Fintech–bank partnerships have become the engine driving innovation in financial services. From digital banking apps to buy-now-pay-later platforms, fintechs depend on sponsor banks to deliver regulated products at scale. But with opportunity comes risk: regulators are scrutinizing these partnerships more closely than ever, holding banks accountable for their fintech partners’ compliance practices. For both sides, success depends on building relationships grounded in strong compliance, transparent oversight, and shared accountability.
The Rise of Fintech–Bank Partnerships
Over the past decade, fintechs have reshaped how consumers and businesses access financial services. Digital banking apps, peer-to-peer payments, and embedded finance solutions have set new expectations for speed and convenience. Yet behind the scenes, most fintechs cannot operate alone—they rely on banks to provide the regulated infrastructure for lending, payments, and deposits.
These sponsor bank partnerships have grown rapidly, fueling the expansion of neobanks, BNPL platforms, and specialized financial apps. The model benefits both sides: fintechs gain access to the banking system, while banks expand their reach into new markets without building the technology themselves.
At the same time, regulators have made it clear that banks remain ultimately responsible for their partners’ compliance. Recent enforcement actions highlight the risks of inadequate oversight, signaling that strong governance is no longer optional—it’s a requirement for sustainable growth.
Key Compliance Challenges in Partnerships
Building compliance agility requires more than updating policies when regulations change. It involves creating a foundation that enables organizations to adapt consistently and effectively. The following pillars form the core of an agile compliance program:
Third-Party Risk Management (TPRM)
Banks are required under OCC, FDIC, and Federal Reserve guidance to maintain full oversight of their fintech partners. This begins with pre-onboarding due diligence—evaluating the fintech’s financial condition, compliance program, governance structure, and operational resilience. But the responsibility doesn’t end there. Regulators expect banks to perform ongoing monitoring, including periodic reviews of policies, audits, customer complaints, and even site visits.
For fintechs, this means being “examiner-ready” at all times—having policies, procedures, risk assessments, and internal controls that align with banking standards. Without this level of maturity, fintechs may struggle to attract or retain sponsor banks.
BSA/AML and Sanctions Compliance
One of the most common friction points in partnerships is deciding who is responsible for core AML functions:
- Customer identification (CIP/KYC)
- Customer due diligence (CDD) and enhanced due diligence (EDD)
- Transaction monitoring
- Suspicious activity reports (SARs) and currency transaction reports (CTRs)
- Sanctions screening
If roles aren’t clearly defined in contracts and oversight frameworks, regulators may view both the bank and the fintech as liable. For example, if a fintech fails to properly monitor transactions for suspicious activity, the partner bank could face penalties for inadequate oversight.
To avoid this, both sides must document ownership of each function and establish reporting lines, escalation procedures, and audit trails.
Consumer Protection & UDAAP
The CFPB and other regulators are heavily focused on unfair, deceptive, or abusive acts or practices (UDAAP), especially in fintech products like BNPL, digital lending, and embedded finance. Risks often arise in:
- Marketing and advertising: Exaggerated claims or unclear disclosures about fees, repayment terms, or benefits.
- Product design: Features that may create hidden costs or confusion for consumers.
- Complaint handling: Failing to track, escalate, and resolve complaints in a timely and transparent manner.
Even if the fintech is responsible for day-to-day operations, the bank is still accountable if regulators determine customers were misled or harmed. This makes joint oversight of consumer protection standards critical.
Data Privacy & Cybersecurity
Both fintechs and banks are custodians of nonpublic personal information (NPPI), which makes privacy and cybersecurity a shared responsibility. Compliance risks arise if:
- Data is not encrypted, segmented, or stored according to regulatory standards.
- Fintechs rely on third-party vendors without proper oversight of their security controls.
- Incident response plans are not coordinated, leading to delays or inconsistent notifications when a breach occurs.
