The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued a joint statement on 25 July 2024 warning that deposit arrangements between banks and fintech companies carry material liquidity, compliance, and operational risks — and simultaneously published a request for public information to help the three agencies better understand the full scope of such partnerships across the US banking system.
The agencies said supervisory experience had identified a range of safety and soundness, compliance and consumer-related concerns with the management of these arrangements.
THREE CATEGORIES OF IDENTIFIED RISK
The statement grouped potential risks under operational and compliance risks, growth-related risks (including liquidity and funding concentrations) and end-user confusion over deposit insurance coverage. On liquidity, the agencies flagged that such arrangements can create significant and rapidly increasing funding concentrations, making liquidity and funding risks harder to manage, particularly when the funds are deployed in illiquid or long-term assets, and that banks heavily reliant on a single third party may be reluctant to take the decisions needed to manage those risks.
On compliance, the agencies expressed concern that banks in these arrangements may lack sufficient access to the records and data on the end customers whose deposits they ultimately hold, or rely on third parties for compliance functions, creating potential gaps in know-your-customer procedures and Bank Secrecy Act obligations. Operational risks, which the agencies grouped with compliance risks, encompass the reliance on third-party technology platforms, where an outage or failure at the fintech layer can impair a bank's ability to process transactions and honour customer requests. The request for information asks stakeholders to submit information on how these arrangements are structured.
SUPERVISORY CONTEXT
The agencies stressed that the statement does not establish new supervisory expectations, but said they are considering whether additional steps could help ensure banks manage these risks effectively. Several banks operating as banking-as-a-service partners — including mid-sized community and regional institutions — have received consent orders and corrective action requirements from their primary regulators in recent years, typically related to deficiencies in BSA/AML compliance and third-party risk management frameworks. The agencies did not name specific institutions.