Today, the Blockchain Association responded to a Federal Deposit Insurance Corporation (FDIC) request for information (RFI). In its response, the Association argues that creating a voluntary certification model for third-party providers of innovative services, including cryptocurrency-related services, would promote innovation, transparency, and inclusivity within the U.S. banking system.
Banks of all sizes regularly partner with third-parties to provide services to their customers, but compared to their larger counterparts, small financial institutions like community banks have long struggled to bear regulatory costs while remaining competitive, a situation that has increased concentration within the banking system over the last several decades. At the same time, consumers’ demand for ever-more-convenient banking options, from online and mobile services to instant payments, has driven smaller financial institutions to invest heavily in new services and technologies or risk losing customers.
Partnerships with third-party service providers, in particular fintech companies, offer community banks a cost-effective way to remain competitive and reach new customers by enabling them to offer new services without having to develop them in-house. Today, however, FDIC-regulated banks are individually responsible for evaluating their third-party partnerships on an on-going basis, even if hundreds of peer banks subject to the same regulations partner with the same third-party service provider.
Centralizing the evaluation of third-party fintechs for bank partnerships would make this process more efficient and secure. Banks could pool their resources into one certification and compliance evaluation process, easing the individual compliance burden that smaller institutions face. Moreover, compared to thousands of banks evaluating third-party relationships individually, a single certification organization would be better equipped to evaluate and monitor the risks associated with the technically complex products and services that fintechs offer. This will be especially important when it comes to partnerships with distributed ledger and cryptocurrency service providers, which emerged relatively recently and offer technologically advanced services.