Given the rise in cyberattacks targeting financial services, regulators expect robust safeguards, vendor monitoring, and tested response procedures. A breach at the fintech can quickly become a reputational and regulatory problem for the bank.
Regulatory Expectations and Enforcement
Recent guidance and enforcement actions underscore one key point: banks are ultimately responsible for their fintech partners’ compliance activities.
- OCC and FDIC have issued clear third-party risk management guidelines requiring continuous oversight of fintechs.
- Enforcement actions have penalized banks for failing to monitor partners’ AML controls, consumer protection practices, or marketing.
- Regulators are signaling increased scrutiny of Banking-as-a-Service (BaaS) models, especially where multiple fintechs are operating under a single sponsor bank.
For fintechs, this means compliance maturity is essential to securing and sustaining bank relationships. For banks, it reinforces the need to invest in structured, documented oversight frameworks.
The Bank’s Perspective
For banks, fintech partnerships present both growth opportunities and significant regulatory exposure. While fintechs bring innovation and new customer bases, banks are the ones ultimately held accountable by regulators. This creates a natural caution in how banks approach partnerships.
Regulatory Liability
Regulators make it clear: banks cannot outsource responsibility. Even if a fintech is running day-to-day operations, the bank remains on the hook for ensuring compliance with BSA/AML, consumer protection, privacy, and other requirements. Enforcement actions have shown that banks can face fines, consent orders, and reputational damage if a fintech partner falls short.
Reputation Risk
Every fintech partner is an extension of the bank’s brand. If a fintech faces data breaches, customer complaints, or unfair lending allegations, the fallout often lands on the bank. In today’s environment of heightened consumer protection, banks must be selective about who they partner with and ensure those fintechs uphold the bank’s reputation.
Oversight Expectations
Examiners now expect banks to have documented oversight frameworks for all fintech partners. This includes:
- Comprehensive due diligence before onboarding.
- Clear contracts assigning compliance responsibilities.
- Ongoing monitoring—through reports, audits, and direct communication.
- Evidence that issues are escalated and remediated promptly.
Balancing Innovation and Risk
Banks recognize that fintech partnerships can open doors to new markets, attract younger customers, and generate fee-based revenue. However, they must balance this opportunity with strict regulatory expectations. The result is often a cautious approach, with banks only engaging fintechs that can demonstrate compliance maturity, transparency, and readiness for examiner scrutiny.
The Fintech’s Perspective
For fintechs, partnerships with banks are essential to delivering regulated products like payments, deposits, and lending. Yet while banks focus on oversight and liability, fintechs often have different priorities—speed to market, user experience, and growth. This difference in focus can create tension if not addressed with strong compliance foundations.
Need for Speed and Flexibility
Fintechs thrive on rapid product development and the ability to pivot quickly. Lengthy bank due diligence processes and regulatory reviews can feel like roadblocks. However, skipping or downplaying compliance can delay launches even further—or worse, derail partnerships if a bank loses confidence in the fintech’s readiness.
Compliance Maturity as a Differentiator
Fintechs that treat compliance as a strategic investment gain an edge in attracting and retaining bank partners. Banks are more willing to partner with fintechs that can present complete compliance documentation, risk assessments, and audit results. Those that lack this maturity may struggle to secure partnerships or face increased oversight burdens.
Frustrations with Oversight
Ongoing monitoring, reporting, and periodic audits by partner banks can sometimes feel excessive to fintech teams focused on growth. But these requirements are driven by regulatory mandates, not just bank preference. Fintechs that understand this dynamic—and build internal processes to make oversight smoother—tend to have stronger, more sustainable partnerships.
Shared Accountability and Trust
Successful fintechs recognize that compliance is a shared responsibility. By being transparent, responsive, and proactive with their partner banks, they can build trust that accelerates growth rather than slows it down. Fintechs that see compliance only as a “box to check” risk damaging relationships and facing regulatory pushback.
