It is well documented that banks and fintechs, once primarily competitors, are collaborating on financial services innovation.
But for banks that partner with these digital-only companies, regulators are also at play, which may require new approaches to how they build and maintain partnerships, and in turn, Banks may have to weigh risks and benefits.
Call this a re-examination of the vulnerabilities inherent in financial supply chains.
To that end, as revealed in a document last week, the Federal Deposit Insurance Corporation consent order Last month, we played against two banks: Sutton Bank and Piermont Bank. This order focuses on the issue of third party relationships and banking activities as a service.
Third party monitoring
In its order against New York-based Piermont Bank, the FDIC said: “The FDIC has reviewed this matter and determined that the bank engaged in unsafe and unsound banking practices related to internal controls and ‘internal controls.’ “We have determined that he neither admitted nor denied it.” A system that is appropriate to the “nature, scope, complexity and risks of our relationships with third parties.”
The FDIC also reviews and evaluates “the collection of sufficient data regarding third-party relationships, including the nature of the business partnership, any related or proposed new banking activities, and the expected volume of these banking activities.” It is also mandatory to do so. ”
Separately, Sutton Bank provides “in accordance with the Bank Secrecy Act for AML/CFT, including appropriate initial and ongoing evaluation and supervision of any entity or party that has entered into a business relationship or arrangement with the Bank. The bank’s regulatory requirements or obligations are delegated to a third party.
As reported in February, Acting Comptroller of the Currency Michael Hsu said in a speech that risk oversight responsibilities become unclear when multiple companies with different incentives are involved.
“From a banking regulatory and microprudential perspective, our focus during this period is to ensure that banks remain safe and sound, that consumers are protected, and that there is a level playing field. ,” Hsu said.
and PYMNTS Intelligence I found this summer 65% of banks and credit unions have entered into at least one FinTech partnership in the past three years, and 76% of banks believe FinTech partnerships are necessary to meet customer expectations. Additionally, 95% of banks are focused on using partnerships to enhance their digital product offering.
