Evolve Bank ordered Fed to address money laundering, sanctions expire

Evolve Bank & Trust engaged in unsafe and unhealthy business practices related to third-party fintech companies it worked with, the Fed said Friday in a news release.

One of the third parties associated with Evolve was software-as-a-service platform Synapse, which filed for bankruptcy in May. Evolve then responded to Synapse’s bankruptcy announcement in a press release.

Details: Federal Reserve Bank of St. Louis and the State Bank of Arkansas Department discovered deficiencies in Evolve’s risk management programs during an August investigation. They pointed to the bank’s risk management practices in its Open Banking Division, which offered deposit accounts and payment processing services to fintechs, the Fed said in its order.

Another January review by federal and state banking regulators revealed additional deficiencies related to the bank’s risk management and compliance programs in handling AML program requirements under the Bank Secrecy Act (BSA) and the Department of the Treasury’s Office of Foreign Assets Control (OFAC) regulations related to American sanctions.

Compatibility Notes: As part of the enforcement order, Evolve has agreed to submit a report within 90 days to federal and state banking regulators to strengthen the board’s oversight of the bank’s management and operations, as well as its compliance with BSA and OFAC regulations.

The report must include written policies and procedures “to identify, manage and monitor potential risks, including compliance and fraud risks, associated with each fintech partner, product, program, service, business line or customer” and to take action to “enable the timely identification, measurement and reporting of risk exposure associated with each fintech partner, product, program, service, business line or customer. These policies and procedures must cover onboarding and onboarding of fintech partners, as well as regular risk monitoring.

The order also requires Evolve to employ compliance staff who “have appropriate subject matter expertise, standing and direct access to reporting to the board,” and requires the bank’s compliance program to ensure “sufficient staffing” and periodic assessment of resource needs and staff.

Evolve did not respond to a request for comment.