandemic, community bankers have done anything but isolate on a tropical oasis. Instead, they have stepped up as leaders in the epicenters of their communities, meeting the challenges and embracing the opportunities to engage with their customers through digital solutions.

Fintech, once considered a buzzword, is simply the delivery of financial services in a streamlined and efficient manner utilizing technology. And every community banker knows first-hand that fintech is no longer just nice-to-have, but it is essential to achieve the success and growth critical to our nation’s economic future.

The tides are also shifting in favor of more innovative regulatory approaches as regulators begin to take a closer look at their roles and responsibilities to reduce unnecessary paperwork and streamline out-of-date regulatory requirements.

Even amid the constraints of this global pandemic, regulators are exploring conversations about how to improve processes from “how we’ve always done it” to a more efficient supervisory approach.

Take, for example, the FDIC’s recently announced competition to help develop a new and innovative approach to financial reporting, particularly for community banks. This initiative is intended to explore the use of technology through a tech sprint--to streamline and limit the laborious and manual processes required by banks to complete the quarterly Call Report, a goal sought by ICBA for more than a decade.

Other regulators have also been encouraging banks to innovate. Both the OCC and the CFPB announced virtual innovation office hours in July to “discuss financial technology (fintech), new products or services, partnering with a bank or fintech company, or other matters related to responsible innovation in financial services.” And the Federal Reserve Banks are providing similar virtual meetings at varying times in their districts.

These developments suggest that regulatory bodies are awakening to new innovative products and tools. This hands-on engagement, and willingness to identify the bottlenecks in regulatory supervision could spawn much needed innovation and new ideas for the ultimate benefit of the community banking industry.

As regulators embrace Regtech, additional questions will address several unknowns, including:

  1. How will banks be expected to execute on these changes?
  2. What short-term and long-term impacts will this evolution have on the availability of credit in markets served by community banks?
  3. How will fintechs and core providers be able to support this new charge?
  4. How can we ensure community bankers are at the table to provide real-world perspective on how regulatory oversight aligns with the community bank business model, a model based upon customer relationships, not transaction volumes?

A lot of these questions remain unanswered, and we expect we will have to assess them on a case-by-case basis as details begin to solidify. But ICBA will continue to work closely with regulators, advocating on behalf of community banks, ensuring your best interests remain front and center, and advocating for better technology solutions to address compliance hurdles we have had for decades.  

Because at the end of the day, if community banks flourish, the communities, and customers they serve will continue to thrive.

Chris Cole is ICBA Executive Vice President and Senior Regulatory Counsel and Charles Potts is ICBA Senior Vice President and Chief Innovation Officer.