Chairman ‘impatient’ for transformation – but still no word on when innovation office will stand up

Notes importance of explaining value of suspicious activity reports (SARs)

It is critical that federal regulators support technological change at the financial institutions that support their vital communities, and a new technology innovation office will help provide that support, the board chairman of the federal insurer of bank deposits said Friday.

However, she did not say when that technology innovation office will be open and ready to provide that support.

In a speech to a conference of the U.K. Financial Conduct Authority (a British regulator), in Washington, D.C., Federal Deposit Insurance Corp. (FDIC) Chairman Jelena McWilliams said it is her goal that the agency she leads “lays the foundation for the next chapter of banking by encouraging innovation that meets consumer demand, promotes community banking, reduces compliance burdens, and modernizes our supervision.”

The conference focused on how new technology can be used to more effectively combat money laundering and financial crime.

McWilliams said that broad adoption of technology at the FDIC and among banks it insures was a driving factor behind the decision to establish the new FDIC Tech Lab at the agency, which she announced last year.

Since then, however, the agency has taken no additional action on what she called “FDiTech,” including hiring an individual to run it – although, she indicated, the search is on.

“We are currently searching for a Chief Innovation Officer (CINO) to lead our Tech Lab,” she told the group. “The CINO will work across the FDIC and with our U.S. and international partners to create a regulatory environment that increases the velocity of transformation and removes unnecessary impediments to innovation.”

She said FDIC is also looking for other staff with technical expertise to help the agency better understand technology already deployed at insured banks, develop new supervisory tools to be more efficient and effective as a regulator, and “secure our networks and ensure that our supervised institutions’ networks are secure.”

“The FDIC is hiring innovators, and I am impatient for transformation,” she said, inviting some of the conference participants to send her a resume.

In October 2018, McWilliams announced that the agency would establish an “innovation office” to help bankers “stay on the technological forefront.” In February of this year, during a press conference following presentation of year-end 2018 financial statistics for banks, she told reporters that the agency hopes the new office will be “operational in the next few months.”

Whenever the innovation office stands up, McWilliams indicated that it will do three things:

  • Help reduce regulatory burdens that discourage innovation. “Whether banks choose to develop technology on their own or partner with a fintech, the FDIC will work with them to identify and remove unnecessary regulatory impediments,” she said.
  • Help encourage the market to develop technology that improves operations of financial institutions and how the FDIC functions as a regulatory agency. “For example, we are considering acquisition strategies for new ‘reg-tech’ and ‘sup-tech’ solutions that will encourage innovation and problem solving more quickly and at less cost than traditional government contracting,” she said.
  • Work with developers to pilot products and services for innovative technologies. “Working with our partner regulators at the state and federal level and with the institutions themselves, our goal will be to collaborate on building compliance into the pilot, consider regulatory questions or impediments that may arise, and work to address them in a pilot,” she said. “Once a pilot is completed, we will work with the institution and its partners to understand and publish the results: what worked, what did not work, and how to make any necessary adjustments to make the product or service better once it is scaled.”

In other remarks, McWilliams asserted that federal agencies should develop better ways to communicate the value of suspicious activity reports (SARs) to banks that incur the costs of reporting. “Approaching BSA/Anti-Money Laundering compliance as a partnership will promote healthier relationships with institutions and a better understanding of the real costs of money laundering,” she said.

Keynote Remarks by FDIC Chairman Jelena McWilliams to The Financial Conduct Authority’s 2019 Global AML and Financial Crime TechSprint; Washington, D.C.