Alexandra Barrage, a partner in Troutman Pepper’s Corporate Practice Group, was quoted in the July 31, 2024 Banking Dive article, “Did Regulators Send Warning Shot at Already Roiled BaaS Space?“

To Alexandra Steinberg Barrage, a partner at law firm Troutman Pepper, regulators are emphasizing that there are a number of risks involved, “and it’s not just what you see. It’s also the nested risk issue. It’s what you don’t see.”

Banks now need “due diligence on steroids” if they want to engage in these partnerships, she said. Regulators appear to be underscoring that “unless you’re a bank that’s able to invest in what you need to do to appropriately risk manage these relationships, you’re going to have issues,” she said.

The banking agencies understand how impactful these partnerships can be for banks engaging in them, but knowing more and earlier is paramount, she said.

Ultimately, Barrage believes regulators are “frustrated” that they only communicate with their regulated banks, and aren’t engaging directly with the fintechs in those relationships. Change could be on the horizon in that regard, she said. Bank regulators “want fintechs to have more skin in this game,” Barrage said.

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There’s potential for guidance and the examination process to evolve, Barrage said. It’s also “entirely possible we’ll have better exam manuals that are more bespoke to these types of relationships,” she said.

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As partnerships and technology change constantly, “regulators are never going to feel like they know enough,” said Barrage, a former FDIC executive. “That’s quite challenging for them.”