oversight

Priority Open Recommendations: Federal Deposit Insurance Corporation

Published by the Government Accountability Office on 2019-04-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

441 G St. N.W.                                                                        Comptroller General
Washington, DC 20548                                                                  of the United States


April 5, 2019


The Honorable Jelena McWilliams
Chairman
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, DC 20429

Priority Open Recommendations: Federal Deposit Insurance Corporation

Dear Ms. Chairman:

The purpose of this letter is to provide an update on the overall status of the Federal Deposit
Insurance Corporation’s (FDIC) implementation of GAO’s recommendations and to call your
personal attention to areas where open recommendations should be given high priority. In
November 2018, we reported that on a government-wide basis, 77 percent of our
recommendations made 4 years ago were implemented. 1 FDIC’s implementation rate for these
recommendations was 96 percent. As of January 24, 2019, FDIC had 10 open
recommendations. Fully implementing these open recommendations could significantly improve
FDIC’s efforts to more effectively oversee risks to consumers and the safety and soundness of
the U.S. banking system.

We have identified two priority recommendations that fall into the following two areas (see the
enclosure for the list of these recommendations):

Consumer Protection for Financial Data Aggregation Services. One recommendation
relates to consumer protection for users of financial data aggregation services. Consumers are
using financial technology—or “fintech”—firms to aggregate information from their various
financial accounts, including their assets in bank accounts and brokerage accounts, as a way to
better manage their finances. While financial institutions typically reimburse losses in credit card
or bank accounts arising from unauthorized activity, in March 2018 we found that market
participants disagreed over whether consumers using these financial account aggregators
would be reimbursed if they experience such losses.

Industry efforts to address these issues are underway, and bank and credit union regulators and
the Consumer Financial Protection Bureau have been holding collaborative discussions on the
issues surrounding financial account aggregation. However, these collaborations have yet to
result in any coordinated public outcomes. We recommended that FDIC engage in collaborative
discussions with other relevant financial regulators and stakeholders to address these issues.
We urge FDIC to continue to actively participate in ongoing efforts to help ensure that these
efforts result in tangible outcomes that balance both financial institution and consumer interests.


1
GAO, Performance and Accountability Report: Fiscal Year 2018, GAO-19-1SP (Washington, D.C.: Nov. 15, 2018).



Page 1                    GAO-19-354SP Federal Deposit Insurance Corporation Recommendations
Derisking: One recommendation relates to derisking—the practice of banks limiting services or
ending relationships with customers to, among other things, avoid perceived regulatory
concerns about facilitating money laundering. In our February 2018 report, we determined that
Bank Secrecy Act/anti-money laundering (BSA/AML) regulatory concerns have played a role in
banks’ decisions to terminate and limit customer accounts and close bank branches. However,
the actions taken to address derisking by the federal banking regulators and the Financial
Crimes Enforcement Network (FinCEN) and the retrospective reviews conducted on BSA/AML
regulations have not fully considered or addressed these effects.

We recommended that FDIC jointly conduct a retrospective review of BSA/AML regulations and
their implementation for banks with the Board of Governors of the Federal Reserve System
(Federal Reserve), Office of the Comptroller of the Currency (OCC), and FinCEN and revise
regulations or their implementation, as appropriate. This review should focus on how banks’
regulatory concerns may be influencing their willingness to provide services. In January 2019,
FDIC staff noted that FDIC convened a working group in 2018 with the Federal Reserve, OCC,
FinCEN, the National Credit Union Administration, and the Office of Terrorism and Financial
Intelligence to identify ways to improve the efficiency and effectiveness of BSA/AML regulations
and supervision. While the establishment of the working group has produced outcomes
consistent with encouraging greater efficiency and effectiveness of banks’ BSA/AML compliance
programs and reducing burden, we have not yet seen outcomes that address the full range of
factors that may be influencing banks to derisk or close bank branches.

                                                      - - - - -

In addition, on March 6, 2019, we issued our biennial update to our high-risk program, which
identifies government operations with greater vulnerabilities to fraud, waste, abuse, and
mismanagement or the need for transformation to address economy, efficiency, or effectiveness
challenges. 2 Our high-risk program has served to identify and help resolve serious weaknesses
in areas that involve substantial resources and provide critical service to the public.

