Fintechs and financial institutions are natural partners. Fintech companies have the solutions that banks need to advance in digital transformation and keep up with changing consumer needs.
and regulators hold financial institutions responsible for the actions of their partners.
Here's what you can expect to learn on this page:
Banking is regulated at both the federal and state level, and financial institutions are regularly examined banks and credit unions for compliance with a bevy of regulations.
Regulations cover these areas:
Regulatory challenges fintechs need to be aware of:
89.4%
say staying on top of regulatory risk is important or very important when it comes to their survival and growth.1
Federal regulators require financial institutions to have a compliance management system (CMS).
A CMS is how an organization:
In 2021, the CFPB forced GreenSky, a fintech that lets merchants offer financing to consumers, to refund or cancel up to $9 million in loans and pay a $2.5 million civil penalty for violating UDAAP (Unfair, Deceptive and Abusive Acts and Practices).
Fintechs need to know which federal and state laws apply to them. They need policies, procedures, and processes to ensure they implement new laws, remain compliant with existing laws, and correct problems.
Financial institutions are required to assess the compliance risk posed by third parties, especially critical relationships that involve sensitive customer data or have the possibility to knock essential bank functions offline.
That’s why a CMS can be a valuable tool for fintechs
that want to partner with financial institutions.
Financial institutions need to be certain a fintech has:
Learn more about why a CMS is an essential tool for fintechs to build effective partnerships with banks.
In 2020, Morgan Stanley paid a $60 million civil money penalty for poor vendor management that could have exposed sensitive customer data.6
Morgan Stanley also paid another $18 million penalty when a different third-party servicer it used violated the Flood Act.
Financial institutions are required to have strong vendor management programs to reduce third-party risks (and because it’s a regulatory requirement).
Vendor management is all about identifying, measuring, monitoring, and mitigating risks. It’s an ongoing process that can be broken down into four phases:
Fintechs that want to work with financial institutions must demonstrate a strong commitment to vendor management, including transparent vendor management processes—or financial institutions will decide the partnership is too risky.
Financial institutions expect fintech partners to have effective vendor management programs. Learn more about managing third- party risk.
Read how to position your Fintech for a successful partnership through the lens of risk management broken down by category:
If your fintech company wants to partner with banks, you need to be prepared.
Our guide, Partnering with Financial Institutions: What Fintechs Can Do to Prepare, is packed with information and practical steps to help your fintech lay the groundwork for effective partnerships that support digital transformation for banks and credit unions, while managing compliance and risk.