Drawn To “Fintech,” Banks Are Warned About Risk

Banks are aggressively entering into partnerships with so called “fintech” firms, and regulators are taking note, says an article in ABA Journal. (That’s American Bankers Association, not American Bar Association.) Nearly two-thirds of banks and credit unions have done so at least once in the past three years, according to one study cited.

The Consumer Financial Protection Bureau in particular has stepped up oversight, and banks should do the same, although it will surely present some challenges. A major one is time. Banks are used to slow and measured adoption of new products and services, and fintech processes tend to evolve quickly. In any case, banks are advised to be cautious, and to consider among other things possible reputational risk, and whether the potential fintech partner has a compliance management system in place.

Once a deal is in place, it’s important to keep in mind that responsibility can’t be left to the fintech partner, says one bank chief compliance officer and deputy GC. “Whether it’s BNPL [“Buy Now, Pay Later” short-term financing], crypto or whatever product, it’s ultimately the bank’s.”

That message, he says, needs to be conveyed to the bank’s management and board, as well as to regulators.