As reported in the Financial Times, the US Federal Reserve has expressed concerns over Goldman Sachs' partnerships with fintech firms, particularly in its transactional banking division (TxB), citing such issues as inadequate due diligence and monitoring processes when accepting high-risk non-bank clients.
Through TxB, Goldman provides banking infrastructure to fintech firms, including Stripe and Wise. According to people familiar with the matter, the division has shied away from fintech clients since the warning was issued. Notably, some TxB employees had reportedly expressed worries internally over a tendency to minimize risks prior to the Federal Reserve's involvement.
At a 2020 Investor Day, CEO David Solomon emphasized transactional banking businesses, like TxB, as offering promising growth opportunities. The business represented "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. The recent regulatory criticism is a setback to the bank's expansion efforts in this direction.
The Fed's warning aligns with broader regulatory scrutiny of non-bank financial players. Other banks that work with fintech companies have also faced regulatory challenges, highlighting the need for robust risk management and compliance measures both among traditional firms serving fintechs and the fintechs themselves.