Banking and Finance Law Daily Wrap Up, OVERSIGHT AND INVESTIGATION—GAO urges Fed to implement two priority open recommendations, (Jun 4, 2024)

By Lauren Bikoff, MLS

The two priority open recommendations are related to blockchain technology and fintech.

The Government Accountability Office (GAO) has sent a letter to the Federal Reserve Board, urging the implementation of two remaining priority open recommendations. The letter noted that while the Fed has a total of 13 open recommendations as of May 2024, two of the open recommendations are priority recommendations relating to blockchain technology and financial technology. “Fully implementing these open recommendations could significantly improve the Fed’s efforts to oversee risks to consumers and the safety and soundness of the U.S. banking system,” wrote the GAO in its letter to Fed Chair Jerome H. Powell.

The GAO noted that since August 2023, the Fed has implemented two out of four open priority recommendations (see Banking and Finance Law Daily, August 9, 2023). In March 2024, the Fed finalized a process to communicate information about the uncertainty surrounding stress test capital ratio estimates to the Board and also implemented a process for the Board and senior staff to articulate tolerance levels for key risks and for the degree of uncertainty in projected capital ratios.

The two priority open recommendations fall into the following two areas:

• Blockchain technology. In June 2023, the GAO recommended that the Fed and other financial regulators jointly establish or adapt an existing formal coordination mechanism to identify and address risks posed by blockchain-related products and services. While the Fed noted that it has started to address this recommendation through its participation in the Digital Assets Working Group, the working group should “include planning processes for identifying and addressing such risks” for the Fed to fully implement the recommendation.

• Fintech. The GAO has recommended that the Fed, other federal banking regulators, and the Consumer Financial Protection Bureau communicate the appropriate use of alternative data in the underwriting process with banks that engage in third-party relationships with fintech lenders. Implementing this recommendation could “better position federally regulated banks to manage the risks associated with partnering with fintech lenders that use these data,” the GAO noted.

RegulatoryActivity: BankingOperations Blockchain FederalReserveSystem FinancialStability FinTech OversightInvestigations