The Federal Reserve Board has clamped down on Metropolitan Commercial Bank, imposing a substantial fine of approximately $14.5m.
This penalty has been levied in light of the bank’s violations concerning customer identification rules and glaring deficiencies in its third-party risk management practices.
The situation came to a head when, back in 2020, Metropolitan Commercial Bank inadvertently became a facilitator of fraud. The New York-based bank opened prepaid card accounts for malicious actors who deftly exploited these accounts to funnel state unemployment insurance benefits they had deceptively obtained.
The root of this regulatory debacle was traced back to the bank’s slack customer identification process. Specifically, accounts were established through a third-party program manager, sidestepping crucial protocols designed to verify the true identity of each applicant. This oversight placed the bank in direct violation of the Bank Secrecy Act’s customer identification mandates.
In response to these infringements, the Federal Reserve Board’s enforcement action is not merely punitive but also prescriptive. Metropolitan is mandated to overhaul its customer identification and due diligence frameworks, alongside enhancing its third-party risk management programs. This corrective arc is not solitary, as the New York Department of Financial Services, the presiding state supervisor for Metropolitan, synchronises its regulatory action with the Board’s.
The compounded weight of these penalties from both the Board and the Department of Financial Services is projected at a staggering $30m. This episode serves as a stern reminder to the FinTech industry about the escalating emphasis on regulatory compliance, particularly in a digital age rife with sophisticated financial crimes.
Copyright © 2023 RegTech Analyst
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