Banking as a Service Compliance Trends 2023: Marketing Compliance

What is Banking as a Service

Banking as a Service (BaaS) is a fast-growing financial services trend that is rapidly changing the way financial products are delivered.

In short, BaaS allows banks, fintechs, and other (non-bank) financial institutions to create an ecosystem of shared processes, responsibilities, and oversight to meet the needs of their customers in a more efficient and cost-effective manner. However, with any innovation comes new challenges and compliance obligations. 

In this series of blog posts, we will explore the compliance trends we are seeing in the BaaS ecosystem and tips on how banks and fintechs can adapt their compliance programs to successfully manage the evolving regulatory expectations. 

We will start this series by examining marketing compliance.

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Regulatory Foundation

In the banking industry, the marketing compliance framework is built from regulations and enforcement agency examination guidelines that providers of financial services must follow when marketing their products and services to the public. Whether UDAAP, TILA, or ECOA (to name a few), these regulations express marketing- and advertising-specific requirements that are designed to protect customers from unfair or deceptive practices, ensuring that financial products are offered using clear and truthful language to all consumers, regardless of race, color, religion, national origin, sex, marital status, or age. Maintaining the public’s trust in the financial sector is paramount to maintaining the health and viability of the industry at large. 

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2022 Compliance Issues

On July 29, 2022, the FDIC issued an advisory statement in response to cryptocurrency platforms partnered with FDIC insured banks. These platforms were caught advertising that the crypto assets associated with their platforms were directly, or by proxy, insured by the FDIC. This was a false and misleading marketing practice which placed customers at a disadvantage.  

A marketing compliance failure of this magnitude places banks and subsequently fintechs squarely in the cross-hairs of regulators. In response to the likely probing of banks’ controls in this space at the enforcement agency level in 2023,  in Q4 2022 we have seen a sharp uptick of banks delving into the internal controls fintechs are using to self-regulate marketing and compliance risks. 

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Marketing Compliance Best Practices 2023

Whether you are currently in a BaaS model or are looking to enter one in 2023, we have compiled a list of 4 key elements that your Marketing Compliance Program should maintain to ensure you, as the fintech, are in compliance with your bank partner’s regulator’s expectations. Moreover, we encourage banks to expand their initial due diligence compliance reviews to dive deeper into their fintech partner’s marketing compliance controls. 

1. Document Compliance Marketing Reviews. The easiest way to keep track of compliance marketing reviews is to create a log (e.g. use a handy dandy spreadsheet). The log should contain pertinent information such as: (i) date of compliance review; (ii) title of marketing piece; (ii.) date of publication; (i.) type of content (e.g. webpage, social media post, drip email, etc.); and (.) compliance recommended corrections.
2. Maintain easily accessible records. The general rule of thumb is to keep marketing and advertisement copy for a minimum of 2 years. We recommended maintaining both the draft / marked up version and the final / public version of the copy for this minimum period. 
3. Periodically monitor and test controls. At least quarterly, compliance should conduct a test of the firm’s marketing oversight controls. Review social media channels, blogs sections, sales scripts, website copy, and email campaigns during the previous quarter to verify all public content is reflected on the Compliance Marketing Log. Remember that compliance controls only work if all copy is properly filtered into the oversight workflow.
4. Leverage Technology to support high volume. High-growth companies in today’s digital world pump out a lot of public communications; manually keeping track can be difficult. Tools like Global Relay and Smarsh can be used to corral communications and simplify compliance reviews of social media content and email communications. 

Conclusion

Banking as a Service (BaaS) is a rapidly changing industry with new compliance trends all the time. In 2023, we will see an increased focus on compliance oversight, both at the bank partner level and fintech level. Stay tuned as we cover other hot button issues such as complaint management, data integrity, and third-party risk management. 

As always, if you need support in managing your compliance obligations, we are always here to help!

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Visit AskDegree for the latest risk management and compliance trends impacting the digital world.