Collaborations between banks and FinTechs have become increasingly common in recent years. While conversations with a FinTech’s CEO and customer success lead are important, too often, essential conversations with the Chief Risk Officer (CRO), Chief Compliance Officer (CCO), and Chief Technology Officer (CTO) are overlooked.
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These conversations can provide insights into the firm’s operating model, governance, and risk management practices beyond the messaging in marketing collateral.
To ensure a successful long-term relationship with a FinTech, banks should look for positive Green Flags such as transparency, understanding of bank goals, building with risk in mind, and having the right team in place to support the bank’s risk deploying the technology.
Green Flag 1: Transparent Risk Management and Compliance Processes
By implementing strong risk management and compliance processes, FinTechs can set banks up for enhanced success without exposing them to concerning levels of unmitigated risk.
Regular updates and reporting on the FinTech’s risk management and compliance activities are important in integrating the FinTechs into the bank’s aggregate risk view of third-party exposure and overall risk profile. Banks should conduct regular reviews of the FinTech’s operations and discuss any identified concerns.
The right FinTech Product Officer operates with sound guidance and tools supported by their CCO and CRO and knows banks as clients need to operate in a safe and sound manner and achieve compliance with applicable regulatory requirements while maintaining relevance and competitiveness in the marketplace.
Green Flag 2: Understanding of Bank Goals
A meaningful partnership with a FinTech team that understands the bank’s aims and strategies and has already thought about the issues the bank may face, the constraints it operates within, and how to solve them can accelerate positive outcomes.
The FinTech management team should remain focused on risk and compliance, while understanding that banks are businesses and face increasing regulatory scrutiny on FinTech partnerships.
Being able to lean on the expertise of the FinTech as a partner can bolster the bank’s internal teams with depth of experience, insights, and contribute to strategic advantage.
Green Flag 3: Building with Risk in Mind
The FinTech must have a full grasp of what the bank is trying to achieve, how it wants to execute, and the inherent risks involved. A responsible FinTech team understands its inherent risks as well as those of the bank, the regulatory perimeter, and the controls expected to manage the risks.
There should be a focus on operating with procedures in place for vendor due diligence and the development of programs and policies to mitigate and/or avoid third- and fourth-party risk.
Green Flag 4: The Right Team in Place to Support the Bank’s Risk Deploying the Technology
A FinTech operating with a team of experienced professionals that understands industry practices will advance the bank’s objectives with appropriate and reasonable oversight.
A FinTech that lacks awareness of risk practices and expected controls may require bank management to exert increased oversight, monitoring, and even training to get them to baseline.
Commitment to risk and compliance by a FinTech should not stop at obtaining relevant certifications and accreditations but should be regularly supplemented by relevant networking and actively taking part in industry groups and forums related to risk management, including information security and compliance.
The Bottom Line
It is important for banks to have conversations with a FinTech’s CRO, CCO, and CTO before entering into business with them.
These conversations can provide valuable insights into the FinTech’s operating model, governance, and risk management practices beyond what is stated in marketing materials. Banks should look for positive Green Flags such as transparency, understanding of bank goals, building with risk in mind, and having the right team in place to support the bank’s risk deploying the technology.
As banks think about their FinTech partner as part of their business, not just a banking partners, they should be asking, ‘What if the regulators walked into the FinTech’s office today?’ Your FinTech needs to run as though they are always ready for you or your regulators to show up.
