[House Report 118-290]
[From the U.S. Government Publishing Office]


118th Congress }                                          { Report 
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                          { 118-290

======================================================================
 
       BANK SERVICE COMPANY EXAMINATION COORDINATION ACT OF 2023

                                _______
                                

December 1, 2023.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. McHenry, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1109]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1109) to amend the Bank Service Company Act to 
provide improvements with respect to State banking agencies, 
and for other purposes, having considered the same, reports 
favorably thereon with an amendment and recommends that the 
bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Bank Service Company Examination 
Coordination Act of 2023''.

SEC. 2. BANK SERVICE COMPANY ACT IMPROVEMENTS.

  The Bank Service Company Act (12 U.S.C. 1861 et seq.) is amended--
          (1) in section 1(b)--
                  (A) in paragraph (8), by striking ``and'' at the end;
                  (B) by redesignating paragraph (9) as paragraph (10); 
                and
                  (C) by inserting after paragraph (8) the following:
          ``(9) the term `State banking agency' shall have the same 
        meaning given the term `State Bank Supervisor' under section 3 
        of the Federal Deposit Insurance Act; and'';
          (2) in section 5(a), by inserting ``, in consultation with 
        the State banking agency,'' after ``banking agency''; and
          (3) in section 7--
                  (A) in subsection (a)--
                          (i) in the first sentence, by inserting ``or 
                        State banking agency'' after ``appropriate 
                        Federal banking agency''; and
                          (ii) in the second sentence, by striking 
                        ``Federal banking agency that supervises any 
                        other shareholder or member'' and inserting 
                        ``Federal or State banking agency that 
                        supervises any other shareholder or member'';
                  (B) in subsection (c)--
                          (i) by inserting ``or a State banking 
                        agency'' after ``appropriate Federal banking 
                        agency''; and
                          (ii) by striking ``such agency'' each place 
                        such term appears and inserting ``such Federal 
                        or State agency'';
                  (C) by redesignating subsection (d) as subsection 
                (f);
                  (D) by inserting after subsection (c) the following:
  ``(d) Availability of Information.--Information obtained pursuant to 
the regulation and examination of service providers under this section 
or applicable State law may be furnished by and accessible to Federal 
and State agencies to the same extent that supervisory information 
concerning depository institutions is authorized to be furnished to and 
required to be accessible by Federal and State agencies under section 
7(a)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1817(a)(2)) or 
State law, as applicable.
  ``(e) Coordination With State Banking Agencies.--Where a State bank 
is principal shareholder or principal member of a bank service company 
or where a State bank is any other shareholder or member of the bank 
service company, the appropriate Federal banking agency, in carrying 
out examinations authorized by this section, shall--
          ``(1) provide reasonable and timely notice to the State 
        banking agency; and
          ``(2) to the fullest extent possible, coordinate and avoid 
        duplication of examination activities, reporting requirements, 
        and requests for information.'';
                  (E) in subsection (f), as so redesignated, by 
                inserting ``, in consultation with State banking 
                agencies,'' after ``appropriate Federal banking 
                agencies''; and
                  (F) by adding at the end the following:
  ``(g) Rule of Construction.--Nothing in this section shall be 
construed as granting authority for a State banking agency to examine a 
bank service company where no such authority exists in State law.''.

                          PURPOSE AND SUMMARY

    Introduced on February 17, 2023, by Representative Roger 
Williams, H.R. 1109, the Bank Service Company Examination 
Coordination Act of 2023, requires the coordination of state 
and federal banking agencies in regulating and examining the 
activities of bank service companies. The bill provides for the 
sharing of information related to examinations and regulations 
between federal and state agencies. It also requires that state 
and federal agencies coordinate and avoid duplicative 
examination activities, reporting requirements, and requests 
for information.

