Download Blue Ridge Bank App
Bree Killoy
Blue Ridge Bank has begun offboarding at least a dozen fintech partners, with more separations to come, after its once fast-growing banking-as-a-service business put the bank in regulatory hot water last year.
The Virginia-based bank said Thursday in an investor presentation that it planned to reduce its nearly 50 BaaS relationships to a "limited number" with a commercial focus or "strong consumer traction" and that it will roll off the rest in the next year.
Blue Ridge has been recalibrating its BaaS strategy since the Office of the Comptroller of the Currency flagged the bank for its weak anti-money-laundering controls in a public agreement last August. CEO Billy Beale, who took the reins this summer, told American Banker last month that the $3.3-billion-asset bank had jumped into the business "up to its clavicles."
Beale added in the October interview that achieving profitability in BaaS was difficult due to the related compliance costs. The business currently produces up $721 million of deposits, about one-quarter of the bank's total deposits, and $50 million of loans. Blue Ridge noted in its recent presentation that it would curb partnerships with fintechs that had high account volume or low deposit volume per account to "reduce significant compliance oversight."
Blue Ridge added in the presentation that it was still working to bring its fintech policies and procedures in line with the OCC's enforcement action but has "developed a strategic road map" for BaaS business. The bank also incurred $7.3 million in remediation costs year to date.
Blue Ridge announced at the end of last month that it lost $41.4 million in the third quarter, in part driven by a goodwill impairment charge from its stock price's drop. The bank's stock has fallen more than 75% year to date, down to $2.97.
In this year's roundup of top banking news for 2023: Navy Federal Credit Union joins the RTP network amid ongoing military contract woes, major banks across the U.S. announce staff cuts, regulators shutter Signature Bank and more.
In November's roundup of top banking news: Citigroup approaches newest wave of job cuts and managerial shifts, Truist Financial nearly doubles most-senior executive leadership team, JPMorgan Chase faces regulatory inquiries and more.
Bank investor Kenneth Lehman and investment firm Castle Creek are providing the funds to the Virginia-based bank, whose fintech friendly strategy has gotten it in trouble with regulators. The bank's stock has sunk 70% this year.
CHARLOTTESVILLE, Va., Feb. 10, 2021 /PRNewswire/ -- Blue Ridge Bank has announced that for the first time in U.S. history a commercial bank is providing access to Bitcoin at its branch locations. Cardholders can purchase and redeem Bitcoin at 19 Blue Ridge Bank ATM locations, consisting of both branch and off-site ATMs.
"Blue Ridge Bank is excited to continue its evolution to serve the growing needs of our current and future customers," said Brian K. Plum, Chief Executive Officer of Blue Ridge Bankshares, Inc. (NYSE American: BRBS), the parent company of Blue Ridge Bank. "The ATMs remain able to serve cash-based and inquiry activity, so this is simply layering on more services and reinforces our commitment to the future of banking for all customers."
BluePoint ATM Solutions CEO Wade Zirkle commented, "We are proud to partner with Blue Ridge Bank and LibertyX to provide ATM management services that are Bitcoin-capable. We predict that more community banks and credit unions will demand innovative fintech solutions like this at their branches, and we are excited to be a leader in this space."
"We're honored to work with Blue Ridge Bank and BluePoint. For years, consumers have been asking for the ability to buy bitcoin from their banks. We are proud that BRB is the first bank in the nation to offer bitcoin services on their ATMs," said Chris Yim, LibertyX Co-Founder & CEO. "LibertyX provides consumers with the trust and ease of going to 8,500 ATMs at local convenience stores, pharmacies, and gas stations. Now they can also buy bitcoin at their local bank ATM."
About Blue Ridge Bank: Blue Ridge Bank, N.A., is the wholly-owned banking subsidiary of Blue Ridge Bankshares, Inc. Through its subsidiaries and affiliates, Blue Ridge Bank provides a wide range of financial services including retail and commercial banking, payroll, insurance, card payments, wholesale and retail mortgage lending, and government-guaranteed lending. The bank provides commercial banking services to customers located throughout Virginia and North Carolina. Visit mybrb.com to learn more.
About BluePoint ATM Solutions: BluePoint ATM Solutions is one of the largest privately-held ATM management companies in the U.S., with offices in Virginia and Colorado. BluePoint ATM Solutions specializes in providing efficient, outsourced ATM services to Community Banks and Credit Unions across the U.S. and providing customized ATM services to the retail and hospitality industries. Contact CEO: Wade Zirkle, 540-335-2848, bluepointatm.com
A recent action by the Office of the Comptroller of the Currency (OCC) highlights how banks need to ensure that they have robust compliance programs for managing risks posed by their banking as a service (BaaS) partnerships with third-party fintechs.
