in place to limit the risks associated with products and partners that may not survive. with the growing number of partnerships between banks and fintech companies, we often receive questions about the applicability of our vendor risk - management guidance. we are actively reviewing our guidance to determine whether any adjustments or clarifications may become appropriate in the context of these arrangements. we hear concerns from community bankers in particular about their internal capacity to undertake the requisite due diligence and ongoing vendor management on their own, especially with much larger vendors, and questions about whether the interagency service providers supervision program might be relevant in this context. we are thinking about whether changes brought about by fintech and fintech partnerships may warrant consideration of any changes to the interagency supervision program for service providers. regulatory engagement i believe that the federal reserve is well - positioned to help shape this innovation as it develops, and it is important that we be clear about our expectations and mindful of the possible effects of our actions. the policy, regulatory, and supervisory decisions made by the federal reserve and other financial regulators can impact the ways in which new financial technologies are developed 3 / 6 bis central bankers'speeches and implemented, and ultimately how effective they are. it is critical that fintech firms and financial institutions comply with all applicable legal protections and obligations. at the same time, it is important that regulators and supervisors not impose undue burdens on financial innovations that would provide broad social benefits responsibly. an unduly rigid regulatory or supervisory posture could lead to unintended consequences, such as the movement of innovations outside of the regulated banking industry, potentially creating greater risks and less transparency. the rapid pace of change and the large number of actors — both banks and nonbanks — in fintech raise questions about how to effectively conduct our regulatory and supervisory activities. in one sense, regulators ’ approach to fintech should be no different than for conventional financial products or services. the same basic principles regarding fairness and transparency should apply regardless of whether a consumer obtains a product through a brick - and - mortar bank branch or an online portal using a smartphone. indeed, the same consumer laws and regulations that apply to products offered by banks generally apply to nonbank fintech firms as well, even though their business models may differ. however, the application of laws and regulations that were designed based on traditional financial products and delivery channels may give rise to complex or novel issues when applied to new products or new delivery channels.

who otherwise would qualify only for high - cost alternatives. it would be a lost opportunity if, instead of expanding access in a socially beneficial way, some fintech products merely provided a vehicle to market high - cost loans to the underserved, or resulted in the digital equivalent of redlining, exacerbating rather than ameliorating financial access inequities. we are also monitoring a growing fintech segment called “ regtech ” that aims to help banks achieve regulatory compliance more effectively. regtech firms are designing new tools to assist banks and other financial institutions in addressing regulatory compliance issues ranging from onboarding new customers to consumer protection to payments and governance. many of the current solutions are focused on bank secrecy act ( bsa ) regulatory requirements, including know - your - customer ( kyc ) and suspicious activity reporting requirements. the solutions utilize new technologies and data - analytic techniques that may reduce the costs and time needed for banks to identify and assess customers ’ money - laundering and terrorist - financing risks. however, it is too early to tell the degree to which innovative approaches to customer due diligence, such as kyc utilities, will deliver efficiency gains such as those outlined in the recent bank for international settlements committee on payments and market infrastructures report on correspondent banking. 8 ensuring risks are managed and consumers are protected while financial innovation holds promise, it is crucial that financial firms, customers, regulators, and other stakeholders understand and mitigate associated risks. there is a tension between the lightning pace of development of new products and services being brought to market — sometimes by firms that are new or have not historically specialized in consumer finance — and the duty to ensure that important risks around financial services and payments are addressed. firms need to ensure that they are appropriately controlling and mitigating both risks that are unique to fintech as well as risks that exist independently of new technologies. for example, some fintech firms are exploring the use of nontraditional data in underwriting and pricing credit products. while nontraditional data may have the potential to help evaluate consumers who lack credit histories, some data may raise consumer protection concerns. nontraditional data, such as the level of education and social media usage, may not necessarily have a broadly agreed upon or empirically established nexus with creditworthiness and may be correlated with characteristics protected by fair lending laws. to the extent that the use of this type of data could result in unfairly disadvantaging some groups of consumers, it requires careful