how they can benefit the industry

There’s a right way and a wrong way to build and manage bank-fintech business relationships. Well, make that many ways to do both, as there are several critically important factors and practices that need to be considered (and monitored) in every such relationship,
no matter its specific goals and structure.

Over the past several weeks, vexing examples have popped up in the press and regulatory circles of just what happens when partnerships among regulated entities and specialised financial services companies or other providers are not created or maintained
as sensibly and securely as they need to be. No doubt that’s one reason US banking authorities pounced this past week on the issue, with words of caution in an unusual joint, public reminder to the financial institutions under their supervision, essentially
warning them: “Do it (third-party partnering) right – or don’t do it at all.”

Leaders of the three main US financial institution oversight bodies, the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued an unusual combined

statement this past week, serving notice to banks under their supervision that third-party arrangements must be carefully analysed for potential risks. This was somewhat of a departure from a largely ‘hands-off’ approach (at least from a public standpoint)
as the number of bank/fintech partnerships has steadily risen across America (and elsewhere in the world) over the past several years.

Noting that their three-party, combined message “reemphasizes (the regulators’) existing guidance; it does not alter existing legal or regulatory requirements or establish new supervisory expectations”, the authorities involved nonetheless cautioned banks
to take a fresh look at risks involved in all third-party partnerships. They specifically recommended renewed scrutiny be given to arrangements where banks use “intermediate platform providers, processors, middleware providers, aggregation layers, and/or program
providers” to deliver or facilitate deposit products and transaction services for end users.  

Financial services leaders have for the past few decades leaned more and more on outside providers to help them deliver various products and functionality to customers, and in fact many of those outsourcing and facilitative relationships have been cited
as examples of best industry practice. The US regulators’ joint statement didn’t question the propriety, validity or practicality of most such arrangements, but it did enumerate several areas of particular concern where/when – as bank/fintech ties have grown
in number and complexity and involved cross-functional transactions and account processes – the agencies observe that “risks may be elevated” for those involved.

“Operational and Compliance” processes identified as key focus areas

It’s clear that the Fed, FDIC, and OCC view…