Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
U.S. Regulators Revisiting Bank-Fintech Partnerships
Regulation | Jul 30, 2024
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U.S. regulators launch initiative to address bank-fintech partnership risks
The Federal Reserve, FDIC, and OCC have announced a new regulatory initiative to address the complexities and risks associated with bank-fintech partnerships. The regulatory agencies released a request for information with a particular emphasis on lending, payment processing, and deposit-taking. The results will influence future rulemaking. The agencies also published a comprehensive joint statement about their concerns, which includes guidance and best practices for banks and fintechs entering these arrangements.
Fintech-bank Partnerships: What Keeps Regulators Up At Night?
It goes without saying, regulators are concerned about operational and compliance risks. Banks face challenges in managing outsourced operations like fintech partnerships across regulatory frameworks. A lot is at stake since problems can go beyond inefficiencies and result in potential legal challenges.
See: CFPB Warns: Billions of Dollars Stored on Payment Apps May Lack Federal Insurance
Data security is pretty much everything these days. With fintech's growing role and involvement in handling sensitive customer data, there are legitimate concerns when it comes to proactively preventing (and managing) data breaches and maintaining customer trust. Imagine a situation where sensitive customer data is exposed due to a data breach at a fintech partner that processes payments for a bank. This occurrence not only damages the bank's brand but also calls into question the bank's supervision and the fintech's data protection protocols. In order to stop these kinds of breaches, regulators want to make sure institutions perform extensive due diligence and have strong monitoring mechanisms in place.
Regulators are concerned about misrepresentation of services, especially if there's confusion among customers about the terms of deposit insurance coverage and the specific roles fintech firms hold in delivering financial services. For example, in collaboration with a regular bank, a fintech company offers savings accounts; however, the fact that the FDIC insures these accounts only up to a particular amount is not clear in the communication to customers who think that all of their money is secure (when in fact it's not). The possibility of consumer harm and legal consequences highlight the need for clear and transparent disclosures of insurance coverage and the responsibilities of all parties involved.
Implications for Canada
Although this is a U.S. initiative, the increased scrutiny and potential regulatory reforms may push the Office of the Superintendent of Financial Institutions (OSFI), to take similar actions.
See: Bank-Fintech Partnerships and Trends 2024
Put differently, if international norms are changing, Canadian banks and fintechs, especially with cross-border operations, may need to revise their compliance frameworks and risk management strategies to strengthen data protections and clear disclosures affecting how Canadian fintechs may engage with customers.
Outlook
The results of the RFI will probably influence additional regulations and guidelines, which will determine how these partnerships are structured going forward. Stay tuned...
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