Bowman says work still underway on FedNow; reiterates push for consistent guidance on third-party due diligence

The Federal Reserve Board’s community banking representative talked up the central bank’s planned real-time payment settlement service, FedNow, as well as her own push for regulators to share more information on third-party service providers with banks during a banking conference in Atlanta Thursday.

Fed Gov. Michelle Bowman, speaking at the “Age of Advancement: The Intricacies of a Digital World” 2020 Banking Outlook Conference at the Federal Reserve Bank of Atlanta, focused her remarks on a range of efforts under way at the Fed to promote innovation within the community banking sector. She touched on FedNow, innovation through partnerships with fintechs, and, among other things, her support for disclosing more information on third-party providers to banks and consistent guidance among banking regulators on banks’ third-party due diligence.

The Fed announced its plan to develop FedNow last August and issued a request for information; comments closed in November. It said the service should be ready around 2023 or 2024.

Bowman, in her speech Thursday, said FedNow “will create a new payment infrastructure for institutions of all sizes to offer innovative faster payment services.” She said community banks were strong supporters of the service, but they also raised important issues, such as interoperability, time to market, and use of volume-based pricing. “These issues are important to community banks, and as such, they are important to me,” she said. “I intend to work with my colleagues so that the FedNow Service meets the needs of community banks and their customers.“

Bowman also reiterated her push within the Fed for more disclosure to banks of some of the information the Fed acquires in its supervision of certain third-party service providers.

Reiterating comments she made earlier in February during a banking trade conference, Bowman said she wants regulators to help provide community banks a better picture of what success in due diligence of third-party providers looks like by releasing more information on its necessary elements. She said regulators should provide more clarity on the types of questions that should be asked of a prospective third-party provider as well as regulators’ view of a satisfactory answer; that this guidance should explain due diligence for a potential fintech partner; and that the Fed should allow banks to conduct shared due diligence on potential partners.

Bowman said the Fed is currently working with other banking regulators to update third-party guidance and that the agencies should have consistent expectations for third-party relationships. She also reiterated her belief that the Federal Reserve should begin by moving toward adopting the Office of the Comptroller of the Currency’s (OCC) guidance.

Direction of Supervision: Impact of Payment System Innovation on Community Banks, Fed Gov. Michelle W. Bowman at “Age of Advancement: The Intricacies of a Digital World” 2020 Banking Outlook Conference sponsored by the Federal Reserve Bank of Atlanta, Atlanta, Ga.

RR: Fed’s Bowman pushes more transparency on supervision of third-party providers as way to ease community banks’ burden (Feb. 10, 2020)