The Federal Reserve and Arkansas State Bank Department have mandated sweeping reforms at Evolve Bank & Trust following significant compliance breaches. The order highlights issues in anti-money laundering efforts and consumer protection, especially in its dealings with fintech companies and prominent crypto players like FTX.

Compliance Concerns Trigger Regulatory Action Against Evolve Bank

Evolve Bank & Trust, based in West Memphis, Arkansas, has entered a cease-and-desist agreement after federal and state regulators uncovered inadequate risk management and compliance systems. The U.S. central bank pointed out that these deficiencies primarily concern the bank’s Open Banking Division, which facilitates services for various fintech partners. This arrangement has led to substantial regulatory scrutiny, impacting both consumer operations and broader financial stability.

The scrutiny further extends to Evolve’s role within the crypto sector, serving as a banking partner to Blockfi and providing financial services to FTX customers. Evolve reportedly lacked a direct connection with Blockfi; instead, it collaborated with Deserve, a credit card platform, to issue Blockfi credit cards.

According to court filings, recent examinations have exposed that Evolve’s lax controls around anti-money laundering and consumer protection may have indirectly affected these partnerships. The cease-and-desist order highlights significant regulatory breaches in anti-money laundering and consumer protection, specifically targeting Evolve's relationships with fintech companies and notable crypto entities like FTX.

The regulatory order states: “Supervisors conducted a further examination of the Bank, issued on January 10, 2024, that identified additional deficiencies with respect to the bank’s risk management and compliance with applicable laws, rules, and regulations relating to anti-money laundering, including the Bank Secrecy Act; the rules and regulations issued thereunder by the U.S. Department of the Treasury.”

This development signals increased regulatory oversight for banks involved with the fintech and crypto sectors, emphasizing the need for robust compliance frameworks to mitigate risks associated with innovative financial services.