On September 21, The Blockchain Association, an organization of crypto industry leaders who support innovation in blockchain, urged the Federal Deposit Insurance Corporation (FDIC) to create a voluntary certification model for third-party providers of innovative services.
The BA claims that such a change would not only promote innovation, transparency and inclusivity within the U.S. banking system, but also assist small financial institutions in remaining competitive. According to the association, banks of all sizes regularly partner with third parties to provide services to their customers, and while the bigger financial corporations have no problem dealing with regulatory costs, smaller institutions struggle to stay relevant in the ever changing market landscape.
As partnerships with third party service providers allow the community banks to remain competitive in a cost-effective way, FDIC-regulated banks are currently individually responsible for evaluating their third party partnerships on an on-going basis, even if various other peer banks subject to the same regulations partner with the same third-party service provider.
“Centralising the evaluation of third-party fintechs for bank partnerships would make this process more efficient and secure. Banks could pool their resources into one certification and compliance evaluation process, easing the individual compliance burden that smaller institutions face,” claims the BA. “Moreover, compared to thousands of banks evaluating third-party relationships individually, a single certification organisation would be better equipped to evaluate and monitor the risks associated with the technically complex products and services that fintechs offer.”
As more blockchain-based service providers emerge regularly and bring various innovations to the market, the certification of third party providers will become significantly more valuable to smaller financial institutions. Distributed ledger and cryptocurrency companies are offering technologically-advanced services that are irreplaceable in the expanding decentralised market, and allowing banks to integrate with them effectively is essential for the stability of the financial systems, both locally in the United States and globally.