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US banking regulators have raised risk and compliance concerns over Goldman Sachs’ partnerships with financial technology companies, according to people with knowledge of the talks, in the latest operational headache facing the New York investment bank.
A division of the bank’s transaction banking business (TxB) has stopped signing on riskier fintech clients following the warning by the Federal Reserve earlier this year, according to two people familiar with the matter. Issues raised by the Fed have included insufficient due diligence and monitoring processes when accepting high-risk non-bank clients, they said.
The team targeted by the regulator provides banking infrastructure to fintech clients including payment start-ups Stripe and Wise. TxB’s other business, which provides cash payments services, was not criticised.
The rebuke comes as some employees at TxB have warned internally over a tendency to minimise risks, the people said. One of them said one internal complaint from an employee at the unit was probed by the bank.
The Fed’s criticism is another setback to Goldman’s efforts to expand in new businesses under chief executive David Solomon.
Transaction banking was one of several growth initiatives he identified at a 2020 investor day. The business was “an opportunity to leverage our pre-eminent corporate franchise, world-class risk management, and innovative culture to build modern digital products and, in the process, diversify our revenues and funding mix,” he said then.
Another growth area highlighted by Solomon was retail banking, which the bank has since decided to pare back. On Monday it said it had agreed to offload a personal financial management division focused on the mass market.
TxB, which sits within Goldman’s Platform Solutions division, helps corporate clients move money and offers banking infrastructure to fintech companies that do not have a US banking license. The business is still relatively small for the Wall Street bank, which is targeting revenues of around $750mn in this area by 2024. Goldman reported total revenues of $47bn last year.
The Fed’s probe of Goldman’s TxB business comes amid broader regulatory scrutiny of non-bank financial actors.
In April, New Jersey-based Cross River Bank, one of the largest among a handful of US lenders to fintech companies, was criticised by the Federal Deposit Insurance Corporation for “unsafe and unsound banking practices.” The Comptroller of the Currency, another regulator, underlined similar problems at Virginia-based Blue Ridge Bank last year.
Goldman Sachs said: “We are not permitted to comment on any supervisory matters related to our regulators.” The bank declined to comment further. The Fed declined to comment.