                  BACKGROUND AND NEED FOR LEGISLATION

    The Bank Service Company Examination Coordination Act of 
2023 enhances the ability of state and federal bank regulators 
to coordinate examinations of and share information on banks' 
third-party service providers and vendors. The bill promotes 
more efficient supervision of third-party service providers, 
allows regulators to use limited resources more effectively, 
avoids duplicative examinations, and reduces regulatory burden.
    The Bank Service Company Act (BSCA) is the primary Federal 
statute governing third-party bank service providers (TSPs) and 
authorizes the Federal banking agencies to examine the TSPs 
services they provide financial institutions to assess 
potential risks TSPs may pose to individual client banks and 
the broader banking system.\1\ Many state banking agencies also 
examine and supervise TSPs under the authority of state law.\2\ 
Given this overlapping supervisory authority, the BSCA needs to 
be modernized to provide clarity on the ability of state and 
federal banking regulators to share examination findings of 
bank service companies, including TSPs. There has been 
frustration from state and Federal banking agencies over the 
inability to fully share supervisory information that could 
reveal weaknesses of individual institutions and allow agencies 
to use their limited resources more effectively.
---------------------------------------------------------------------------
    \1\12 U.S.C. 1867(a) permits federal banking agencies to examine a 
service company that is owned in whole or in part by a bank or multiple 
banks and 12 U.S.C. 1867(c) permits federal banking agencies to examine 
TSPs that have contractual obligations with a bank.
    \2\38 state banking agencies currently have authority under state 
law to examine TSPs.
---------------------------------------------------------------------------
    Along with promoting better communication among regulators, 
it is important to maintain the appropriate level of oversight 
for new risks to the financial system. The 2017 Annual Report 
of the Financial Stability Oversight Council (FSOC) recommended 
that ``Congress pass legislation that . . . encourages 
coordination among the federal and state regulators in the 
oversight of [third-party service] providers.''\3\ The 2022 
Annual Report also recommended ``that federal banking 
regulators continue coordinating third-party service provider 
examinations, work collaboratively with states, and identify 
additional ways to support information sharing among state and 
federal regulators.''\4\ While access to new financial products 
and services as well as greater operating efficiency for 
financial institutions is positive, it is imperative that bank 
regulators are able to identify emerging risks when they 
develop. Increased exam coordination and information sharing 
ensure that no gaps exist where weaknesses can produce risks to 
the financial system.
---------------------------------------------------------------------------
    \3\2017 Annual Report of the Financial Stability Oversight Council. 
(Dec. 2017). Available at https://home.treasury.gov/system/files/261/
FSOC_2017_Annual_Report.pdf.
    \4\2022 Annual Report of the Financial Stability Oversight Council 
(Dec. 2022), Available at https://home.treasury.gov/system/files/261/
FSOC2022AnnualReport.pdf.
---------------------------------------------------------------------------
    Finally, it is important that state banking agencies and 
the Federal banking agencies coordinate examination activities 
and improve information sharing to avoid duplicative 
examinations and needless burden on financial institutions, 
including community banks, and to preserve limited regulatory 
resources.

                                HEARING

    Pursuant to clause 3(c)(6) of rule XIII, the following 
hearing was used to develop H.R. 1109: The Subcommittee on 
Financial Institutions and Monetary Policy of the Committee on 
Financial Services held a hearing on February 8, 2023, titled 
``Revamping and Revitalizing Banking in the 21st Century.''

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
February 28, 2023, and ordered H.R. 1109 to be reported 
favorably to the House as amended by a recorded vote of 39 ayes 
to 0 nays (Record vote no. FC-17), a quorum being present. 
Before the question was called to order the bill favorably 
reported, the Committee adopted an amendment in the nature of a 
substitute offered by Mr. Williams by voice vote.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. 
H.R. 1109 was ordered reported favorably to the House as 
amended by a recorded vote of 39 ayes to 0 nays (Record vote 
no. FC-17), a quorum being present.


                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the goal of H.R. 1109 is to establish 
the coordination of state and federal banking agencies in 
regulation and examine the activities of bank service 
companies. Further, the bill provides for the sharing of 
information related to examinations and regulations between 
federal and state agencies and requires that state and federal 
agencies coordinate and avoid duplicative examination 
activities, reporting requirements, and requests for 
information.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(d)(1) of House rule XIII, the 
Committee adopts as its own the cost estimate prepared by the 
Director of the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974.



   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee adopts as its own the 
estimate of new budget authority, entitlement authority, or tax 
expenditures or revenues contained in the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1973.

                       FEDERAL MANDATES STATEMENT

    Pursuant to section 423 of the Unfunded Mandates Reform 
Act, the Committee adopts as its own the estimate of the 
Federal mandates prepared by the Director of the Congressional 
Budget Office.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Committee has carefully reviewed the 
provisions of the bill and states that the provisions of the 
bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes a program of 
the Federal Government known to be duplicative of another 
Federal program, including any program that was included in a 
report to Congress pursuant to section 21 of the Public Law 
111-139 or the most recent Catalog of Federal Domestic 
Assistance.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Sec. 1: Short title

    This Act may be cited as the ``Bank Service Company 
Examination Coordination Act of 2023''.

Sec. 2: Bank Service Company Act improvements

    This section allows for the sharing of information obtained 
through the examination and regulation of bank service 
providers between federal and state agencies and additionally 
requires that state and federal agencies coordinate and avoid 
duplicative examination activities, reporting requirements, and 
requests for information.

                                  [all]