Regulators are cracking down on fintech partnerships, exemplified by a recent consent order against Lineage Bank in Franklin, Tennessee. The bank had seen significant growth in assets as it onboarded clients like Synctera and Synapse. However, the FDIC’s consent order emphasized the importance of oversight for such partnerships, mentioning the word “fintech” 66 times.
Lineage Bank joins a list of fintech-focused banks with regulatory orders, including Blue Ridge Bank, First Northwest Bancorp, Cross River Bank, and Choice Financial. It is essential for banks to review these orders to understand regulators’ expectations and required remediation.
Key takeaways from the Lineage consent order include the need for board involvement and education in monitoring the bank’s fintech strategy. The FDIC is also requiring the development of a formal onboarding process for new fintech partners and evaluation of staff responsible for BaaS oversight and risk management.
Additionally, Lineage must submit exit plans for third-party fintech partners looking to end their contracts. This highlights the importance of having a methodical approach to onboarding and removing fintech partners from a BaaS platform.
The tightening regulations on fintech partnerships may lead some banks to exit the space, while others may need to reconsider their strategies. Despite the challenges, there is still demand for banks that approach fintech partnerships diligently and have effective onboarding and offboarding plans.
Overall, banks entering into fintech partnerships must be mindful of regulatory requirements, educate their boards, develop robust onboarding processes, and have plans in place for terminating partnerships. By taking these steps, banks can navigate the evolving landscape of fintech partnerships successfully.
