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WASHINGTON, D.C.—Today, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, led by Chairman Andy Barr (KY-06), is holding a field hearing in Lexington, Kentucky entitled “Financial Institution-Fintech Partnerships: Leveraging Third-Party Relationships to Increase Access to Financial Services.”
Watch Chairman Barr’s opening remarks here.
Read Chairman Barr’s opening remarks as prepared for delivery:
“I welcome and thank all of today’s witnesses and my colleagues who were able to make today’s hearing in the sixth district of the great Commonwealth of Kentucky.
“It is great to see all of you, as well as numerous friends and neighbors.
“In this Subcommittee, I have been honored to have great colleagues on both sides of the aisle, including Ranking Member Bill Foster from Illinois who unfortunately cannot be with us today.
“On both sides of the aisle, there is keen interest in fostering the prosperity of community banks and credit unions, and the businesses that they serve.
“It is fair to say that there is joint concern that our banking system has been losing some of its dynamism and breadth.
“We do not want to end up with a barbell banking system, with a bunch of too-big-to-fail banks on one end, a scattering of small institutions on the other end, and not much in between.
“Today’s hearing looks at community banks and credit unions partnering with organizations that engage in business activities with them, often referred to as ‘third party vendors.’
“Such partnerships, which increasingly involve vendors that employ innovative technologies, can allow more efficient provision of financial services to consumers and businesses of all sizes.
“With adherence to prudent risk management of these relationships, financial institutions can better serve communities, including facilitating expanded opportunities and inclusion in the form of access to financial services to those who may be less likely to access financial services through traditional bank products.
“Efficiencies include servicing clients in a timelier manner, improved compliance with legal and regulatory requirements, better management of operational risk, and enhanced data protection.
“As with all elements of the regulated banking and credit union sectors, risk management and due diligence are important.
“As innovation in the provision of financial services accelerates, it remains important that a proper balance be struck between fostering innovation and attention to due diligence to ensure safety, soundness, stability, and consumer protection.
“At the same time, federal and state regulators of banks and credit unions must not reflexively and unnecessarily stifle innovation, especially if motivated by politicized interests.
“Unfortunately, that is what has been occurring far too often recently.
“For example, in June 2023, the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and Federal Reserve issued final joint guidance establishing principles for all banks under federal supervision to consider when entering into third-party relationships.
“One Federal Reserve Governor argued that the guidance is yet another part of a concerning pattern by regulators of deviating from a risk-based and tailored approach to supervision and regulation of banks.
“Furthermore, an FDIC Director argued that elements of the guidance will create more ambiguity for banks, rather than more clarity which guidance should be intended to provide.
“Opaque guidance and rules create more ambiguity for banks. Ambiguity equates to higher prices and less options for consumers. These are outcomes are not beneficial for our financial system or for American households and businesses.
“Following the release of the joint-agency guidance in 2023, community banks expressed concerns that it does not provide bright-line assurances that certain activity would or would not be permitted and was not proscriptive enough to explicitly prohibit certain activity.
“The guidance was too vague to provide an executable roadmap discerning what activities regulators would find acceptable or not.
“Such opaqueness leads to unnecessary uncertainty, which can impede adoption of some services and innovation, and could lead to regulation by enforcement.
“Unprincipled regulatory agencies can use regulation by enforcement to execute agendas outside of their mandates, therefore evading the intent of Congress. These unelected bureaucrats need to be responsive to the actions they take that impact the banking system.
“I look forward to hearing about experiences of today’s witnesses, along with your views and suggestions for improving the financial landscape throughout the Commonwealth of Kentucky and the United States.”
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