Several government-wide high-risk areas, including (1) ensuring the cybersecurity of the nation,
(2) improving management of information technology acquisitions and operations, (3) strategic
human capital management, (4) managing federal real property, and (5) the government-wide
security clearance process, have implications for FDIC and its operations. We urge your
attention to government-wide high-risk issues as they relate to FDIC. Progress on high-risk
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, including FDIC. Another
one of our high-risk areas is modernizing the U.S. financial regulatory system, including
encouraging regulators to strengthen systemic risk oversight and monitor progress on reforms.

Copies of this report are being sent to the Director of the Office of Management and
Budget and appropriate congressional committees, including the Committees on Appropriations,
Budget, and Homeland Security and Governmental Affairs, United States Senate; and the
Committees on Appropriations, Budget, and Oversight and Reform, House of Representatives.
In addition, the report will be available at no charge on the GAO website at https://www.gao.gov.
I appreciate FDIC’s commitment to these important issues. If you have any questions or would
like to discuss any of the issues outlined in this letter, please do not hesitate to contact me or
Lawrance Evans, Managing Director, Financial Markets and Community Investment at

2
 GAO, High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas, GAO-19-
157SP (Washington, D.C.: Mar, 6, 2019).

Page 2                      GAO-19-354SP Federal Deposit Insurance Corporation Recommendations
evansl@gao.gov or 202-512-8678. Contact points for our Offices of Congressional Relations
and Public Affairs may be found on the last page of this report. Our teams will continue to
coordinate with your staff on all of the 10 open recommendations. Thank you for your attention
to these matters.

Sincerely yours,




Gene L. Dodaro
Comptroller General
of the United States



Enclosure

cc: The Honorable Mick Mulvaney, Director, Office of Management and Budget




Page 3                  GAO-19-354SP Federal Deposit Insurance Corporation Recommendations
Enclosure

Priority Open Recommendations to the Federal Deposit Insurance Corporation (FDIC)


Consumer Protection for Financial Data Aggregation Services


Financial Technology: Additional Steps by Regulators Could Better Protect Consumers and Aid
Regulatory Oversight. GAO-18-254. Washington, D.C.: March 22, 2018.

Recommendation: The Chairman of the Federal Deposit Insurance Corporation should engage
in collaborative discussions with other relevant financial regulators in a group that includes all
relevant stakeholders and has defined agency roles and outcomes to address issues related to
consumers' use of account aggregation services.

Action Needed: FDIC agreed with the recommendation. FDIC stated that it recognizes the
benefits of engaging in collaborative discussions with other relevant regulators and would
continue to do so. In November 2018, FDIC staff told us they had met and discussed these
issues with other regulators. Aligning ongoing collaborative efforts with leading practices could
help regulators and market participants resolve disagreements over financial account
aggregation and related consumer compliance issues more quickly and in a manner that
balances the competing interests involved. Specifically, the collaborating agencies should define
the short-term and long-term outcomes that the collaboration is seeking to achieve and clarify
the roles and responsibilities of the participating agencies.

Managing Director: Lawrance Evans, Jr., Financial Markets and Community Investment
Contact Information: evansl@gao.gov or 202-512-8678


Derisking

Bank Secrecy Act: Derisking along the Southwest Border Highlights Need for Regulators to
Enhance Retrospective Reviews. GAO-18-263. Washington. D.C.: February 26, 2018.

Recommendation: The Chairman of the Federal Deposit Insurance Corporation should jointly
conduct a retrospective review of Bank Secrecy Act/anti-money laundering (BSA/AML)
regulations and their implementation for banks with the Board of Governors of the Federal
Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC), and
the Financial Crimes Enforcement Network (FinCEN). This review should focus on how banks’
regulatory concerns may be influencing their willingness to provide services. In conducting the
review, FDIC, the Federal Reserve, OCC, and FinCEN should take steps, as appropriate, to
revise the BSA regulations or the way they are being implemented to help ensure that BSA/AML
regulatory objectives are being met in the most effective and least burdensome way.

