The December 31, 2024, deadline for compliance with the Corporate Transparency Act (CTA) is fast approaching. Small factors, supply chain finance companies, and other financial institutions with either $5 million or less in annual revenue or 20 or fewer employees should be well on their way to understanding the CTA’s requirements and implementing compliance processes. In addition, finance companies should consider CTA compliance as part of their standard diligence processes.
Nevertheless, if you haven’t started thinking about CTA compliance, our colleagues Patrick Conner, Ali Ahmed, and Christopher Smith have put together this fantastic overview. In addition, our colleagues Jordan Bergkamp, Alan Kandel, Yuefan Wang, and Aly Winters recently released a detailed analysis of the CTA’s implications for employee stock ownership plan (ESOP)-owned companies.
Finally, keep in mind that there is litigation challenging the CTA. Notably, last week, several trade groups in Utah filed suit against the Department of the Treasury in a Utah Federal Court contending that the CTA’s penalties violate the Fifth Amendment’s guarantee of due process. There are also cases pending in Michigan and Alabama. While we are following this litigation closely, we do recommend that companies continue to actively prepare to meet the compliance deadlines.
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Finastra CredAble Partnership
Last week, we discussed the promise of enhanced technology solutions in the alternative commercial finance space. So we were obviously interested to hear that Finastra—a London-based financial software company that offers technology services such as banking-as-a-service (BaaS), embedded finance, processing and underwriting services—is partnering with CredAble. CredAble is a global working capital platform that works with banks to provide supply chain financing solutions to small and medium-sized enterprises (SMEs). This release from PYMNTS provides a thorough summary of the partnership.
We’ve seen the proliferation of BaaS solutions, embedded finance, and bank partnerships in the consumer finance space. And while these solutions have contributed positively to the expansion of convenient, innovative financial services options for consumers, these developments have brought about their own challenges. One only has to follow the fallout from the Synapse Bankruptcy to see the type of risks that these arrangements carry. However, we would argue that the benefits of these types of partnerships far outweigh the risks—especially when the dangers can be mitigated by thoughtful risk allocation, careful compliance management, and by partnering with those who take legal and compliance risk management seriously.
Dominic Janney, “Three Reasons Equipment Finance Companies Should Embrace Modern Technology,” Monitor Daily
Dominic Janney, President of Canon Financial Services, has an article out in Monitor Daily detailing the intersection between equipment finance and modern technology solutions. In particular, Mr. Janney makes this excellent point about the level of innovation and independence that the as-a-service model provides:
"[these services] empower[] [equipment finance companies] to treat each customer as an individual and explore the innovative solutions that they demand. So, if one customer wants to pay for equipment on a per-use basis while another customer favors traditional leases, an equipment finance company can facilitate each model.
"This ability to innovate also fosters independence. A company running on old technology is at the mercy of its partners. A company with flexible modern technology can make the changes required to keep up with the pace of industry change—and integrate its technology with a broader range of complementary systems to get the job done."
We work in a fast-evolving industry. And if the bank/fintech partnership model we’ve seen in consumer finance is any indication, we will see accelerated evolution in the commercial finance space. BaaS and other outsourced technology solutions provide companies the ability to quickly evolve to meet client demands. However, with this agility comes the responsibility to understand and manage risk appropriately.
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