Thread Bank receives a consent order with focus on FinTech

• Thread Bank Receives FDIC Consent Order Due to Unsafe Banking Practices and IT Deficiencies.
• The bank must improve board oversight, risk management and compliance with AML/CFT regulations.
• Thread Bank was a popular backend bank that offered banking services for over 20 different FinTech partners.

Thread Bank, a financial institution based in Rogersville, Tennessee, was issued a consent order from the Federal Deposit Insurance Corporation (FDIC).

This action requires comprehensive reforms in the bank’s operations, focusing in particular on information technology (IT) practices, anti-money laundering (AML) measures and the overall risk management framework.

Thread Bank is one of the the largest banking-as-a-service partner banksbehind It evolves (which has been mired in problems) and Blue Ridge Bank.

Some of the popular FinTech apps served by Thread Bank include Relay race, Basalian, Cleoand other.

FDIC Problems

The consent ordinance, effective May 21, 2024, outlines multiple areas in which Wire Bank must take immediate corrective measures.

These include improving board oversight, updating strategic plans, refining enterprise risk management, and improving policies and procedures to comply with regulatory standards. Furthermore, the bank is required to strengthen it anti-money laundering and the Countering the Financing of Terrorism (CFT) program to ensure strict compliance with federal laws.

It also places a lot of emphasis on overseeing their banking-as-a-service and lending-as-a-service offerings.

Key requirements

Here are the key requirements of the consent order:

1. Board Oversight: The Board of Directors must ensure that all actions taken to comply with the order are documented in the meeting minutes. It must also verify that the bank has adequate policies, staff and systems to adhere to the provisions of the order.
2. Strategic Plan: Within 120 days, the board must update the bank’s strategic plan to address the review’s findings and recommendations. This plan should include financial goals, profit strategies, cash management, and support for your AML/CFT program.
3. Business risk management: The bank must update its risk management framework to address the findings of the examination. This includes setting risk tolerance thresholds for fintech partners based on financial analyzes in various scenarios.
4. AML/CFT compliance: The bank must assess its AML/CFT resources and designate a qualified person to oversee compliance. Within 120 days, a written plan must be developed and submitted to the FDIC for review and comment. The plan should ensure that internal controls are sufficient to ensure compliance with AML/CFT laws.
5. Fintech Partnerships Oversight: The order requires the bank’s third-party risk management program to be updated to address the complexities of its FinTech partnerships. This includes implementing documented risk assessments, customer due diligence processes and monitoring for suspicious activity.
6. Policies and Procedures: The bank must review and update all policies and procedures to reflect current objectives and risk tolerances. An internal control system must be established to track policy changes and evaluate compliance.

Regulatory implications

The FDIC consent order highlights the growing regulatory scrutiny faced by banks involved in FinTech partnerships. Thread Bank, known for its partnerships with various FinTech companies, must now improve regulatory compliance by focusing primarily on oversight of its FinTech partnerships.

This regulatory action highlights the increased scrutiny that banks involved in the FinTech sector are facing in light of the Problems with Yotta and Synapsealong with what happened recently with Evolve Bank. All banks offering banking and lending as a service should be “informed” that they are equally responsible for the customers and funds of their FinTech partners.

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