The Intersection of Financial Institutions and Technology Leaders

How Fintech Partnerships Are Changing Bank Examinations

By Kiah Lau Haslett


In August, the Federal Reserve announced the creation of a “novel activities supervision program” for the banks it oversees. 

For now, the Fed’s program will oversee banks that are active in complex, technology-driven partnerships, crypto assets and distributed ledger technology, though that will grow as new technologies emerge, according to September remarks from Federal Reserve Vice Chair for Supervision Michael Barr.

“By dedicating a team of supervisory experts to the oversight of novel, technology-driven activities, our aim is to provide clarity as well as timely and relevant feedback to the institutions we supervise,” he said. “We want them to continue to work to take advantage of innovations, while also supporting their ongoing safety and soundness.”

The goal of the program is to foster the benefits of financial innovation while recognizing and addressing risks so the banking system remains safe and sound. 

The Fed says novel activities can lead to rapid change at banks and generate different types of risk.  The newness of novel activities can “create unique questions around their permissibility, may not be sufficiently addressed by existing supervisory approaches, and may raise concerns for the broader financial system,” according to the Fed’s supervision and regulation letter. The program will be risk-focused and is intended to complement the existing supervisory process, according to the letter.  Program experts will work alongside the current supervisory team to oversee these banks. 

But Justin Steffen, a partner at Barack Ferrazzano Kirschbaum & Nagelberg’s Financial Institutions Group, argues that the supervision of these activities at banks isn’t new — but it is becoming more formal. 

“By formalizing it, there’s no ambiguity anymore,” he says. “These things were happening before, but it wasn’t part of a formal program. … This eliminates confusion.”

Steffen, who focuses on bank-fintech partnerships and assists clients with important tasks like due diligence, de-risking and contract negotiations, joins Bank Director’s Kiah Lau Haslett to discuss what regulators are concerned about when it comes to fintech partnerships, how banks can determine if they’re in a complex partnership and how banks in this program should prepare for these exams.

Steffen says banks that have a good relationship with their regulators have an open line of communication and frequent updates — and this is even more true with community banks involved in fintech partnerships. One benefit to this approach is that regulators can provide insights into terms that they would like to see in the program contracts, establishing expectations before the start of relationships.  

While the work Steffen details sounds intense, he is optimistic about the future of bank-fintech partnerships. While he sees risk, he also sees opportunity, and he wants banks to be successful in these endeavors while remaining safe and sound. 

“It’s always a balance,” he says. “There’s risks, but that doesn’t mean you shouldn’t do it.”

Outside of the novel supervision program announcement, sources mentioned in this episode include a number of notices issued by regulators, including: 

• The Office of the Comptroller of the Currency’s (OCC) supervision operating plan for 2024.
OCC interpretive letter #1170.
OCC interpretive letter #1172.
OCC interpretive letter 1174.
OCC interpretive letter #1179.
Federal Reserve supervision letter 23-8.
Interagency guidance on third-party relationships: risk management.

The Federal Reserve’s consent order against Farmington State Bank. 

The Office of the Inspector General of the Federal Reserve’s Review of the Supervision of Silvergate Bank.

Kiah Lau Haslett is the Banking & Fintech Editor for Bank Director. Kiah is responsible for editing web content and works with other members of the editorial team to produce articles featured online and published in the magazine. Her areas of focus include bank accounting policy, operations, strategy, and trends in mergers and acquisitions.