Recently, the FDIC, the Federal Reserve, and the OCC produced a 20-page report (available here), and the Federal Reserve published a separate paper (available here), both designed to help banks better evaluate the risks surrounding FinTech partnerships. These documents are required reading for banks and their FinTech counterparties.

Risk-focused regulatory FinTech guidance is not novel. For the last few years, financial regulators have published guidance aimed at identifying risks presented by bank-FinTech partnerships (see BFKN’s coverage here). The recent report and paper are significant, however, because of their scope and detail. In particular, they highlight specific issues, policies, and documents that banks should review and understand before partnering with FinTechs.

By way of example, the report identifies approximately 70 categories of documents and policies that a bank should review while performing its due diligence on a prospective FinTech partner. To evaluate the FinTech’s “operational resilience”—just one of over a half-dozen areas of focus—the regulators suggest that a bank consider the FinTech’s: (1) business continuity plans; (2) disaster recovery plans; (3) incident response plan; (4) documented system backup processes; (5) business continuity, disaster recovery, and incident response test results; (6) cybersecurity reports and audits; and (7) insurance documents.

This new guidance, therefore, portends increased regulatory scrutiny of bank-FinTech partnerships. Financial institutions considering such partnerships must be cognizant of the litany of documents that financial regulators expect a bank to evaluate, as well as the myriad risks posed by prospective FinTech partners. Conversely, FinTech companies interested in partnering with banks should use this guidance as a template for the types of policies, procedures, programs, and information that banks and regulators will expect the FinTechs to prepare and maintain. Failure to understand and heed these recent regulatory missives could prove costly.

We Can Help You

Barack Ferrazzano Financial Institutions Group attorneys are currently working on a wide range of partnerships, contracts, and related agreements between banks and FinTechs. Please contact us if you are interested in discussing any potential FinTech partnership or vendor opportunities.

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