AML/sanctions compliance: A vital lifeline for Banking-as-a-Service partnerships' survival

Sarah, we would love to learn more about your professional journey and expertise. Could you kindly share insights into your background and what drives your passion in your field?

In 2023, 13.5% of severe enforcement actions in the US targeted banks offering Banking-as-a-Service (BaaS) to fintechs, as reported by S&P. There seems to be an increased focus on ongoing monitoring of third parties and the risks associated with the bank's fintech partners, with a series of regulatory enforcement actions addressing third-party risk management programs and fintech partner issues, including the recent case of Lineage Bank. What factors do you believe have contributed to these issues? What is the cause of these problems?

What do you perceive as the underlying issues and challenges in the relationships between banks, BaaS platforms, and fintechs?

Moving forward, what changes should banks, fintechs, and BaaS platforms consider implementing to address these challenges effectively, especially regarding AML/compliance?

What are the key best practices that all parties involved in a BaaS relationship should adhere to mitigate regulatory risks and ensure successful collaboration?

Despite recent enforcement actions, BaaS growth in 2024 is expected to remain robust. What factors contribute to this resilience, and how do you envision the future trajectory of BaaS, especially considering regulators` increased focus on BaaS business models?

Regardless of the number of enforcement actions, the entrepreneurial spirit and financial innovation will continue. Tech will never go away and everyone’s desire to be faster and first will never go away. Which is why there will always be a booming fintech market. In a parallel manner, illicit actors will always want their money their faster and cheaper with less questions. That is why it is vital for fintechs not to unwittingly serve as loopholes of faster/cheaper routes for illicit actors. There are professional money launderers for a reason… they know the regulatory loopholes at the country-level and they can identify fintechs that can be exploited to run illicitly gained money. 

From a future trajectory perspective, I don’t see banks becoming extinct. I hear that a lot. With the rise of crypto and fintechs, banks may become old news. With the way regulators are protecting access to the federal-level payment rails, I don’t see that becoming the case. However, I do see a trend in which, for the US, we will impose regulatory change via the pain of consent orders on hyper-regulated entities (banks). Until banks take BaaS program design seriously and are comfortable being in the red before they enjoy the profits, we will continue to see unnecessary black-eyes on financial innovations like the fintech industry. 

About Sarah Beth Felix

Sarah Beth Felix has over 20 years of experience in anti-financial crimes with operational, audit and consulting roles, working with banks, payment firms, and global fintechs. Operationalising AML/sanctions threats is one of her most well-known attributes, providing actionable solutions for clients. Beyond traditional banking, she has specialised years of work in Fintechs, Lendtechs, cannabis banking, crypto, correspondent banking, and trade finance.  Sarah Beth has a master’s in forensic studies and has been CAMS certified for almost 20 years and has served as a Certification Task Force Member for the CAMS-CGSS, CAMS-RM, CAMS-CKYC designations. She has global speaking engagements, focusing on operational takeaways that move the audience to ‘take action’ in improving their AML/sanctions programs. She is also a guest lecturer at the National War College in Washington, D.C. and is frequently asked to train various US federal law enforcement agencies on private sector data availability that impacts subpoenas and unregulated payment ecosystems.

She is Founder & CEO of Palmera Consulting, advising global firms since 2011. She is also co-founder and Chief AML Officer for a new digital correspondent bank – Acceleron Bank, in formation – based in Vermont, US. 

Palmera Consulting is a high-touch advisory firm focusing on effectiveness and proactively driving AML/sanctions compliance through our operational expertise. We believe penalties and regulatory criticism can be avoided and fintechs and bank partners can become better at detecting and reporting suspicious activity. Regardless of the institution – global payments to a community bank – there are gaps that can be mitigated and efficiencies to be gained. Our team is your partner is creating and sustaining a highly effective AML/sanctions program.