Evolve Bank ordered by Fed to address AML, sanctions lapses | News Brief

Evolve Bank & Trust engaged in unsafe and unsound business practices related to third-party fintech companies it partnered with, the Fed said Friday in a press release.

One of the third parties connected with Evolve was software-as-a-service platform Synapse, which filed for bankruptcy in May. Evolve responded to Synapse’s bankruptcy at the time in a press release.

The details: The Federal Reserve Bank of St. Louis and the Arkansas State Bank Department discovered deficiencies in Evolve’s risk management programs in an August examination. They flagged the bank’s risk management practices in its Open Banking Division, which offered deposit accounts and payment processing services to fintechs, the Fed said in its order.

A subsequent January examination by federal and state banking regulators uncovered additional deficiencies related to the bank’s risk management and compliance programs for handling AML program requirements of the Bank Secrecy Act (BSA) and regulations from the Treasury Department’s Office of Foreign Assets Control (OFAC) related to U.S. sanctions.

Compliance considerations: As part of the enforcement order, Evolve agreed to submit a report to federal and state banking regulators within 90 days to strengthen board oversight of the management and operations of the bank, as well as its compliance with BSA and OFAC regulations.

The report must include written policies and procedures “to identify, manage, and monitor potential risks, including compliance and fraud risks, associated with each fintech partner, product, program, service, business line, or customer” and to take steps to “enable the timely identification, measurement, and reporting of risk exposures associated with each fintech partner, product, program, service, business line, or customer.” Those policies and procedures must cover onboarding and offboarding fintech partners, as well as regular risk monitoring.

The order also requires Evolve to hire compliance personnel who “possess appropriate subject matter expertise, stature, and direct reporting access to the board of directors” and that the bank’s compliance program must have “sufficient staffing levels” and periodically reevaluate resource and staffing needs.

Evolve did not respond to a request for comment.