Although fintechs process financial transactions as part of their service offerings, most of them are not banks. Instead, they partner with a sponsor bank who moves the actual money between parties. This approach allows the fintech to focus on what they do best without having to jump through hoops to become an official bank.
However, the sponsor bank is still responsible for anti-money laundering (AML) compliance and assumes the risk for the fintech’s customers and transactions. The sponsor bank must ensure that any fintech it partners with has a strong compliance program in place. There must also be a smooth process for the fintech to report any suspicious or unusual activity. The bank’s own compliance department can then investigate and file a suspicious activity report (SAR) with FinCEN if needed.
For example, in January, the Office of the Comptroller of the Currency (OCC) filed a consent order against M.Y. Safra Bank in New York. The OCC found that the bank did not have an adequate compliance program in place. Additionally, the order states that when the bank became a sponsor bank for cryptocurrency-related money service businesses customers (“MSBs”), it did not give sufficient consideration to the Bank Secrecy Act/AML risks. Specifically, it failed to implement commensurate controls to address the increased risk. Although the bank was not fined, they were ordered to cease and desist.
If a bank wants to do business with fintechs, it must ensure that those firms have comprehensive compliance programs. The programs must include transaction monitoring and customer due diligence systems. The fintechs should also have a seamless way to report suspicious activity to the bank. This enables the bank to follow up and meet its regulatory obligations.
It’s important to note that the fintechs themselves are often not regulated; the sponsor bank is the regulated entity. Therefore, the bank is assuming the risk and responsibility on behalf of the fintech and needs to protect itself accordingly.
Jumio’s compliance solutions allow fintechs and banks to work seamlessly together. The bank can monitor the cases that are under investigation at its fintech customers. And the fintechs can easily investigate and report suspicious activity to the bank, who can then fulfill their reporting requirement without a lot of extra overhead. Request a demo today to see how Jumio can transform compliance in your organization.