REGULATORY COMPLIANCE & RISK MANAGEMENT
Regulatory Compliance & Risk Management Overview
We provide expert guidance on navigating the complex regulatory landscape, ensuring financial institutions and their fintech partners maintain compliance while pursuing innovation and growth.
FDIC BaaS Examination Focus Areas: Compliance Preparation Strategies
FDIC examinations of Banking as a Service (BaaS) programs have evolved to address the unique risks of indirect customer relationships and fintech partnerships. Understanding examination focus areas enables banks to prepare comprehensive compliance programs.
Specialized Examination Approach
FDIC BaaS examinations involve specialized teams with expertise in:
- Technology risk and cybersecurity
- Consumer compliance and protection
- BSA/AML and sanctions compliance
- Third-party risk management
- Operations and customer service
These examinations are more comprehensive than standard safety and soundness reviews, reflecting the complexity of BaaS relationships.
Customer Identification Program (CIP) Requirements
Examination Focus: How banks verify customer identity when customers are onboarded through partner platforms without direct bank interaction.
Key Requirements:
- Independent customer verification capabilities beyond partner-provided information
- Comprehensive ongoing customer due diligence procedures
- Regular customer information updates and verification processes
- Clear documentation of customer identification and verification procedures
Best Practices:
- Maintain independent customer verification systems
- Implement systematic customer information update procedures
- Document risk rating methodologies and review frequencies
- Ensure complete customer records for examination review
BSA/AML Program Adequacy
The Challenge: Monitoring customers the bank doesn't directly serve for money laundering and suspicious activity.
Examination Areas:
- Transaction monitoring system effectiveness for indirect customers
- Suspicious Activity Report (SAR) filing procedures and quality
- Customer risk assessment methodologies and implementation
- Ongoing monitoring of customer activity patterns and behaviors
Critical Success Factors:
- Platform-specific transaction monitoring parameters
- Enhanced SAR filing procedures for indirect customer relationships
- Regular monitoring system validation and calibration
- Specialized BSA/AML training for BaaS relationship management
Customer Service and Complaints Management
FDIC Expectation: Banks remain fully responsible for customer experience and complaint resolution regardless of customer acquisition method.
Common Examination Issues:
- Extended complaint resolution timelines due to information gathering complexity
- Inadequate complaint tracking and documentation systems
- Limited bank staff capability to resolve customer issues independently
- Insufficient complaint trend analysis and corrective action procedures
Solution Framework:
- Direct customer service capabilities independent of partner involvement
- Comprehensive complaint tracking across all contact points
- Clear service level agreements with partners for customer service support
- Regular complaint analysis and process improvement initiatives
Third-Party Risk Management
Beyond Standard Vendor Management: BaaS partners require specialized oversight as customer acquisition channels rather than typical service vendors.
Key Examination Areas:
- Partner financial health monitoring and assessment procedures
- Partner compliance monitoring and audit programs
- Contingency planning for partner business failure or exit
- Contract management and performance monitoring systems
Documentation Requirements:
- Quarterly partner financial analysis and trend assessment
- Annual comprehensive partner relationship reviews
- Incident reporting and resolution tracking systems
- Performance standard monitoring and enforcement procedures
Board and Management Oversight
Examination Focus: Board understanding of BaaS risks and effectiveness of oversight processes.
Required Board Oversight Elements:
- Regular BaaS program performance reporting and analysis
- Quarterly partner relationship assessments and risk evaluation
- Annual BaaS strategy review and risk appetite assessment
- Immediate escalation procedures for significant compliance or customer service issues
Examination Preparation Strategies
Documentation Organization:
- Comprehensive partner relationship files with complete due diligence documentation
- Program management documentation including policies, procedures, and training records
- Customer relationship documentation with identification, monitoring, and service records
- Board and management oversight documentation with meeting minutes and decision rationale
Staff Preparation:
- BaaS-specific training for examination interaction and response
- Clear roles and responsibilities for examination support
- Documentation location and retrieval systems
- Management response preparation for anticipated examination areas
System Readiness:
- Transaction monitoring system documentation and validation reports
- Customer service system capabilities and performance metrics
- Compliance monitoring and reporting system functionality
- Technology infrastructure documentation and security assessments
Ongoing Compliance Monitoring
Successful BaaS programs implement continuous compliance monitoring including:
- Monthly partner performance and compliance reporting
- Quarterly comprehensive partner relationship assessments
- Annual program effectiveness evaluation and enhancement
- Continuous regulatory guidance monitoring and implementation
FDIC examinations of BaaS programs require specialized preparation and comprehensive compliance infrastructure. Banks that invest in proper risk management and examination readiness consistently outperform those that treat BaaS as simple revenue generation.
Regulatory Compliance Results
- Reduce regulatory violations maintained by clients through our compliance programs
- Reduction in compliance costs through process optimization
- 90+ day preparation time for regulatory examinations with comprehensive documentation
- Proactive regulatory relationship management preventing issues before they arise