No. 2 at FDIC bemoans shift in emphasis of innovation office from external to internal

The refocusing of a tech department at the federal bank deposit insurance agency from an external view to an internal one was bemoaned Thursday by the vice chairman of the agency’s board, who called the change unfortunate.

Speaking before a gathering of the Independent Community Bankers of America (ICBA), a trade group, Federal Deposit Insurance Corp. (FDIC) Vice Chairman Travis Hill referenced the agency’s former innovation lab (known as FDiTech), established by former FDIC Chairman Jelena McWilliams.

Hill said FDiTech was established to directly engage with banks, fintechs, and other experts, and to examine the “formidable challenges associated with technology adoption; and help develop solutions.”

However, following the resignation of McWilliams as agency board chair in early 2022 – and the appointment of Martin Gruenberg as acting chairman (and later confirmed by the Senate to a five-year term as chairman), the emphasis of the agency’s Office of Innovation, which administered FDiTech, changed to a more internal view of the agency’s systems and emphasis.

“I think that the FDIC’s move away from this model was unfortunate, and that this type of active partnership can be helpful in promoting innovation,” Hill said.

When the former leader of the agency’s innovation office (and who also headed up FDiTech) resigned in February 2022, he criticized the FDIC’s approach to technology and innovation.

In a column published on Bloomberg Opinion (subscription required), Sultan Meghji –the agency’s former first chief innovation officer (CINO) – said his decision to leave was right. He claimed that the bureaucracy at the agency dislikes change, lacks expertise, has little or no continuing education, and exhibits “tech hesitancy,” which he defined as widespread doubt about technology.

He called for reforms in hiring, education and training, more collaboration with companies and universities outside of Washington, and collaboration with international partners. “Achieving these reforms will require political will. The alternative is to let China build a more advanced financial system, while letting it and other hostile regimes increasingly undermine our own,” he asserted then.

Sultan was hired for the position after a more than two-year search to fill his position, headed by McWilliams.

In other comments, Hill said another initiative deserving consideration is a public/private standards setting organization (“SSO”) for financial technology.

“In 2020, the FDIC released a request for information on the development of such an SSO,” Hill said. “Working with the private sector and the federal banking agencies, the SSO would develop standards for due diligence and emerging technologies. This would enable banks to on-board fintechs and technologies that had received a ‘seal of approval,’ reducing the need for each bank to conduct costly, time-consuming due diligence of its own.”

Hill said banks would still be responsible for managing risks associated with third-parties, including those related to consumer protection, just as they are today.

Remarks by Vice Chairman Travis Hill at the ICBA ThinkTECH Accelerator Program