Lessons in Partner Banking — Part 6: Regulators

We’ve all seen the past 5 years in Partner Banking — formal agreements, consent orders, BSA issues, reconciliation issues — the list goes on. So any bank considering entering the space, or any bank already in it, needs a clear view of how it will partner with its regulators to support a successful program. Hoping they don’t find the issues is not a strategy. This should be a true partnership.

Partnership

I want to be clear about what I mean by "partnership,” because this word gets thrown around loosely. Partnering with your regulator does not mean agreeing with everything they say or avoiding topics that might generate hard questions. It means treating the relationship with transparency, consistency, and intention — the same way a well-run FI treats its fintech partners.

Regulators are not adversaries. They have a job to do: make sure banks operate safely and soundly. When an FI launches a partner banking program and then tries to manage around its regulator — minimizing what gets shared, hoping findings don’t surface, or responding only when pushed — it creates exactly the dynamic that leads to consent orders. The FIs that end up in trouble are rarely the ones that had no issues. They are the ones who had issues that did not surface, be managed, or be communicated proactively.

The better approach is to bring your regulator into the story early. If you are building a partner banking program, tell your examiner what you are building, why, and how you are thinking about the risks. If you have an issue in the program, surface it, explain what happened, and come with a remediation plan. Regulators are far more forgiving of institutions that demonstrate self-awareness and proactive management than of those that appear to operate without visibility into their own programs.

Come with a Plan

The most common mistake I see FIs make in regulatory relationships is showing up to exams without a coherent story about their partner banking program. Examiners are not there to be educated from scratch. They have read the guidance, they know what a well-run program is supposed to look like, and they are there to assess how well yours measures up. If the FI does not walk in with a clear point of view on its own program — its structure, its risks, its controls, and its gaps — the examiner will form their own view, and it may not be favorable.

Coming with a plan means having the documentation, but it also means being able to narrate it. The FI should be able to walk examiners through how the program is structured, what due diligence was performed before onboarding each partner, how ongoing monitoring works, what the governance structure looks like, and what issues have been identified and how they are being addressed. If any of those answers require someone to dig through files or find the right person in the hallway, the program is not ready.

Before any exam, the FI should conduct an internal review that mirrors the exam itself. What would an examiner look for? Where are the documentation gaps? Are the controls documented and is there evidence they are being performed? Are the policies current? Are open findings from prior exams fully remediated, or are they still outstanding? This kind of self-assessment should not happen once a year — it should be part of the ongoing operating rhythm of the program. FIs that treat regulatory exams as external events to prepare for, rather than as a reflection of how they run the program every day, tend to be the ones that end up with findings they did not see coming.

Explain It Well

Having a plan is not enough if the FI cannot explain it clearly. I have sat in rooms where a bank had genuinely good controls and a thoughtfully designed program — and still walked away with more findings than expected because the staff presenting to examiners could not articulate what they were doing or why. The ability to explain the program clearly and in plain language to someone seeing it for the first time is a skill that FIs underestimate.

This starts with knowing your audience. Examiners are sophisticated, but they are not insiders. They are not going to immediately understand why the FI made a particular design choice, why a specific risk threshold was set where it was, or how a particular control works in practice. The FI has to tell that story. When an examiner asks why the bank uses a particular transaction monitoring rule, “because our vendor recommended it” is not a sufficient answer. “Because our risk assessment identified these specific transaction patterns as elevated risk for our partner portfolio, and this rule is calibrated to those patterns” is.

The same principle applies when issues arise. If an examiner finds something, the instinct for many FIs is to immediately begin minimizing — “it was a one-time issue,” “it has already been fixed,” “it was isolated to one partner.” In my experience, that approach often backfires. A better approach is to be direct: acknowledge the issue, explain what caused it, describe the corrective actions taken or underway, and identify the monitoring in place to ensure it does not recur. Examiners are looking for evidence that the FI understands its program and manages it responsibly. Transparency, even when the news is not great, builds more credibility than defensiveness.

So What?

Regulatory relationships in partner banking do not manage themselves. The FIs that build strong relationships with their regulators are the ones that invest in them deliberately — through communication, preparation, and transparency. Here is a practical guide for FIs looking to strengthen how they engage with regulators:

Treat Your Regulator as a Stakeholder: Begin the relationship before the exam. If you are building a new partner banking program or making material changes to an existing one, proactively communicate this to your primary regulator. You do not need approval to share information, and regulators generally view early communication positively. Do not wait for an exam to be the first time your examiner hears about a major new initiative.

Build Your Exam Narrative Before the Exam: Develop a clear, written description of your partner banking program that you could hand to an examiner and walk them through in an hour. It should cover the program’s structure and strategy; the partner onboarding and due diligence process; the ongoing monitoring and oversight framework; the governance and reporting structure; the key risk and compliance controls; and any open issues or remediation items currently in progress. If you cannot produce this document quickly, the program is not sufficiently documented.

Run Internal Dry Runs: At least once a year, conduct an internal review that simulates the exam process. Assign someone — ideally someone who was not involved in building the program — to ask the questions an examiner would ask. Where does the documentation fall short? Where can staff not explain the rationale behind a design decision? Where are controls documented but not evidenced? Use the results of that review to close gaps before an examiner finds them.

Disclose Issues Early: If the FI identifies a material issue in its partner banking program — a reconciliation error, a BSA/AML gap, a control failure — do not wait for an exam to surface it. Report it to your regulator proactively, with a clear explanation of what happened, what the FI has done to contain it, and what the remediation plan looks like. Early disclosure, paired with a credible remediation plan, consistently produces better outcomes than examiner discovery.

Document Remediation Thoroughly: When the FI closes a regulatory finding, the evidence of that closure needs to be clear, complete, and retrievable. “We fixed it” is not a sufficient answer to a prior exam finding. The FI should be able to show what was found, what was changed, how the change was implemented, and what monitoring is in place to ensure it does not recur. Regulators follow up on prior findings in every subsequent exam, and weak remediation documentation creates the impression that the FI is not taking findings seriously.

Invest in the Right People: The regulatory relationship is only as strong as the people managing it. The individuals who interact with examiners — both during exams and between them — need to understand the program deeply, communicate clearly, and know when to escalate. This is not a job for whoever is available. It requires preparation, subject-matter expertise, and the confidence to have direct conversations with regulators, including when the news is not good.

The FIs that succeed in partner banking over the long term are the ones that treat regulatory management as a core competency, not a periodic inconvenience. The exam is not the test — it is just the measure of how well you have been running the program all along.

Stay tuned for the last installment of Lessons in Partner Banking…