by appropriate senior management. • clearly define the framework for the approval of individual complex structured finance transactions as well as new complex structured finance product lines within the context of the firm ’ s new - product approval process. the new - product policies for complex structured finance transactions should address the roles and responsibilities of all relevant parties and should require the approval of all relevant control areas that are independent of the profit center before the transaction is offered to customers. • finally, implement monitoring, risk - reporting, and compliance processes for creating, analyzing, offering, and marketing complex structured finance products. subsequent to new - product approval, the firm should monitor new complex structured finance products to ensure that they are effectively incorporated into the firm ’ s risk - control systems. of course, these internal controls and risk - management processses need to be supported and enforced by a strong “ tone at the top ” and a firm - wide culture of compliance. we expect that banks, as a result of recent public and supervisory attention to complex structured finance transactions, will be asking more questions, requesting additional documentation, and scrutinizing financial statements more carefully to guard against reputational and legal risk. in fact, our supervisory reviews indicate that many financial institutions have already taken steps to enhance their internal controls and new - product approval processes in order to filter out transactions that pose unacceptable levels of reputational and legal risk. as a result, some financial institutions have turned down deals with unfavorable risk characteristics - deals that they might have accepted in the past. while we applaud these developments, we hope that the guidance we are developing will help further increase awareness, among both banking organizations and their advisers, of sound practices in this area. i would like to note that the guidance the agencies issue should be considered the first step in the evolution of sound practices for complex structured finance transactions. as these transactions take on new characteristics or different or heightened levels of risk over time, the sound practices for managing them also will need to evolve. credit risk transfer some of the complex structured finance transactions we have recently seen reflect and incorporate innovations in credit risk transfer mechanisms - credit default swaps and synthetic collateralized debt obligations in particular. as most of you know, credit default swaps involve the sale or transfer of credit risk associated with a specific reference entity for a fixed term in exchange for a fee from the buyer of the protection. synthetic collateralized debt obligations entail similar arrangements but are based on portfolios of exposures and are tranched in a manner

would note that as we consider the types of financial services technology that may be useful to the banks we supervise, our rules and guidance need to keep pace. the federal reserve is also considering whether the rise of artificial intelligence and machine learning in banking might require an adjustment in regulation and supervision. ai is becoming more prevalent in customer service and machine learning can offer real opportunities to assess risk and find new customers. community banks face limits on the resources they can dedicate to researching and evaluating third party providers of these new services. regulators and supervisors should consider ways to encourage innovation by simplifying the process of third party selection, due diligence and monitoring. 4 to that end, staff from the federal reserve and other agencies have been jointly conducting significant outreach to industry and other stakeholders over the past several months. we want to hear from you. in addition to this outreach, a conference planned for january, 2021 will include views from academic researchers on the potential benefits and risks posed by artificial intelligence for banks of all sizes. technological innovation holds great promise to help community banks compete and succeed in the evolving financial services landscape. i look forward to continuing to engage on these issues in 2021 and to work with the icba and other stakeholders to foster an environment where communities and the banks that serve them continue to thrive. 3 / 4 bis central bankers'speeches 1 mckinsey & company, “ telehealth : a quarter - trillion - dollar post - covid - 19 reality? ” may 29, 2020, www. mckinsey. com / industries / healthcare - systems - and - services / our - insights / telehealth - a - quarter - trillion - dollarpost - covid - 19 - reality. return to text 2 cnbc, “ coronavirus crisis mobile banking surge is a shift that ’ s likely to stick, ” may 27, 2020, www. cnbc. com / 2020 / 05 / 27 / coronavirus - crisis - mobile - banking - surge - is - a - shift - likely - to - stick. html. return to text 3 american banker, “ consumers are relying more on finance apps, survey finds, ” september 15, 2020, www. americanbanker. com / news / consumer - reliance - on - finance - apps - spiked - because - of - coronavirus. return to text 4 michelle w. bowman, “ empowering community banks, ” speech at the conference for community bankers sponsored by the american bankers association, orlando, florida, february