Building Strong, Compliant Partnerships
The most successful fintech–bank relationships are built on transparency, accountability, and a shared commitment to compliance. Both parties must take proactive steps to define responsibilities and maintain ongoing oversight. Key practices include:
Clear Contracts and SLAs
Partnership agreements should explicitly define compliance responsibilities across areas such as BSA/AML, sanctions screening, consumer protection, and reporting. Service level agreements (SLAs) should outline turnaround times for alerts, complaint resolution, and regulatory responses, ensuring neither party is left exposed.
Governance Structures
Creating formal oversight mechanisms helps keep compliance front and center. Many partnerships establish joint compliance committees or designate liaisons to ensure regular communication. Governance structures should include escalation protocols for emerging risks and documented minutes to evidence oversight to regulators.
Regular Monitoring and Audits
Agreements should include provisions for ongoing monitoring and independent audits of fintech activities. Transparency is critical: fintechs should provide banks with compliance reports, testing results, and remediation updates to demonstrate oversight readiness.
Future Trends in Fintech–Bank Partnerships
The fintech–bank partnership model is evolving rapidly, and compliance expectations are rising in step. Organizations that anticipate future trends will be better positioned to sustain long-term, compliant relationships. Key developments to watch include:
Heightened Regulator Scrutiny of BaaS Models
Banking-as-a-Service (BaaS) platforms and sponsor bank arrangements are drawing increased attention from the OCC, FDIC, and Federal Reserve. Regulators are particularly focused on whether banks can demonstrate active, ongoing oversight of their fintech partners rather than relying solely on contractual language.
Standardized Due Diligence Packages
Both banks and fintechs are moving toward more formalized frameworks for onboarding and oversight. Standard due diligence packages—including policies, risk assessments, audit reports, and governance documents—are becoming the norm. Fintechs that build these packages in advance will reduce friction in securing partnerships.
Greater Reliance on RegTech Solutions
Automation and RegTech tools will play an increasingly central role in monitoring fintech partnerships. Real-time reporting dashboards, automated transaction monitoring, and compliance analytics will help banks maintain visibility across multiple fintech relationships simultaneously.
Potential Direct Regulation of Fintechs
Policymakers continue to debate whether fintechs should be regulated more directly, rather than solely through partner banks. Any move in this direction would significantly change compliance obligations and could lead to more dual oversight in partnerships.
How RADD Can Help
Navigating fintech–bank partnerships requires more than just signing an agreement—it demands a robust compliance framework that satisfies regulators and builds trust between both parties. That’s where RADD comes in.
We work with both banks and fintechs to strengthen their partnerships by providing:
- Third-Party Risk Management Support
- Helping banks design and implement due diligence and monitoring frameworks that meet OCC, FDIC, and Federal Reserve expectations.
- Assisting fintechs in building “oversight-ready” compliance packages with policies, risk assessments, and audit documentation.
- BSA/AML and Sanctions Guidance
- Clarifying roles and responsibilities in KYC, CDD, transaction monitoring, and reporting.
- Conducting independent reviews of AML programs to ensure effectiveness and examiner readiness.
- Consumer Protection and UDAAP Compliance
- Reviewing marketing materials, disclosures, and complaint-handling processes to prevent regulatory pitfalls.
- Independent Audits and Monitoring
- Providing unbiased internal audits and monitoring programs that give both fintechs and banks confidence in compliance controls.
Conclusion
Fintech–bank partnerships are reshaping financial services, opening the door to innovation and new customer experiences. But these opportunities come with heightened compliance responsibilities. From third-party risk management and BSA/AML to UDAAP and data privacy, regulators expect both banks and fintechs to demonstrate strong oversight and shared accountability.
The partnerships that thrive will be those that embed compliance into their foundation – treating it not as an obstacle, but as a catalyst for trust, resilience, and long-term growth.
At RADD, we specialize in helping both fintechs and banks build agile, exam-ready compliance programs that strengthen partnerships and meet evolving regulatory expectations.
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