Some top Republicans sent a letter to Federal Deposit Insurance Corp. Chairman Martin Gruenberg inquiring about the agency’s technology office changes and expressing their concern over the ongoing regulatory debate on innovation in the financial services space.

In a letter signed by the chair of the House Financial Services Committee, Patrick McHenry, R-NC, alongside Reps. Andy Barr, R-KY and French Hill, R-AR, the lawmakers pointed out that the FDIC “dismantled” the external facing portion of the agency’s FDITech Office and claimed, “the FDIC has moved innovation backwards.”

The FDIC established FDITech in March 2019 to engage and collaborate with the private sector and support innovation. The new office was also meant to help FDIC understand, develop and adopt technologies to improve the agency's internal functions.

However, a September report from the U.S. Government Accountability Office highlighted that in January 2023, “the FDIC eliminated the portion of the office’s mission focused on fostering innovation within the financial sector, and will now only focus on adoption of technologies within FDIC, such as small automation solutions to enhance workflow.”

Additionally, the FDITech was reorganized as a branch within the agency’s Division of Information Technology and stopped focusing on external competition or innovation within the financial services industry.

The letter said that though the FDIC claims that the tech office still works with industry participants, the lawmakers think the “transformation has actively discouraged innovation within the banking sector.”

The Republicans noted that the FDIC’s move and the recent formation of the Office of the Comptroller of the Currency’s Office of Financial Technology that brought under its wing the former Office of Innovation established in 2016, shows that the “[a]dministration is more interested in hindering innovation than helping it.”

“We are also concerned that there is no publicly available information detailing how the FDIC’s posture on innovation will manifest in examinations and whether this change will be in compliance with the FDIC’s Compliance Examination Manual,” the letter said.

“The FDIC has a troubling history of using extralegal pressures to attain anti-business results,” the lawmakers added.

Bank-fintech partnerships have been under scrutiny from the regulatory watchdogs. First Fed Bank entered a consent order with the FDIC in November regarding a fintech it developed through a joint venture.

The Port Angeles, Washington-based bank’s consent order is similar to actions imposed on fintech-focused banks like Blue Ridge and Cross River.

The OCC deemed Blue Ridge Bank in “troubled condition” after the lender’s alleged continuous failure to maintain a strong and well-staffed Bank Secrecy Act/anti-money laundering compliance program.

Separately, the FDIC alleged that Cross River failed to “establish and maintain internal controls, information systems, and prudent credit underwriting practices” in 2021, according to a consent order.

However, the Federal Reserve, the OCC and the FDIC issued guidance outlining the best practices to “identify, assess, monitor, and control” relationships with third-party providers, including those with fintech firms.

The lawmakers asked the FDIC chair to describe how the agency “enforced infractions” related to third-party risk management before 2020, what changes have been made since then, and the reason for them.

They also asked for a list of financial institutions that received a consent order or any enforcement action arising from third-party relationships with fintechs and all the information passed on from the FDIC headquarters to the different regional offices regarding the risk management of third-party relationships with fintechs since 2021.

The lawmakers requested a response by Feb. 29.