Effective risk management for financial institutions’ partnerships with FinTechs

Abstract

The aim of this paper is to provide insights into the regulatory concerns and challenges faced by financial institutions when partnering with FinTech companies. The paper highlights the recent consent orders issued against well-known financial institutions for their FinTech relationships and risk management programme shortcomings, as well as how financial institution and FinTech collaboration can overcome these shortcomings. It acknowledges the frustration caused by the limited guidance provided by regulators on incorporating FinTech into financial institution operations. However, it encourages financial institutions to learn from the published consent orders and improve their risk management programmes. The paper also discusses the factors that need to be considered in FinTech partnerships, such as overborrowing, bias and discrimination in algorithms, and data privacy and reliability. It emphasises the importance of compliance professionals in analysing regulatory considerations early and creatively to meet future demands. Furthermore, the paper explores the changing landscape and increasing reliance on technology, highlighting areas that need to be considered in financial institution risk management programmes. It addresses concerns related to alternative credit models, bias and discrimination in algorithms, and data privacy and reliability. Overall, readers can expect to gain knowledge and insights into the regulatory concerns and challenges associated with FinTech partnerships, as well as practical actions and considerations to mitigate risks and ensure compliance.