The US Federal Reserve Board has penalized Evolve Bancorp and its subsidiary, Evolve Bank & Trust, for several “deficiencies” in the bank’s risk management, anti-money laundering (AML), and compliance practices.
Based in Memphis, the bank operates an open banking division (OBD) alongside traditional banking services, providing deposit accounts and payment processing services to fintech companies.
The Federal Reserve’s order, based on examinations conducted in 2023, found that the bank had “engaged in unsafe and unsound banking practices by failing to have in place an effective risk management framework for those partnerships.”
Until Evolve enhances its risk management policies and programs to comply with AML laws and consumer protection regulations, the Federal Reserve has mandated a halt to certain activities.
The order stipulates: “Effective immediately, the Bank shall not, without the prior written approval of the Supervisors: (i) establish any new fintech partners, subsidiaries, business lines, products, programs, services, or program managers related to OBD, or (ii) offer new products, programs, or services to an existing fintech partner, program manager, or subsidiary of OBD.”
Evolve must now meet several deadlines set by the Federal Reserve. Within 60 days of the order, dated June 11, the bank must submit “improved lending and credit risk management policies and procedures for OBD,” along with an “acceptable enhanced” written internal audit program.
In comments to FinTech Futures, an Evolve spokesperson stated that the company has “signed the receipt of a Formal Order from the Federal Reserve Board and the Arkansas State Bank Department.”
“We’ve made significant investments in technology and personnel in our Enterprise Risk Management, Compliance, and BSA/AML departments to strengthen oversight and enhance the risk framework … we’re confident this Order’s impact will result in a stronger Evolve.”
The spokesperson added that the order is “similar to orders received by others in the industry” and does not affect Evolve’s existing customers or deposits.
The Federal Reserve asserts that its enforcement action against Evolve is “independent” of the bankruptcy proceedings involving Synapse Financial Technologies, for which Evolve serves as the banking partner.
Source: fintechfutures.com
