The following is an excerpt from our guide Enhancing Sponsor Bank Compliance: Guide to Synctera’s Risk and Compliance Tools. This is part 3 of 3 and you can download the entire guide here.

Banking-as-a-service (BaaS) infrastructure has enabled a surge of financial innovation and a new way for banks to grow their business by increasing core deposits and generating revenue through non-interest income and other fees. Yet, some banks hesitate to launch BaaS programs, often due to concerns around adhering to the bank’s risk mitigation strategies.

Synctera’s built-in tools help sponsor banks manage risk throughout the entire lifecycle of their program - from evaluating risks before taking on a new program to monitoring end-users once live.  The Synctera Console, the user interface for the Synctera Platform, centralizes risk-related data and tools so banks can perform a wide variety of risk management tasks, including initial and ongoing due diligence, AML and fraud monitoring, dispute management, and establishing spend and limit controls. 

Together, these tools form a strong foundation for banks to grow their BaaS program and establish it as a revenue-generating business line for the bank. Let’s take a closer look at these risk management tools! 

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Company Profile: Streamlining initial and ongoing due diligence processes 

Before partnering with a company as their sponsor bank, it’s crucial to perform thorough due diligence to understand and assess the risks of new FinTech or embedded finance programs. The sponsor bank must deeply understand the business they’re partnering with and the product they’ll be launching before finalizing a partnership together. Banks must understand and evaluate the product, target customer, company, any third-party relationships the prospective customer utilizes, and more. 

As an extra layer of risk mitigation, Synctera also performs its own due diligence on a prospective customer.

The due diligence process starts with the Company Profile. The Company Profile is the first step of a customer’s journey and builds a complete picture of their business for Synctera and sponsor banks to review. 

The Company Profile centralizes all of the documentation and information required to conduct due diligence, making it easy for sponsor banks to audit and reference on an ongoing basis. The Company Profile consists of four sections, each aligned with areas highlighted in guidance issued by bank regulators:

1. Company Profile: basic business information, including business legal name, company website, business description, Tax ID or EIN, business plan, and more.
2. Team Info: management team and board of directors information, as well as a full organizational chart for larger organizations.
3. Financial Condition: funding information, current financial status, financial and user acquisition projections, and financial statements.
4. Legal & Regulatory: a legal, risk, and compliance questionnaire so sponsor banks can better understand current policies and procedures.

After the initial due diligence process is completed, additional information for due diligence is requested so customers can open an operating account with the sponsor bank. These documents also strengthen the responses provided during initial due diligence and create an audit trail for regulatory purposes. Here’s a look into the types of additional documents requested:

1. Identity Verification: customers are required to undergo identity and screening processes before the sponsor bank can open an account.
2. Business Ownership: customers must provide identification of Ultimate Beneficial Ownership (UBO) and Certification of Incorporation and By-Laws.
3. Proof of Registration: customers must provide Employment Identification Number (EIN) and Certificate of Good Standing from the Secretary of State’s office.
4. Financials: customers must provide bank statements and capitalization tables.
5. Background Check: customers must undergo a background check for criminal and credit history.

Risk changes over time, but a bank’s responsibility to understand it doesn’t. In addition to initial due diligence, sponsor banks using the Synctera Platform are equipped with an ongoing monitoring tool to improve the way they perform ongoing due diligence on their programs, ensuring they always have the most up-to-date information needed to properly oversee them.

Ongoing Monitoring, a feature within the Synctera Console, automates the process of requesting and gathering updated due diligence documentation. Sponsor banks have complete flexibility for how they create the monitoring workflows. They can create monitoring schedules for one or all of their programs, set the preferred cadence for when this documentation needs to be updated, and specify what documents must be provided by their customers.

Once a schedule is created, cases are automatically created in accordance with the cadence specified, alerting the customer that new information is requested. Once the customer uploads the necessary documentation into the Synctera Platform, the Company Profile will automatically be updated, ensuring that updated information is always accessible to compliance personnel.

