As we shared previously, one of the cornerstones of the compliance content tracks at Money 20/20 this year was this idea of ‘Trust and Uncertainty’.
One of the more interesting post-Money 20/20 storylines we heard was that while it certainly feels like there is less and less ‘uncertainty’ as new guidelines and enforcements are handed down — there is, at the same time, a growing frustration amongst banks, baas providers, and fintechs on the lack of directional clarity within some of those guidelines and how financial institutions are supposed to apply them in practice.
An Inside Look
We recently hosted a panel featuring ex-regulators, auditors, and compliance pioneers from BankProv, Midland States Bank, MainStreet Bank, and the Klaros Group on the intensification of regulatory scrutiny, turmoil, and uncertainty in the embedded banking space.
Our panelists covered the implications this scrutiny has on BaaS-fintech collaboration, the potential repercussions of a ‘rumored BaaS crackdown’, and the necessary steps compliance leaders must take to modernize their tech stacks and set themselves up for success in 2024.
One of our experts, Janine Jakabauskas, Chief Risk Officer at BankProv, unpacked some of the challenges caused by the lack of clarity on guidelines, saying:
“Sometimes there’s this thought that just because a bank is under enforcement, that this automatically means the bank was not trying to do the right thing – that’s not always the case. Sometimes it could just be in part that there’s a lack of regulatory clarity in a certain space.” she explains, “And so what happens is these banks are really left to figure out how they can apply it to these gray areas…I think all the banks want to kind of come together and say, ‘we're hoping that some of these areas are not always gray and we're looking for that additional regulatory guidance there.’”
Last week, in a serendipitous turn of events, the former FDIC Chair, Jelena McWilliams' gave remarks during the American Fintech Council’s Policy Summit, which acutely dovetails with this webinar's core themes.
She emphasized the lack of clarity in recent regulatory guidance, making it challenging for banks to comprehend compliance boundaries. “When you read the guidance, it says a lot, but it doesn’t say anything to really help you understand, if I cross the line, where is that line?” McWilliams said, "The truth is, banks need to know how to comply... without clear road lines, they will be hesitant to engage in partnerships," McWilliams stated.
One of the most poignant insights from our panel came from Andreas Westgaard, Director at The Klaros Group:
“There was a sense of nervousness among several of the community banks that I spoke with [at Money 20/20] about their future. Many of them see partner banking, including banking as a service, and embedded finance offerings as a key part of their strategy to unlock new areas of growth. And they're legitimately worried about the regulatory environment cutting off that potential lifeline.”
The Road Ahead
BaaS continues to be one of the most talked-about regulatory and strategic priorities for regulators and institutions alike. The industry is at a crossroads where regulatory clarity, enhanced risk management practices, and the adoption of advanced compliance technologies will play pivotal roles in shaping the future of BaaS partnerships.
Be sure to check out the on-demand recording, dive deeper into their valuable insights (of which there were many), and explore strategies for succeeding in today's BaaS landscape.