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FDIC Consent Orders Highlight FinTech Risk in Financial Supply Chains

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It’s been well-documented that banks and FinTechs have been collaborating together on financial services innovation, where they once were mainly competitors.

But for the banks striking partnerships with these digital-only players, regulators are weighing in, which may in result in new approaches to how those partnerships are forged and maintained — and by extension, forcing the banks to weigh risks and rewards.

Call it a reexamination of the vulnerabilities inherent within the financial supply chain.   

To that end, and as disclosed in documents last week, the Federal Deposit Insurance Corp. entered consent orders against two banks, Sutton Bank and Piermont Bank, last month. The orders spotlight issues with third-party relationships and banking-as-a-service activities.

 

Third-Party Oversight

In the order against Piermont Bank, which is based in New York, the FDIC said, “The FDIC considered the matter and determined, and the Bank neither admits or denies, the bank engaged in unsafe and unsound banking practices relating to” internal controls and systems appropriate for “the nature, scope, complexity, and risk of its Third-Party Relationships.”  

The FDIC also mandated that there be review and assessment of “the collection of sufficient Data about the Third-Party Relationship, including the nature of the business arrangement and any associated Bank Activities or proposed new Bank Activities and the anticipated volume of these Bank Activities.”

Separately, Sutton Bank was ordered to develop and implement a revised plan that “Includes the appropriate assessment and oversight, both initial and ongoing, of any entity or party that has entered into a business relationship or arrangement with the Bank … wherein any AML/CFT regulatory requirement or obligation of the Bank is outsourced to the Third Party” in compliance with the Bank Secrecy Act.

As reported in February, Michael Hsu, the acting comptroller of the currency, said in a speech that risk-monitoring responsibilities become unclear when multiple firms with different incentives are involved.

“From a bank regulatory, micro-prudential perspective, our focus during this period must be to ensure that bank safety and soundness is maintained, consumers are protected and the playing field is level,” Hsu said.

And PYMNTS Intelligence found this past summer that  65% of banks and credit unions have entered into at least one FinTech partnership in the past three years, with 76% of banks viewing FinTech partnerships as necessary to meeting customer expectations. And a full 95% of banks are focused on using partnerships to enhance their own digital product offerings.

Source: pymnts.com

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Fintech

Central banks and the FinTech sector unite to change global payments space

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The BIS, along with seven leading central banks and a cohort of private financial firms, has embarked on an ambitious venture known as Project Agorá.

Named after the Greek word for “marketplace,” this initiative stands at the forefront of exploring the potential of tokenisation to significantly enhance the operational efficiency of the monetary system worldwide.

Central to this pioneering project are the Bank of France (on behalf of the Eurosystem), the Bank of Japan, the Bank of Korea, the Bank of Mexico, the Swiss National Bank, the Bank of England, and the Federal Reserve Bank of New York. These institutions have joined forces under the banner of Project Agorá, in partnership with an extensive assembly of private financial entities convened by the Institute of International Finance (IIF).

At the heart of Project Agorá is the pursuit of integrating tokenised commercial bank deposits with tokenised wholesale central bank money within a unified, public-private programmable financial platform. By harnessing the advanced capabilities of smart contracts and programmability, the project aspires to unlock new transactional possibilities that were previously infeasible or impractical, thereby fostering novel opportunities that could benefit businesses and consumers alike.

The collaborative effort seeks to address and surmount a variety of structural inefficiencies that currently plague cross-border payments. These challenges include disparate legal, regulatory, and technical standards; varying operating hours and time zones; and the heightened complexity associated with conducting financial integrity checks (such as anti-money laundering and customer verification procedures), which are often redundantly executed across multiple stages of a single transaction due to the involvement of several intermediaries.

As a beacon of experimental and exploratory projects, the BIS Innovation Hub is committed to delivering public goods to the global central banking community through initiatives like Project Agorá. In line with this mission, the BIS will soon issue a call for expressions of interest from private financial institutions eager to contribute to this ground-breaking project. The IIF will facilitate the involvement of private sector participants, extending an invitation to regulated financial institutions representing each of the seven aforementioned currencies to partake in this transformative endeavour.

Source: fintech.globa

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Fintech

TD Bank inks multi-year strategic partnership with Google Cloud

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TD Bank has inked a multi-year deal with Google Cloud as it looks to streamline the development and deployment of new products and services.

The deal will see the Canadian banking group integrate the vendor’s cloud services into a wider portion of its technology solutions portfolio, a move which TD expects will enable it “to respond quickly to changing customer expectations by rolling out new features, updates, or entirely new financial products at an accelerated pace”.

This marks an expansion of the already established relationship between TD Bank and Google Cloud after the group previously adopted the vendor’s Google Kubernetes Engine (GKE) for TD Securities Automated Trading (TDSAT), the Chicago-based subsidiary of its investment banking unit, TD Securities.

TDSAT uses GKE for process automation and quantitative modelling across fixed income markets, resulting in the development of a “data-driven research platform” capable of processing large research workloads in trading.

Dan Bosman, SVP and CIO of TD Securities, claims the infrastructure has so far supported TDSAT with “compute-intensive quantitative analysis” while expanding the subsidiary’s “trading volumes and portfolio size”.

TD’s new partnership with Google Cloud will see the group attempt to replicate the same level of success across its entire portfolio.

Source: fintechfutures.com

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MAS launches transformative platform to combat money laundering

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The MAS has unveiled Cosmic, an acronym for Collaborative Sharing of Money Laundering/Terrorism Financing Information and Cases, a new money laundering platform.

According to Business Times, launched on April 1, Cosmic stands out as the first centralised digital platform dedicated to combating money laundering, terrorism financing, and proliferation financing on a worldwide scale. This move follows the enactment of the Financial Services and Markets (Amendment) Act 2023, which, along with its subsidiary legislation, commenced on the same day to provide a solid legal foundation and safeguards for information sharing among financial institutions (FIs).

Cosmic enables participating FIs to exchange customer information when certain “red flags” indicate potential suspicious activities. The platform’s introduction is a testament to MAS’s commitment to ensuring the integrity of the financial sector, mandating participants to establish stringent policies and operational safeguards to maintain the confidentiality of the shared information. This strategic approach allows for the efficient exchange of intelligence on potential criminal activities while protecting legitimate customers.

Significantly, Cosmic was co-developed by MAS and six leading commercial banks in Singapore—OCBC, UOB, DBS, Citibank, HSBC, and Standard Chartered—which will serve as participant FIs during its initial phase. The initiative emphasizes voluntary information sharing focused on addressing key financial crime risks within the commercial banking sector, such as the misuse of legal persons, trade finance, and proliferation financing.

Loo Siew Yee, assistant managing director for policy, payments, and financial crime at MAS, highlighted that Cosmic enhances the existing collaboration between the industry and law enforcement authorities, fortifying Singapore’s reputation as a well-regulated and trusted financial hub. Similarly, Pua Xiao Wei of Citi Singapore and Loretta Yuen of OCBC have expressed their institutions’ support for Cosmic, noting its potential to ramp up anti-money laundering efforts and its significance as a development in the banking sector’s ability to combat financial crimes efficiently. DBS’ Lam Chee Kin also praised Cosmic as a “game changer,” emphasizing the careful balance between combating financial crime and ensuring legitimate customers’ access to financial services.

Source: fintech.global

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