On August 29, 2022, the OCC entered into an agreement with Blue Ridge Bank, N.A. (Blue Ridge Bank), a Virginia-based community bank, that requires Blue Ridge Bank to make serious reforms to its compliance practices (the Agreement). The existence of this agreement was revealed to the public through a Securities and Exchange Commission (SEC) Form 8-K filed by Blue Ridge Bank's holding company. The Agreement is the result of the OCC finding that Blue Ridge Bank had been engaged in unsafe or unsound practice(s).
In the Agreement, the OCC identified Blue Ridge Bank's practices related to board accountability and involvement, third-party risk management, Bank Secrecy Act (BSA) / Anti-Money Laundering (AML) risk management, suspicious activity reporting, and information technology (IT) control and risk governance as sources of concern. The OCC did not provide any further details on the issues it took with Blue Ridge Bank's compliance practices, but the terms of the Agreement make it clear that the OCC did not approve of how Blue Ridge Bank was operating its BaaS partnerships with non-bank fintech companies. As a result, Blue Ridge Bank must now implement extensive changes to the bank's fintech policies, procedures, and operations concerning these areas to bring them into conformity with OCC directives.
The BaaS business model allows a bank to offer selections of its products and services to a broad base of consumers and small businesses by leveraging a fintech's internet-based capabilities and marketing expertise. Entering into BaaS partnerships with fintechs can be highly profitable for banks, but these partnerships necessitate both the bank and fintech partner adhering to the bank's compliance obligations.
The BaaS business model has come under scrutiny by regulators in recent years as they attempt to understand the complex nature of some of these novel and evolving arrangements. In his remarks to The Clearing House and Bank Policy Institute's (TCH + BPI) 2022 annual conference, the Acting Comptroller of the Currency, Michael J. Hsu, discussed how the OCC plans to continue studying bank-fintech partnerships to identify how the digitalization of banking services has affected the banking landscape from a regulatory perspective. In this context, Mr. Hsu likened certain bank-fintech arrangements to the complex series of relationships involved in the 2008 financial crisis, and analogized the disruption caused by the emergence of BaaS programs to that caused by the globalization of manufacturing in the 1980s and the disintermediation of credit and liquidity risks in the banking system during the 1990s and 2000s.
With respect to Blue Ridge Bank, it has been reported that the bank's partnerships with fintechs account for a significant portion of its business. It is not clear why the OCC took an interest in Blue Ridge Bank from among the many other community and specialized banks that have embraced BaaS. While some speculate that Blue Ridge Bank came onto the OCC's radar because of its BaaS business model, there has been conjecture that the Agreement is the result of the OCC addressing regulatory concerns with Blue Ridge Bank it identified while reviewing the bank during an attempted merger between Blue Ridge Bank and FVCBankcorp, Inc. in 2021. That merger was called off in January of 2022.
What remains clear, though, is that the OCC is growing increasingly skeptical of whether some banks are sufficiently aware of the risks posed by their fintech relationships, let alone whether banks are adequately monitoring for and responding to those risks. Risks to the safety and soundness of banks remain the focus the OCC's attention, but mitigating the risks to consumers using services provided through BaaS programs is also an important priority.
The Agreement requires Blue Ridge Bank to implement a major overhaul of its compliance programs. The OCC has required the bank to improve its (i) board of directors' involvement in the bank's compliance efforts; (ii) third-party risk management compliance program, (iii) BSA/AML monitoring and compliance program, (iv) customer identification programs, (v) suspicious activity report (SAR) monitoring and filing program, and (vi) IT control programs. Additionally, the bank must also improve the accountability of its board members for the bank's compliance with applicable laws and regulations, and increase the transparency between its board members and compliance departments.
The most significant requirement imposed on Blue Ridge Bank, however, is one that limits Blue Ridge Bank's ability to expand its BaaS partner programs going forward. Per the Agreement, Blue Ridge Bank must seek a "no supervisory objection from the OCC" before onboarding any new fintech partner, or offering new products or services or conducting new activities with or through existing third-party fintech relationship partners. Seeking the OCC's non-objection requires the bank to submit a complete due diligence package for the OCC to evaluate, which must include at least supporting documentation, a copy of any proposed contract, and minutes from any management or board committee meeting approving the relationship.
f5d0e4f075