By Paul Davis
Federal regulators are raising the stakes for banks when it comes to director education, particularly when it comes to vetting and monitoring third-party partnerships.
This article is part of ABA Banking Journal’s bank tech trends for 2025 special report.
One recent example involves an Arkansas bank that was hit with a cease-and-desist order from the Federal Reserve. The bank — embroiled in a financial and legal battle with its bankrupt middleware provider — was cited for deficiencies with anti-money laundering and Bank Secrecy Act compliance, along with risk management lapses.
The Fed’s order included a flurry of demands from the bank’s board, tasking directors with approving efforts to implement, distribute and market products to new and existing fintech clients. The board must also sign off on onboarding new clients in the bank’s open banking division — a step that also requires Fed approval.
The bank’s directors must also take measures to ensure that management addresses outstanding AML and BSA issues as part of broader oversight of the bank’s open banking operations.
The Fed’s C&D order is the latest in a wave of enforcement actions pushing boards to take a bigger role overseeing their bank’s dealings with vendors and fintech partners.
An FDIC consent order with a Tennessee bank requires the board to develop a formal onboarding process for fintech partners, develop a plan to evaluate controls for highrisk activities and a contingency plan for the “effective and orderly termination” of significant partners.
A separate FDIC order against a North Dakota bank charged the board with assuming full responsibility for approving sound AML and BSA policies, procedures and processes when it comes to monitoring fintech compliance.
“There has been this desire from regulators for more board oversight and for directors to serve as a sounding board for management,” Julie Stackhouse, a director at Simmons First National Corporation in Pine Bluff, Arkansas — not the bank mentioned above. Stackhouse was previously responsible for bank supervision at the Federal Reserve Bank of St. Louis.
“At Simmons, we continuously ask how we can continue to educate ourselves so we’re staying at the front of the pack,” Stackhouse adds.
Informed decisioning
The typical community bank board, which is usually comprised of business leaders and bank founders, may be ill-equipped to oversee areas mandated in recent orders, says Bill Briggs, a Texas-based bank policy expert who served as the first CEO of the BaaS Association.
“There is likely a knowledge gap on bank boards with recent consent orders regarding third parties,” Briggs says. “Many directors might not fully comprehend the potential risks associated with working with outside parties.”
More education is needed in areas such as how anti-money laundering and Bank Secrecy Act compliance apply to third parties, along with discussion on what the broader legal expectations should be for partnerships.
“Someone on the board needs to have a grasp on fraud, particularly as it dovetails into cybersecurity and risk for your customers,” says Keith Daly, a principal at executive recruiting firm Travillian. “I would also want expertise in digital technology and APIs.”
Directors don’t need to fully understand the ins and outs of embedded finance, open banking, and the broad fintech industry — but they should learn to ask informed questions as to strategic direction, monitoring success (or failure), and how management is navigating the regulatory waters.
“Can directors ask the right questions about potential exposure, protecting the brand, and who owns the customers?” asks Yousef Valine, a retired chief operating and risk officer at First Horizon Corporation in Memphis, Tennessee, and a current director at Live Oak Bancshares in Wilmington, North Carolina.
“These are fundamental questions that people often don’t ask, and it goes back to people not understanding the details of the business,” Valine adds. This is particularly true at banks with banking as a service platforms, where banks make their banking licenses, products, operations or technology available to nonbanks.
Simmons, for its part, is promoting more board education. To that end, the company is looking at offering specific training for directors while providing economic updates twice a year.
“The company is driven by leadership wanting a second opinion and a sounding board on their work,” Stackhouse says. “How do we continue to educate ourselves so that we’re at the front of the pack in terms of governance?”
Banks can go several routes when it comes to pursuing educational resources for directors. Many banking associations offer conferences and webinars for boards, and there are consulting practices that will help with development.
Some banks are adding technology experts to their boards, who can then provide mentorship to their peers.
Coastal Financial in Everett, Washington, appointed Brian Hamilton, the co-founder and former CEO of fintech One Finance, to its board, while Rena Nigam, founder and CEO of AI company Meytier, is a director at Esquire Financial Holdings in Jericho, New York.
“I don’t think there is a deficiency in the system in terms of training options,” Valine says.
Contributing Editor Paul Davis is the founder of the Bank Slate, a consulting and advisory practice and bank-focused media platform. He was previously a longtime editor and reporter at American Banker.
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