The Federal Reserve issued a warning to Goldman Sachs about risk control and compliance with regulatory requirements in the unit of the investment bank specializing in financial technologies.
The regulatory problems that the Fed drew attention to caused the temporary shutdown of the activity of the transactional banking unit of the mentioned financial institution of acquiring riskier fintech clients.
For an investment lender, a warning from the regulator is a kind of obstacle that limits the bank’s efforts to expand its business. Also, the Fed’s actions are a reminder that it is necessary to ensure reliable risk management and to form a practice of strict compliance with regulatory requirements in the financial technology industry.
The media reports that the regulator’s concerns are related to the fact that the financial institution, according to the watchdog, shows insufficient prudence in the monitoring processes when accepting non-bank clients with a high level of risk. The Fed also drew attention to the problems within the team that is responsible for providing banking infrastructure to fintech clients, including the popular payment startups Stripe and Wise. At the same time, the regulator’s claims do not apply to other segments of the Goldman Sachs transactional banking unit, including cash payment services.
The attention from the Fed fell on a very difficult period for the lender. The corporate state of affairs in a certain sense was shaken after some employees of the financial technology unit expressed concern about the fact that, in their opinion, there is a tendency in the bank to downplay risks. According to media reports, the lender investigated at least one internal complaint of an employee on this issue.
The Fed’s claims jeopardize the prospects for the implementation of the financial institution’s CEO David Solomon’s plan to expand the business. During the Investor Day, he stated that transactional banking is one of the pillars of growth.
The lender, as part of activities to develop modern digital products, sought to use its corporate franchise, innovative culture, and risk management experience. At the same time, the bank was engaged in the diversification of income and financing structure. The inspection carried out by regulators has become a factor of negative impact on the implementation of business expansion efforts and has turned the previously more or less distinct prospects of this process into uncertain future scenarios that do not give an understanding of what the lender will face tomorrow.
Goldman Sachs’ operating business, operating in the Platform Solutions unit, provides banking infrastructure to fintech companies that do not have a financial institution license. This segment of the lender’s activity is not characterized by a wide scale, but at the same time, the bank has set itself the goal of generating an income of about $750 million in this sphere by 2024.
The Fed’s investigation into the fintech unit of Goldman Sachs is part of the regulator’s comprehensive approach to expanding control over financial entities that are not traditional structures of the banking sector.
The bank did not provide specific comments in response to a media request about the watchdog’s claims. In this case, the financial institution limited itself to a statement that it is forbidden to comment on such issues. The regulator also did not provide any additional details about this.
As we have reported earlier, Goldman Sachs Reportedly to Sell Its Personal Financial Management Business.
