SPONSOR BANKS MUST ESTABLISH MINIMUM COMPLIANCE GUIDELINES FOR THEIR FINTECH CLIENTS BEFORE AGREEING TO ONBOARD TO REDUCE AML/CFT RISKS TO ACCEPTABLE LEVELS

The lucrative business that sponsor banks derive from providing Banking as a Service to fintechs comes with increased risk that their compliance programs may not be as effective, as therefore not as low-risk for AML violations, as the banks should require. At the same time, the competitive nature of BaaS means that, should banks be too hard on fintechs, they may not come onboard as clients; there's the rub. How do sponsor banks attract fintechs, while at the same time advising that they must adhere to certain minimum guidelines for their compliance programs? Can a sponsor bank be strict about CIP and transaction monitoring programs, and still acquire new fintechs? You cannot wait until the fintech is already a client to press them in compliance; they may delay implementation for cost reasons, seek to negotiate details, or simply bolt.

It is humbly suggested that sponsor banks interested in expanding their portfolio of fintech clients prepare a white paper, detailing what compliance programs, meaning software platforms to be employed, qualifications of compliance staff, training programs, continuing professional education, and policies & procedures, represent the minimum they will accept, and present it to prospective fintechs, in advance of onboarding negotiations. Make sure your new fintech clients' compliance programs rise to the level that you are comfortable with, or decline to accept them. it's all about risk management, as the liability of sponsor banks for the compliance shortcomings of their embedded fintechs continues to be a focus of regulator attention.