Fed Brings Enforcement Action Against Wyoming Bank Holding Company Over “Fintech Business Strategy” – Fin Tech

On March 28, the Federal Reserve (Fed) issued a cease-and-desist order to a Wyoming-based bank
holding company, citing deficiencies identified in a September 2023
inspection related to its “fintech business strategy, board
oversight, capital, earnings, liquidity, risk management, and
compliance” in connection with the banking-as-a-service
activities of its bank subsidiary.

Among other things, the order requires the bank to:

• strengthen board oversight, including maintaining effective
  control over major operations and activities such as capital,
  earnings, liquidity, and risk management, developing a staffing
  assessment and succession plan, and providing adequate funding to
  ensure sufficient staffing levels;




• strengthen risk management programs, including adopting written
  policies and procedures to manage compliance and fraud risks and
  ensuring oversight personnel are qualified and have clear roles and
  adequate resources;




• ensure compliance with regulations governing affiliate
  transactions;




• seek prior written approval of the Fed with respect to any
  expansionary activities related to its fintech business strategy;
  and




• submit a wind-down plan for its fintech-related business,
  detailing the timeline and all associated costs and expenses.

According to the consent order, following the September 2023
inspection, the holding company had voluntarily stopped pursuing
its fintech business strategy and had been winding down all related
activities.

Putting It Into Practice: This cease-and desist
order from the Fed highlights a shared concern among federal
regulators that banks lack proper oversight over their fintech
partners, resulting in unsafe and unsound banking practices. While
this examination happened late last year, the parade of consent
orders against bank/fintech partnerships has been nonstop (see our
blog posts on similar consent orders in the past here, here, and here). This order once again underscores the
need for banks to reassess their fintech partnerships and current
risk management practices against the prudential regulators’ final interagency guidance.

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