b'FintechIn 2021, fintech companies adjusted to continued scrutinyThe companys legal standing and knowledge of from state and federal regulators. Legal challenges tolegal and regulatory requirements;fintech companies partnering with banks increased, asThe effectiveness of the companys risk did guidance directed to banks that choose to partnermanagement and control processes;with fintechs. And toward the end of the year, fintechs came into the regulatory focus of CFPB.The companys information security measures; and The companys operational resilience.Key Trends Although the guide is written from a community bank perspective, the agencies have stated that the From 2016 through 2020, state regulators launchedfundamental concepts and areas of diligence may be enforcement initiatives and engaged in regulatoryuseful for banks of varying size and for other types of activity that had the result of filling the vacuum createdthird-party relationships.by decreased enforcement activity at the federal level. For example, California created the DFPI, whichEnforcement Actions and Legal Challengesrequires certain fintechs to obtain a license from theDFPI Enters Into Settlement Agreement withDepartment, and which has initiated investigationsBank-Affiliated Fintech Company into products and services marketed by financialIn March, the DFPI entered into a settlement institutions, including fintechs, in 2021.agreement with a fintech company that works with During the latter half of 2021, the CFPB turned itscertain banking partners to provide consumer-oriented focus to fintechs, issuing two ordersone directed atbanking products. The fintech company itself is not buy now, pay later services and one directed at thelicensed to operate as a bank. In the settlement payment functions of large tech companiesthat setagreement, the fintech company agreed to cease and the stage for potential rulemakings in 2022.desist from using the term bank in connection with the name of the fintech company, unless and until the company becomes a licensed bank, and to review and 2021 Highlights enhance its webpage and advertising to distance itself from the use of the term banking and derivatives. The Guidancesettlement agreement sets forth specific disclosures, Agencies Release Guide for Community Banksannotations, disclaimers, and revisions that the Conducting Due Diligence on Fintech Companiesfintech company must incorporate. Finally, the fintech In August, the OCC, the Federal Deposit Insurancecompany agreed to establish, implement, enhance, and Corporation (FDIC), and the Board of Governors of themaintain policies and procedures designed to ensure Federal Reserve System (Federal Reserve) releasedcompliance with the settlement agreement and Cal. Fin. a joint guide titled Conducting Due DiligenceCode561, and to submit a written compliance report on Financial Technology Companies: A Guide forto the DFPI Commissioner describing the manner in Community Banks. The guide covers six main areas ofwhich the company has complied with the settlement due diligence for a community bank to perform whenagreement by June 15, 2021. DFPI Commissioner considering a partnership with a fintech company:Alvarez previously stated that this behavior (i.e., The companys experience and qualifications; fintechs holding themselves out to be banks) is deceptive to consumers, and the settlement agreement The companys financial condition; demonstrates the DFPIs focus on pursuing action against fintech companies who do so. 20'