Jess Cheng Discusses Supervisory Scrutiny of Bank-Fintech Partnerships with The Fintech Times
Wilson Sonsini partner Jess Cheng was quoted in The Fintech Times discussing the intense supervisory scrutiny around bank-fintech partnerships, stepped up enforcement actions, and practical considerations for fintech companies as the industry prepares for change.
“The publication of the Guidance on Third-Party Relationships: Risk Management by the Federal Reserve, the FDIC, and the OCC is just the beginning. More is coming. To many banks partnering with fintechs, these supervisory expectations are new.
“Reading between the lines, there is recognition among officials at the banking agencies that something more beyond the guidance is needed to give smaller banks the necessary clarity and tools to implement risk management practices to meet these new supervisory expectations.
“Across the industry, fintechs are also starting to appreciate the risks of this situation – reliance on one bank partner, who may have risk exposure to a range of other fintechs and be susceptible to a bad supervisory exam, could be an existential risk to their own business. Until the banking agencies provide clearer supervisory expectations, these fintechs will have to cast their own discerning eye on their partners or potential partners.
“For these fintechs, among key things to look for in a bank partner is whether it has an effective compliance oversight programme for its fintech partners, including a dedicated internal compliance team to monitor ongoing activities and performance of fintech partners.”
“Industry Reacts as OCC Reveals Concerns About Impact of Fintech-Bank Partnerships,” The Fintech Times (March 6, 2024)