When a fintech approaches a sponsor bank looking to launch a banking product, the most common question used to be about the unit economics. Increasingly, the first question is about compliance.
Banks have learned this lesson from a wave of enforcement actions. Regulators made clear, starting in 2023 and continuing through 2024, that the bank is accountable for what its fintech partners do, regardless of what the contract says about who bears compliance responsibility. Blue Ridge Bank, once one of the most active bank-as-a-service sponsors, entered an OCC consent order in early 2024 requiring it to overhaul its AML risk management and third-party oversight program. The FDIC issued similar orders to other sponsor banks. The message from examiners was direct: if you sponsor a fintech’s activities, you own the compliance risk.
For fintechs, that dynamic creates both an obligation and an opportunity. The obligation is clear. The opportunity is that a fintech with a demonstrably mature compliance program is a better partner and a faster path to a signed agreement. Banks now conduct compliance due diligence on fintech partners as a prerequisite to the relationship, not an afterthought. Fintechs that are not prepared for that scrutiny do not get to the term sheet.
What the Regulatory Framework Requires
In mid-2023, the OCC, FDIC, and Federal Reserve issued joint interagency guidance on third-party risk management that drew particular attention to bank-fintech partnerships, explicitly requiring banks to perform comprehensive due diligence and ongoing oversight of all fintech partners. The Government Accountability Office noted the same year that federal regulators were adapting their examination procedures specifically to evaluate these relationships more rigorously.
For fintechs, this guidance matters because sponsor banks pass its requirements downstream through contract and ongoing oversight. A bank cannot satisfy its regulators without detailed contractual controls over its fintech partner’s compliance activities, monitoring rights, and the ability to exit the relationship if the fintech’s compliance posture deteriorates. The fintech’s compliance infrastructure is no longer just an internal matter. It’s part of the bank’s examination record.
BSA/AML: Where the Most Serious Exam Risk Lives
BSA/AML compliance is where fintech-bank partnerships tend to fail in examinations. Blue Ridge Bank’s 2024 consent order required the bank to redesign its AML program to account for fintech partner risk, including specific improvements to suspicious activity monitoring and Customer Identification Program procedures. FDIC consent orders in similar cases required banks to conduct lookbacks to identify and correct CDD deficiencies that had accumulated through fintech-managed onboarding.
The operational pattern that creates this problem is consistent. Banks license their compliance obligations to fintechs but do not always build the oversight to verify performance. When a fintech manages KYC and customer onboarding on behalf of the bank, the bank still owns the obligation to ensure those processes meet regulatory standards. That requires more than a compliance certification in the contract. It requires periodic testing, defined escalation paths, access to transaction data, and documented review of the fintech’s SAR and CTR filings.
Fintechs that want to be credible bank partners build these capabilities before being asked. That means a documented AML program, a compliance officer with actual authority and relevant experience, tested KYC procedures, and a monitoring system calibrated to the fintech’s customer base and transaction patterns. Banks conducting due diligence are asking for these materials. Fintechs that cannot produce them lose opportunities to those that can.
UDAAP: The Risk That Lives in the Marketing Materials
UDAAP risk in fintech-bank partnerships tends to receive less attention than BSA/AML, but it is where the CFPB has focused enforcement in these relationships. Fintechs control the customer-facing product experience, including onboarding language, fee disclosures, marketing claims, and product terms. The bank is responsible for ensuring those materials are accurate, non-deceptive, and consistent with the product’s actual terms.
The gap emerges when fintechs update their product experience faster than the bank’s compliance review process can track. Marketing language or fee structures that change without triggering a bank compliance review have consistently been a source of UDAAP findings in this space. Practical UDAAP compliance for fintechs requires a defined review process for customer-facing materials before launch, a document retention program for all versions of marketing and disclosure language, and a complaint tracking system that surfaces patterns in customer concerns. The bank’s compliance function will ask for evidence of all three.
Building the Compliance Infrastructure That Banks Require
The interagency guidance on third-party risk management provides a practical framework for fintechs thinking about how to position themselves for bank partnerships. Banks must perform pre-contract due diligence, negotiate compliance terms into their agreements, monitor partner performance throughout the relationship, and have exit procedures in place. Fintechs that understand this framework and present their compliance posture in terms that map to each stage are easier partners to work with and faster to close.
Pre-contract due diligence is the place to demonstrate BSA/AML program design, information security posture, complaint management procedures, and financial stability. Banks need to show their examiners that they understood what they were entering before signing. Fintechs that make that showing straightforward are more likely to get deals done.
Ongoing monitoring means fintechs should expect regular compliance reviews, audit rights, and requests for documentation. Banks are not checking these boxes to be difficult. They’re checking them because their own examiners will test whether monitoring is real or ceremonial. Fintechs that build these review cycles into their operating model treat them as routine rather than intrusive, which is the right posture.
The compliance infrastructure required to be a successful bank partner is not optional overhead. It is the cost of access to the banking system’s infrastructure and customer trust. Fintechs that treat it as a competitive differentiator rather than a tax tend to build more durable partnerships and encounter fewer surprises when examinations happen.
Sources
Interagency Guidance on Third-Party Risk Management | OCC, FDIC, Federal Reserve (2023)
OCC Consent Order: Blue Ridge Bank (2024) | OCC Enforcement Actions
Bank and Fintech Partnerships | Government Accountability Office (2023)