Action Needed: In its agency comment letter dated February 2018, FDIC said it would work
jointly with FinCEN and the other federal banking agencies to review BSA/AML regulations and
their implementation for banks and how banks’ regulatory concerns may be influencing their
willingness to provide services. In January 2019, FDIC staff said that FDIC convened a working
group in 2018 with the Federal Reserve, OCC, FinCEN, the National Credit Union
Administration, and the Office of Terrorism and Financial Intelligence to identify ways to improve

Page 4                  GAO-19-354SP Federal Deposit Insurance Corporation Recommendations
the efficiency and effectiveness of BSA/AML regulations, supervision, and examinations while
continuing to meet the requirements of the statute and regulations, supporting law enforcement,
and reducing BSA/AML compliance burden. FDIC staff believe that the ongoing review
conducted by this working group addresses our recommendation and noted two recent
interagency joint statements that resulted from the activities of the working group as examples.
The first, issued in October 2018, clarified the permissibility of sharing BSA resources among
institutions with lower risk profiles to increase efficiency and reduce burden. The second, issued
in December 2018, encouraged innovative industry approaches by banks to enhance the
efficiency and effectiveness of their BSA/AML compliance programs. While the establishment of
the working group has produced outcomes consistent with encouraging greater efficiency and
effectiveness of banks’ BSA/AML compliance programs and reducing burden, we have not yet
seen outcomes that address the full range of factors that may be influencing banks to derisk or
close bank branches. We will continue to monitor the activities and related outcomes of the
working group for actions that are fully responsive to our recommendation.

Managing Director: Lawrance Evans, Jr., Financial Markets and Community Investment
Contact Information: evansl@gao.gov or 202-512-8678




(103215)

Page 5                  GAO-19-354SP Federal Deposit Insurance Corporation Recommendations
This is a work of the U.S. government and is not subject to copyright protection in the United States.
The published product may be reproduced and distributed in its entirety without further permission
from GAO. However, because this work may contain copyrighted images or other material,
permission from the copyright holder may be necessary if you wish to reproduce this material
separately.
                         The Government Accountability Office, the audit, evaluation, and investigative
GAO’s Mission            arm of Congress, exists to support Congress in meeting its constitutional
                         responsibilities and to help improve the performance and accountability of the
                         federal government for the American people. GAO examines the use of public
                         funds; evaluates federal programs and policies; and provides analyses,
                         recommendations, and other assistance to help Congress make informed
                         oversight, policy, and funding decisions. GAO’s commitment to good government
                         is reflected in its core values of accountability, integrity, and reliability.

                         The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of      through GAO’s website (https://www.gao.gov). Each weekday afternoon, GAO
GAO Reports and          posts on its website newly released reports, testimony, and correspondence. To
                         have GAO e-mail you a list of newly posted products, go to https://www.gao.gov
Testimony                and select “E-mail Updates.”

Order by Phone           The price of each GAO publication reflects GAO’s actual cost of production and
                         distribution and depends on the number of pages in the publication and whether
                         the publication is printed in color or black and white. Pricing and ordering
                         information is posted on GAO’s website, https://www.gao.gov/ordering.htm.
                         Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
                         TDD (202) 512-2537.
                         Orders may be paid for using American Express, Discover Card, MasterCard,
                         Visa, check, or money order. Call for additional information.

                         Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO         Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts.
                         Visit GAO on the web at https://www.gao.gov.

                         Contact:
To Report Fraud,
                         Website: https://www.gao.gov/fraudnet/fraudnet.htm
Waste, and Abuse in
                         Automated answering system: (800) 424-5454 or (202) 512-7470
Federal Programs
                         Orice Williams Brown, Managing Director, WilliamsO@gao.gov, (202) 512-4400,
Congressional            U.S. Government Accountability Office, 441 G Street NW, Room 7125,
Relations                Washington, DC 20548

                         Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs           U.S. Government Accountability Office, 441 G Street NW, Room 7149
                         Washington, DC 20548

                         James-Christian Blockwood, Managing Director, spel@gao.gov, (202) 512-4707
Strategic Planning and   U.S. Government Accountability Office, 441 G Street NW, Room 7814,
External Liaison         Washington, DC 20548




                            Please Print on Recycled Paper.