The Federal Reserve Board took action against Evolve Bancorp, Inc. and Evolve Bank & Trust, which provides so-called banking products as a service to fintech companies, for failing to comply with anti-money laundering, risk management and consumer protection requirements. compliance programs, according to statement Today.
As part of the enforcement action, the Arkansas-based bank will have to tighten compliance with existing partners, including fintech giant By-Now Pay Later Affirm, which announced a partnership with Apple yesterday. Affirm declined to comment. In April, Evolve customer funds were linked to a pig slaughter scam. captured. It also provided banking services to fintech company Synapse Financial Technologies, which went bankrupt in May. It has also partnered with banking fintech company Mercury, which provides banking services to startups.
“With respect to ongoing partnerships with financial technology companies, the Board’s actions require Evolve to strengthen its risk management practices to address potential risks,” the Fed said in a statement. “Including compliance and fraud risks by implementing appropriate oversight and monitoring of these relationships, including through enhanced procedures related to recordkeeping and consumer compliance programs.”
Konrad Alt of regulatory consulting firm Klaros Group says many large players providing banking products as a service are subject to formal or informal enforcement actions. But at the same time, “each of these orders contains few innovations in the field of regulation. Banks in this space will want to read Evolve’s order carefully to see if it has implications for them.” In 2023, banks-as-a-service accounted for 13.5% of the “severe enforcement actions” taken by federal banking regulators. according to at S&P Global Market Intelligence.
According to the statement, the Board’s enforcement action against Evolve is independent of Synapse’s bankruptcy proceedings.
In an email sent to LuckAn Evolve spokesperson acknowledged that the company has signed off on receiving a formal order from the Federal Reserve Board and Arkansas State Bank Department and has agreed to take certain measures to “further strengthen” their compliance oversight and risk management practices.
“We have made significant investments in technology and personnel in our enterprise risk management, compliance and BSA/AML departments to strengthen oversight and enhance risk management,” the spokesperson wrote. “With the support of our senior management and Board of Directors, we are confident that the impact of this Order will result in a stronger Evolve.”
According to the Fed, these actions resulted from examinations conducted in 2023 that found that Evolve failed to establish an effective risk management system for its partnerships and did not maintain an effective risk management program. This was not part of the official investigation.
Evolve called the reviews part of “routine regulatory scrutiny” and said the order was similar to what others in the services banking industry have received. The statement said the Fed’s order “does not impact our existing business, customers or deposits. Evolve remains well capitalized and continues to demonstrate strong growth across all lines of business.”
Evolve’s board of directors has 90 days to submit a written plan to enhance the board’s oversight of the bank’s management and operations, as well as the bank’s compliance with the Bank Secrecy Act and other anti-money laundering regulations.