Reactions to the Regulators' BaaS Request for Information (Part 1)

While the Synapse/Evolve saga drags on, in the last few months the regulators have finally begun making moves. First, in June the Fed issued an AML-based consent order against Evolve Bank and Trust, where although the points raised were not relevant to the Synapse issues (namely reconciliation), it hit at what has been the gap in monitoring from partner banks - namely their oversight of their fintechs' AML programs. Then at the end of July the FDIC, Federal Reserve and OCC issued a request for information on bank-fintech partnerships, essentially opening the floor to the public and entities of all types to give their feedback which will likely drive rulemaking. And finally, just this past week the FDIC put out a proposed rule that was widely seen as attempting to close the gaps which led to the Synapse situation, by proposing requirements around identifying beneficial owners for custodial deposit accounts (although a deeper dive by Jason Mikula reveals that this might not actually have done anything to stop the Synapse issue)!

In this week's edition (a multi-parter) of the newsletter, we will begin to take a look at reactions to the now month-long RFI (which is being extended for another month, likely at the behest of the ABA and other banking groups) and will highlight some of the notable comments. The comments on these RFIs are unhelpfully split between the agencies, rather than being centralized in one location, but not to worry - given the interest in this rule, we'll share what folks have been saying here:

The American Bankers Association , American Fintech Council , Bank Policy Institute , Consumer Bankers Association , Financial Technology Association , and ICBA

All parties co-sign a letter asking for more time to comment (which has been granted since).

James Patrick Kelley

Some high level thoughts from what appears to be an independent consultant.

He comes back with a followup comment that suggests supporting fintechs that use blockchain in processes including cross-border payments. (Not sure I believe the regulators will be supportive of this, going even deeper into new tech solutions, given this RFI is coming after a fintech and their bank could not keep folks' funds straight...)

Treasury Prime

A letter from their general counsel/Chief Compliance Officer Sheetal Parikh which partially responds to the RFI and partially touts their risk-driven approach, which included their decision earlier in the year to end their "direct to fintech" partnership approach in favor of working directly with banks only. Treasury Prime is becoming a key player for many fintech solutions providers to get access to banks and other fintechs as well, with their growing network, and it's no surprise they helpfully even include a list of attributes that should be evaluated when looking at fintechs.

Anonymous Comments to the OCC (Italicized)

• Responding to "The complexity of fintech products can be intimidating for consumers, and this burden of understanding these products is often unfairly placed on them” - "the alternative is contracting with a financial advisor, which feels planned and another cost for consumers."
• Responding to “Bank-fintech partnerships should prioritize consumer education and simplify their offerings to reduce the risk of predatory practices” - "I have experienced some education, but not total disclosure and education."
• Responding to “Fintech products often involve confusing terms and hidden fees that disproportionately affect consumers, highlighting the need for clearer, more user-friendly options.” - "The final cost might be a great start!"
• Responding to "The complexity of fintech products can be intimidating for consumers, and this burden of understanding these products is often unfairly placed on them.” - "I completed a purchased class on graphs, stocks, and procedures to follow, which many will not. It is complicated."
• Responding to “Predatory fintech practices often involve hidden costs and complex terms that consumers struggle to fully grasp to prevent exploitation" - "We all MUST read the fine print, multiple pages and statements."
• Responding to "“To prevent predatory practices in bank-fintech partnerships, there should be a push for simpler, more transparent financial products that do not place an undue burden on consumers.” - "Partial explanations do not ensure understanding."

Short edition here, but hopefully this sets the stage for Part 2 coming tomorrow where we'll highlight even more reactions. Stick with us and we'll see you next time!