Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—Blockchain and financial technology priority recommendations remain unimplemented, (May 8, 2024)

By Patricia K. Ruiz, J.D.

The GAO emphasized that implementation of its priority open recommendations will help the agencies identify and manage risk.

The Government Accountability Office (GAO) released priority open recommendations to the Office of the Comptroller of the Currency (OCC) and to the Federal Deposit Insurance Corporation (FDIC). The letters provide urge the agencies’ implementation of two priority open recommendations related to blockchain technology and financial technology.

Priority open recommendations. In its letter to FDIC Chairman Martin J. Gruenberg (U.S. Gov’t Accountability Off., GAO-24-107275, Priority Open Recommendations: Federal Deposit Insurance Corporation (2024)) and its letter to Acting Comptroller of the Currency Michael J. Hsu (U.S. Gov’t Accountability Off., GAO-24-107276, Priority Open Recommendations: Office of the Comptroller of the Currency (2024)), the GAO highlighted two priority open recommendations that have not yet been implemented by either agency.

First, the GAO recommended that the agencies and other financial regulators jointly establish or adapt an existing formal coordination mechanism to identify and address blockchain-related risks. While both agencies said they have taken steps to coordinate with other regulators to address risks posed by crypto assets, the GAO found that the regulators’ coordination efforts have not always done so in a timely manner. By implementing its recommendation, the FDIC, OCC, and other financial regulators could collectively identify risks posed by blockchain-related products and services and develop and implement a timely regulatory response.

Second, the GAO recommended that the FDIC, OCC, the Consumer Financial Protection Bureau, and other regulators communicate the appropriate use of alternative data in the underwriting process with banks that engage in third-party relationships with fintech leaders, who may analyze large amounts of alternative data on borrower characteristics to determine creditworthiness. Implementing this priority recommendation could better position federally regulated banks to manage the risks associated with partnering with fintech leaders that use such data.

Other high-risk areas. Finally, the GAO urged the FIDC and the OCC to give their continued attention to several other government-wide high-risk areas that have direct implications for the agencies and their operations: (1) improving the management of IT acquisitions and operations; (2) strategic human capital management; (3) managing federal real property; (4) ensuring the cybersecurity of the nation; and (5) government-wide personnel security clearance process. The GAO stated that progress on these issues has been possible through the concerted actions and efforts of Congress, the Office of Management and Budget, and the leadership and staff in agencies such as the FDIC and the OCC.

RegulatoryActivity: Blockchain CFPB FinancialIntermediaries FinTech Loans OversightInvestigations Privacy PrudentialRegulation SecuritiesDerivatives