FDIC Order Against First Fed Bank Highlights Third-Party Scrutiny
First Fed Bank, based in Port Angeles, Washington, has been issued a consent order by the Federal Deposit Insurance Corporation (FDIC) to enhance its compliance management related to banking-as-a-service (BaaS) practices. The FDIC order comes as regulators are increasing their scrutiny of third-party relationships in the banking industry.
First Fed Bank’s Commitment to Compliance
First Fed Bank has acknowledged the FDIC order and stated that it is dedicated to strengthening compliance controls. The bank has invested significant resources in resolving the matter and has implemented substantial internal control improvements to prevent similar occurrences in the future.
The bank has emphasized its commitment to serving the financial needs of its customers with integrity and excellence. Despite the FDIC order, First Fed Bank does not anticipate any material effect on their earnings and capital.
Details of the FDIC Order
Specific details regarding the alleged malpractice leading to the FDIC order are limited. However, it is known that the violation was related to products offered through First Fed Bank’s fintech partner, Quin Ventures. First Fed Bank established this partnership through a joint venture in 2021.
The bank self-reported the issue to the FDIC last year and promptly terminated the partnership in 2022. Full remediation was provided to all affected customers. First Fed Bank has clarified that the issue was unrelated to its traditional banking customers and business.
Regulatory Pressure on BaaS
Regulators have increasingly focused on third-party relationships in the banking industry, particularly banking-as-a-service. This scrutiny has been prompted by evolving technology, the recent banking crisis, and economic uncertainty, which have highlighted the risks associated with these partnerships.
The FDIC’s enforcement actions against banks like First Fed Bank underscore the importance of robust compliance and risk management in the BaaS space. Banks involved in providing banking as a service are urged to take regulatory standards seriously and prioritize compliance and risk management practices.
Similar Enforcement Actions in the BaaS Space
The FDIC’s consent order against First Fed Bank is not an isolated incident. Earlier this year, Cross River Bank, a significant player in the BaaS industry, faced a similar consent order from the FDIC. The order mandated compliance improvements related to fair lending laws and fintech partnerships.
Experts in the industry, like Arlen Gelbard, General Counsel at Cross River Bank, have suggested that the FDIC’s consent order should serve as a blueprint for the expectations around compliance and risk management in the BaaS space. Gelbard emphasized that banks must assume responsibility for loans made through their partners.
Frequently Asked Questions
Q: What is the FDIC order against First Fed Bank?
A: The Federal Deposit Insurance Corporation (FDIC) has issued an order to First Fed Bank, based in Port Angeles, Washington, to improve its compliance management related to banking-as-a-service practices.
Q: What prompted the FDIC order?
A: The FDIC order against First Fed Bank was a result of alleged unsafe or unsound banking practices, primarily associated with their fintech partnership with Quin Ventures.
Q: How is First Fed Bank responding to the FDIC order?
A: First Fed Bank has committed to enhancing its compliance controls and has invested significant resources to address the matter. The bank has implemented internal control improvements and is cooperating fully with the FDIC.
Q: Will the FDIC order have a financial impact on First Fed Bank?
A: First Fed Bank does not anticipate any significant effect on its earnings and capital as a result of the FDIC order.
Q: What is the broader regulatory context for the FDIC order?
A: Regulators have been increasing their scrutiny of third-party relationships in the banking industry, particularly in the banking-as-a-service space. Evolving technology, the recent banking crisis, and economic uncertainty have highlighted the risks associated with these partnerships.
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