AML Monitoring: Ensure compliance with Anti-Money Laundering (AML) regulations

Sponsor banks must adhere to a wide range of established policies and procedures to comply with AML regulations, including monitoring transactions and reporting on suspicious activity. Synctera’s AML technology helps prevent financial crime by automating and streamlining AML workflows, from AML checks and transaction monitoring to case management. All data is centralized within the Synctera Platform so alerts can be properly addressed and tracked.

In collaboration with the sponsor bank and customer, Synctera configures the appropriate AML monitoring rules and operational workflows according to the bank’s risk management policies. Once configured, Synctera sends aggregated customer, account, and transaction data through a transaction monitoring engine for evaluation. The Synctera Platform automatically executes AML checks based on predefined rules and agreed-upon thresholds during configuration. When further investigation is required, a case is automatically created.

In the event a suspicious activity is escalated to the bank as an Unusual Activity Report (UAR), the case will be reassigned to the bank’s designated AML staff and, if required, they can submit a Suspicious Activity Report (SAR) to FinCEN. 

Fraud Monitoring: Defend against fraudsters

In addition to AML transaction monitoring, Synctera provides a built-in fraud monitoring and detection tool. Without a proper fraud monitoring tool, losses can impact a customer’s bottom line, ultimately affecting the bank’s ability to generate revenue. Synctera’s fraud monitoring tool is built with configurable rules and risk models that can adapt to the needs of customers and sponsor banks. It monitors money movement in real time, automatically flagging and declining transactions that may be fraudulent. By being  pre-integrated with the Synctera Platform, the fraud monitoring functionality works in conjunction with the rest of Synctera’s suite of risk and compliance tooling. Cases are automatically created to track, investigate, and resolve fraud events, ensuring data is centralized to maintain proper audit trails.

In addition to monitoring transactions, Synctera offers several fraud controls, such as identity banning, which allows customers to ban end-users and prevent money movement or additional account applications, and authorization gateway, which allows customers to participate in the transaction authorization flow with their own fraud control criteria.

Disputes: Manage card and payment disputes with ease

To adhere to various regulations, sponsor banks and customers are required to resolve disputes for debit, credit, and ACH transactions. There are several ways for sponsor banks and customers to handle disputes on the Synctera Platform.

First, the Disputes API allows customers to build the card dispute process into their product, allowing end-users to create new disputes and upload supporting documentation. When an end-user initiates a dispute, a dispute case is automatically created in the Synctera Console and is populated with the necessary information, such as transaction details and investigation deadlines.

Alternatively, the customer’s support team can submit debit, credit, and ACH disputes on behalf of an end-user directly from the transaction listed in the Synctera Console. Once submitted, a dispute case is created, allowing sponsor banks to track and monitor its resolution.

Spend and Limit Controls: Take control with better risk mitigation

There are two important controls that sponsor banks can implement to manage the risk of specific customers: spend and limit controls.

Spend controls are rules set to limit where and how much end-users can spend. Both customers and sponsor banks can implement these controls. Spend controls are used in real-time during transaction authorization. There are two main types of spend controls:

1. Authorization Controls: these limit where users can spend (e.g. specific MCC or countries)
2. Velocity Controls: these limit how much end-users can spend within a certain time period.

Sponsor banks have the option of declining all transactions that are part of the controls or generating cases to notify relevant parties when certain thresholds are met.

Limit controls are used to set maximum thresholds for spending or other financial activities on a program-level (e.g. limit on outgoing debit ACH transactions). These limits are designed to help sponsor banks manage liquidity risk. Notifications can be set up to alert when certain percentages of the limit are reached (e.g., 20%, 70%, and 90%). When the limit is fully utilized (100%), a case is created and assigned to the relevant parties.

This is an excerpt from our guide Enhancing Sponsor Bank Compliance: Guide to Synctera’s Risk and Compliance Tools. This is part 3 of 3 and you can download the entire guide here.‍