FDIC Wants Crypto Info From Banks Amid Global Digital Push

By Al Barbarino
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Law360 (May 11, 2021, 5:45 PM EDT) -- The head of the Federal Deposit Insurance Corp. said Tuesday that the agency will issue a request for information on banks' progress in the digital assets space, part of a speech that called for fintech innovation while warning that the U.S. could be left behind as countries like China develop their own centralized digital currencies.

Speaking at a webcast event from the Federalist Society, FDIC Chairman Jelena McWilliams stressed the critical need for regulators, including the FDIC, to foster technological innovation while reducing regulatory costs and burdens on financial institutions.

The agency is closely watching banks' work in the digital assets space, McWilliams said, noting that the upcoming RFI will aim to shed more light on "what banks are doing, what banks are considering doing and what, if anything, the FDIC should be doing in this space."

Jelena McWilliams, chairman of the Federal Deposit Insurance Corp., testifies during a House Financial Services Committee hearing in 2019. (Tom Williams/CQ Roll Call via AP Images)

"The challenge for regulators is to create an environment in which fintechs and banks can collaborate, and in which banks are given the space and opportunity to pursue innovative solutions for their customers," she said.

McWilliams noted China's imminent rollout of a digital currency controlled and issued by its central bank. The so-called digital yuan has stirred anxiety among U.S. officials, as a currency that will operate outside the traditional global financial system could threaten the U.S. dollar's global dominance.

"Far from merely a domestic endeavor, the digital yuan has the potential to expand internationally … all while bypassing the U.S. dollar-related system and, ultimately, the U.S. sanctions regime as well," McWilliams said, citing estimates that the currency could ultimately reach 1 billion users. Goldman Sachs said in a November report that it expects the digital yuan to hit the billion-user mark in 10 years. 

McWilliams did not put a date on the RFI. An agency spokesperson noted that a public announcement will be made upon the RFI's release, but declined to elaborate on the timing. 

McWilliams' comments came the same day the FDIC released its 2021 risk review report, highlighting how government relief and regulatory flexibility helped the banking industry cope with and largely weather the COVID-19 pandemic.

The report noted that the banking industry "remained resilient entering 2021 despite the extraordinary challenges of the pandemic," adding that banks headed into the year with "strong liquidity and capital levels." 

McWilliams praised the "regulatory nimbleness" and relief that allowed banks to operate through the pandemic. While noting that "we must remain vigilant about continued uncertainty," she stressed that "we must also keep our eye on the country's long-term competitiveness and the regulatory action needed to maintain it."

In addition to digital assets, McWilliams highlighted the need to give financial institutions the flexibility to develop technologies related to artificial intelligence and so-called alternative data. These technologies can streamline the underwriting process while fostering "inclusiveness" in such decisions, she said, echoing prior comments from the FDIC's first chief innovation officer, who was appointed earlier this year.

Among other fintech-focused initiatives, the agency launched initiatives last year to bridge the gap between fintechs and banks, as well as a so-called tech sprint prototype that McWilliams said will help pave the way for more "seamless and timely" data reporting.

"We have to get on the ground, roll up our sleeves and get to work on supporting and advancing a regulatory framework that supports innovation accessible to all banks," McWilliams said. "If we do not allow entrepreneurship to flourish in the United States, it will flourish elsewhere." 

--Editing by Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

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