Federal Reserve Issues Cease and Desist Against Evolve Bank Over Fintech Risk Management and AML Failures

The Federal Reserve Board and the Arkansas State Bank Department jointly issued a cease and desist order against Evolve Bancorp, Inc. and its wholly owned subsidiary Evolve Bank & Trust of West Memphis, Arkansas, on 14 June 2024. The enforcement action cited unsafe and unsound practices in the management of partnerships with fintech companies, ineffective risk management and anti-money laundering compliance under the Bank Secrecy Act, and deficient consumer compliance programmes. The order was published in a press release on the Federal Reserve's website.

Evolve Bank operates through what it designates as its Open Banking Division, a unit that provides regulated banking infrastructure — including deposit accounts, payment services, and card issuance — to a range of fintech companies that in turn offer those products to end users under their own brands.

EXAMINATIONS FOUND OPEN BANKING DIVISION DEFICIENT

Regulatory examinations conducted in 2023 concluded that the risk management framework underpinning Evolve's Open Banking Division was materially deficient. The Federal Reserve's order identified failures across multiple control functions, finding that the bank's processes for managing its relationships with fintech partners, its AML and BSA compliance programme, and its consumer compliance infrastructure were all deficient.

The cease and desist order sets deadlines of 30 to 90 days for Evolve to submit written plans and programmes covering a range of remedial measures. These include enhancements to the risk management framework governing its fintech partnerships, strengthening of its AML and BSA compliance programme, and the remediation of the identified weaknesses in consumer compliance.

SYNAPSE BANKRUPTCY

The Federal Reserve stated that its action was independent of the bankruptcy proceedings of Synapse Financial Technologies, a middleware provider whose collapse earlier in 2024 disrupted access to funds held by thousands of fintech end-user accounts. Synapse had operated as an intermediary between banks, including Evolve, and the fintech companies that used those banks' rails to offer products to consumers. When Synapse entered bankruptcy, the reconciliation of customer funds across multiple banking partners was disrupted, leaving many end users unable to access their money.