The Federal Deposit Insurance Corporation (FDIC) proposed a new regulation on Tuesday aimed at improving record-keeping practices for bank accounts managed by fintech companies.
This move comes in response to the recent failure of Synapse Financial Technologies, which left thousands of customers unable to access their funds.
The proposed rule would require banks to maintain detailed records of accounts opened through fintech firms, including information on account ownership and daily balances. Currently, fintech apps often pool customer funds into a single large account at a bank, with fintech companies or third parties managing transaction records and ownership details. This setup has led to issues, as seen in the Synapse collapse, where inadequate record-keeping complicated the process of determining fund ownership.
The FDIC’s new rule seeks to address these issues by mandating that banks keep comprehensive records for such accounts. The goal is to facilitate quicker access to funds for customers in the event of a bank failure, while also aiding bankruptcy courts in determining rightful claimants. The rule is designed to support the conditions for “pass-through insurance,” ensuring that FDIC coverage can be effectively applied even if a fintech provider fails.
If approved by the FDIC board of governors, the rule will be published in the Federal Register and open for a 60-day comment period. The FDIC’s proposal also includes measures to enhance scrutiny of bank mergers, particularly those creating institutions with assets exceeding $100 billion. This policy update, the first in 16 years, aims to ensure the stability of the banking sector amid increased consolidation.
The proposed changes come in the wake of Synapse’s bankruptcy in April, which led to the freezing of accounts for customers using fintech services through partner banks, including Evolve Bank & Trust.
