SPONSOR BANKS: SHOULD THEY CONSIDER REQUIRING AN EXTERNAL INDEPENDENT COMPLIANCE AUDIT IN ADVANCE OF POTENTIAL FINTECH RELATIONSHIPS?

Given the current position of American regulators, concerning the ultimate responsibility of sponsor banks, regarding the compliance programs of their fintech clients, and repeated reports that most fintechs do not operate AML programs at the banking best practices level, should they not have an outside, independent organization audit fintech compliance, in advance of any contractual agreement?

The period in which a sponsor bank has the most leverage upon a new fintech client is during onboarding negotiations; after the relationship has been established, its ability to achieve a 100% response from a new fintech declines sharply, as there is a lesser incentive to comply, and during the initial set-up period, both parties are occupied with the tasks necessary to connect.

Therefore, given the fact that the ultimate responsibility for effective fintech compliance lies with the sponsor bank, it is humbly suggested that it make an external audit of compliance one of the preconditions for entering into a relationship; the results, and what the fintech is willing to do to upgrade if and as necessary, will insure that established AML standards are in place. This places fintech leadership, rather than its subordinate compliance staff, in the role of seeing that its CIP and transaction monitoring programs pass muster.

Records of the audit conclusions could also serve to mitigate any regulatory issues in the future, as they would serve to document sponsor bank efforts to insure effective compliance standards.