Lineage Bank in Franklin, Tenn., which once had big Banking-as-a-Service (BaaS) aspirations, is the latest fintech collaborator to receive an enforcement action from regulators.
The $246 million-asset bank entered into a consent order with the Federal Deposit Insurance Corp. on Jan. 30 requiring it to address unsafe and unsound banking practices tied to third-party management of its fintech programs.
The 21-page order requires Lineage to develop and implement a plan to improve internal audit functions to evaluate risk controls for high-risk areas, including “on boarding deposits obtained through third parties, processing payments obtained through third parties and sweeping deposits.”
The board must develop a formal onboarding process, including due diligence and risk assessment criteria, for all new fintech partners. Lineage is barred from adding new deposits with new fintech partners until it “has a well-defined third-party risk management program.”
The order requires Lineage to submit a specific plan to the FDIC for third-party fintech partners that seek to terminate or end existing contracts while the order is in place. The board must have a contingency plan for the “effective and orderly termination with significant third-party fintech partners.”
The bank must receive written regulatory approval before entering into a new business line or expanding existing lines of business that would lead to a 10% growth in total assets or liabilities.
Also, Lineage must create and implement a written program – to be approved by the FDIC – to assess and manage third-party fintech risks. The FDIC also required the board to hire an outside party to evaluate the “management structure, depth and capacity of staff responsible for” BaaS oversight and risk management.
Lineage just announced that Jeffrey Hausman had become chairman and that Carl Haynes, chief banking officer, had become interim president. A shareholder group recently ousted the bank’s board and senior management, including Richard and Kevin Herrington.
The bank is also resubmitting several call reports to correct brokered deposit data.