Marketplace lenders and other financial technology firms have become the darling of the financial industry, but attorneys say that traditional banks looking to work with such firms need to closely eye potential risks — or face problems from regulators.

Regulators have forced banks in recent years to increase their monitoring for suspicious transactions that could be linked to terrorist groups, drug cartels and other groups seeking to hide from law enforcement. Banks also have been hit with a range of consumer protection requirements.

Fintech firms have not been operating under such scrutiny to this point, although regulators at the state and federal levels have been taking a harder look at their activities recently. That's why banks need to ensure that marketplace lenders, which provide electronic platforms for private investors to fund small business and personal loans, as well as innovative payment processors and other tech firms, are up to speed on regulatory requirements or at least know where they need to improve before agreeing to a deal, said Kevin Leitao, of counsel at Ballard Spahr LLP.

"Banks should be thinking about whether the Fintech firms are aware of the regulatory issues and paying attention to regulatory issues at all," Leitao said.

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