US Federal Reserve Board issues cease and desist order against Evolve Bank
The US Federal Reserve Board has penalised Evolve Bancorp and its subsidiary, Evolve Bank & Trust, for multiple “deficiencies” in the bank’s risk management, anti-money laundering (AML) and compliance practices.
Evolve penalised for various “deficiencies”
The Memphis-headquartered bank operates an open banking division (OBD) alongside a suite of traditional banking services, through which it provides deposit accounts and payment processing services to fintechs.
According to the Federal Reserve’s order, examinations conducted in 2023 found that the bank had “engaged in unsafe and unsound banking practices by failing to have in place an effective risk management framework for those partnerships”.
The Federal Reserve has mandated that until Evolve improves its risk management policies and programmes to comply with AML laws and consumer protection regulations, it must halt certain activities.
The order continues: “Effective immediately, the Bank shall not without the prior written approval of the Supervisors: (i) establish any new fintech partners, subsidiaries, business lines, products, programmes, services, or programme managers related to OBD, or (ii) offer new products, programmes, or services to an existing fintech partner, programme manager, or subsidiary of OBD”.
Evolve must now adhere to several deadlines set by the Federal Reserve. Within 60 days of the order, dated June 11, the bank must submit “improved lending and credit risk management policies and procedures for OBD”, along with an “acceptable enhanced” written internal audit programme.
In comments made to FinTech Futures, an Evolve spokesperson explains the enterprise has “signed the receipt of a Formal Order from the Federal Reserve Board and the Arkansas State Bank Department”.
“We’ve made significant investments in technology and personnel in our Enterprise Risk Management, Compliance, and BSA/AML departments to strengthen oversight and enhance the risk framework … we’re confident this Order’s impact will result in a stronger Evolve.”
The spokesperson adds that the order is “similar to orders received by others in the industry” and does not affect Evolve’s existing customers or deposits.
The Federal Reserve asserts that its enforcement action against Evolve is “independent” of the bankruptcy proceedings involving Synapse Financial Technologies, for which Evolve serves as the banking partner.
