Federal Reserve Orders Evolve Bank to Address AML and Sanctions Lapses

The Federal Reserve Board has mandated that Evolve Bank & Trust, based in Arkansas and known for its partnerships with numerous financial technology (fintech) companies, rectify deficiencies in its anti-money laundering (AML), sanctions, risk management, and consumer compliance programs.

According to a press release issued by the Fed on Friday, Evolve Bank engaged in unsafe and unsound business practices concerning its third-party fintech partners.

One notable partner of Evolve Bank was the software-as-a-service platform Synapse, which declared bankruptcy in May. Evolve Bank had issued a press release in response to Synapse’s bankruptcy at that time.

The Federal Reserve Bank of St. Louis and the Arkansas State Bank Department identified shortcomings in Evolve Bank’s risk management programs during an examination in August.

The examination highlighted deficiencies in the bank’s Open Banking Division, which provided deposit accounts and payment processing services to fintechs. A subsequent examination in January by federal and state banking regulators revealed additional deficiencies in the bank’s risk management and compliance programs concerning the AML requirements of the Bank Secrecy Act (BSA) and regulations from the Treasury Department’s Office of Foreign Assets Control (OFAC) related to U.S. sanctions.

As part of the enforcement order, Evolve Bank has agreed to submit a report to federal and state banking regulators within 90 days. This report must outline steps to enhance board oversight of the bank's management and operations, as well as ensure compliance with BSA and OFAC regulations. The report must include written policies and procedures aimed at identifying, managing, and monitoring potential risks, including compliance and fraud risks, associated with each fintech partner, product, program, service, business line, or customer.

These policies and procedures must facilitate the timely identification, measurement, and reporting of risk exposures tied to each fintech partner, product, program, service, business line, or customer. Additionally, they must address the onboarding and offboarding of fintech partners and include regular risk monitoring.

The order also requires Evolve Bank to hire compliance personnel who possess “appropriate subject matter expertise, stature, and direct reporting access to the board of directors.” The bank’s compliance program must maintain “sufficient staffing levels” and periodically reassess resource and staffing needs.

Evolve Bank did not respond to a request for comment.

By fLEXI tEAM