Bank Collaboration With Fintech Companies: Structuring Alternatives, Contract Provisions, Regulatory Considerations, Enforcement Risks

Description

Structuring a collaboration between a bank and a fintech company can be a substantial and complex undertaking. In addition to the traditional business considerations for any investment, joint venture, licensing, or business combination transaction, there are significant additional legal and regulatory considerations for both the bank and the fintech company when the two decide to partner in some way.

As an initial step, the bank and the fintech company should determine what they hope to achieve from the collaboration. Where a bank engages a fintech company to provide a particular product or service, the contractual arrangements must thoroughly set forth the respective rights and obligations of the parties. Regulators have indicated they will scrutinize the bank's due diligence, selection, and ongoing oversight of the third-party relationship and associated risk management principles, policies, and procedures.

On the other end of the collaboration spectrum, a bank or a bank holding company may invest either in a fintech company directly or in an entity created to facilitate the collaboration--either to form a joint venture with the fintech company or as a special purpose entity. Legal, tax, and accounting considerations may cause the parties to favor one structure over another. The manner and scope of the investment will also dictate the initial regulatory requirements.

Listen as our authoritative panel discusses the structuring, contractual, and regulatory issues banks and their counsel must consider when collaborating with fintech companies.