US FDIC issues consent order to Thread Bank
Thread Bank has been issued with a consent order by the US Federal Deposit Insurance Corporation (FDIC) mandating operational reforms to its third-party risk management and business oversight procedures.
FDIC issues Thread Bank with consent order
The order, which came into effect 21 May, requires the Tennessee-based financial institution, formerly known as Civis Bank, to cultivate a strategic plan which actions specific goals to improve revenues, operational performance, liquidity management and anti-money laundering (AML) controls, which are to be bolstered by an annual risk assessment.
The order also mandates new measures for Thread Bank to enhance its oversight of its Banking-as-a-Service (BaaS) programme. Thread Bank currently operates as one of the largest BaaS partner banks, and notably teamed up with Israeli BaaS start-up Unit in 2022 to enable firms to embed third-party banking services.
The order states that Thread Bank must “review and approve risk tolerance thresholds for individual fintech partners based on an enterprise-wide financial analysis of each fintech partner’s financial projections under expected and adverse scenarios”, with this analysis to include “a documented customer due diligence process” and policies designed to ensure that “risks are properly identified, measured, monitored and controlled”.
Speaking on the issuance of the order, Thread Bancorp, Inc. and Thread Bank CEO, president and director, Chris Black, says the bank is “dedicated to meeting all obligations” and has already made “substantial investments to improve our policies, processes, procedures and controls over the past three years – all in collaboration with the FDIC and the Tennessee Department of Financial Institutions (TDFI)”.
“We will continue to invest in our teams and services to ensure we meet the needs of, and provide strong protection for, our customers and partners as we move forward,” adds Black.
This latest action from the FDIC underscores the continued efforts of US regulators to promote a strengthened relationship between banks and their fintech partners. This initiative was most recently emphasised when the Federal Reserve issued a cease and desist order to Evolve Bank & Trust last month, citing multiple “deficiencies” in the bank’s risk management, anti-money laundering (AML) and compliance practices.
