On August 27, 2021, the Federal Deposit Insurance Corporation (FDIC) published FIL-59-2021, Conducting Due Diligence on Financial Technology Companies: A Guide for Community Banks.
Some banks may be exploring financial technology (fintech) companies in an effort to provide access to new or innovative technologies, as fintech can provide community banks with many benefits, such as enhanced products and services, increased efficiency, and reduced costs, all bolstering competitiveness. As there are risks posed by all third-party relationships, however, a bank is encouraged to perform due diligence on prospective relationships with fintech companies.
The guide focuses on the following six key due diligence topics, including relevant considerations, potential sources of information, and illustrative examples, that a bank may evaluate while conducting its due diligence of a fintech company:
• Business experience, strategies and goals, and qualifications and backgrounds of directors and company principals.
• Financial condition, including financial analysis and funding and market information.
• Legal and regulatory compliance.
• Risk management and control processes.
• Information security program and information systems.
• Business continuity planning and incident response, service level agreements, and reliance on subcontractors.
The FIL may be found at https:// www.fdic.gov/news/financial-institution-letters/2021/fil21059. html.