The Federal Deposit Insurance Corporation (FDIC) has
proposed a significant rule that compels banks to maintain detailed records
of fintech customers’ data, CNBC reported. This initiative follows the collapse of tech firm
Synapse, which left thousands of users locked out of their accounts, many of
them customers of fintech apps.
Ensuring Customer Protection
The proposal aims to prevent a repeat of this
situation by ensuring banks, rather than fintech companies, keep track of
ownership records and account balances.
The FDIC’s rule primarily targets the type of pooled
accounts often used by fintech apps. In these setups, many customers’ funds are
combined into a single large account, with the fintech provider or a third party responsible for maintaining ledgers of who owns what.
When the records are incomplete or inaccurate,
customers are exposed to significant risks, as seen in the Synapse incident.
For months, affected users have been unable to access their funds, raising
concerns about the safety of these arrangements.
The new rule aims to close this gap by making banks
responsible for maintaining the records of fintech customers, ensuring that in
the event of a failure, it’s clear who owns what. Enhanced record-keeping would
also make it easier for bankruptcy courts to determine payouts in cases like
Synapse.
The FDIC explained that better records would allow
them to pay depositors more quickly in case of a bank failure by meeting the
requirements for “pass-through insurance.”
This would represent a significant shift in
responsibility, shifting the burden of record-keeping from fintechs to their banking partners, who are already FDIC-insured and more closely regulated. If approved, the rule would undergo a 60-day public comment period, during which industry
participants could provide feedback.
Heightened Compliance Measures
In addition to the new record-keeping rule, the FDIC
also issued a statement on its policy toward bank mergers. This new stance
promises to heighten scrutiny, especially for mergers that would result in
banks with assets exceeding $100 billion. Under the Biden administration, bank mergers have
slowed, with critics arguing that consolidation could bolster competition
against industry giants like JPMorgan Chase.
Fintech companies, which often operate in grey regulatory areas, could face increased scrutiny in their relationships with
traditional banks, as the FDIC looks to prevent future debacles like Synapse.
As the proposal moves toward a vote by the FDIC board
of governors, fintech firms and their partner banks will likely need to rethink
their data management practices. The rule represents a fundamental shift in how
financial partnerships will operate.
The Federal Deposit Insurance Corporation (FDIC) has
proposed a significant rule that compels banks to maintain detailed records
of fintech customers’ data, CNBC reported. This initiative follows the collapse of tech firm
Synapse, which left thousands of users locked out of their accounts, many of
them customers of fintech apps.
Ensuring Customer Protection
The proposal aims to prevent a repeat of this
situation by ensuring banks, rather than fintech companies, keep track of
ownership records and account balances.
The FDIC’s rule primarily targets the type of pooled
accounts often used by fintech apps. In these setups, many customers’ funds are
combined into a single large account, with the fintech provider or a third party responsible for maintaining ledgers of who owns what.
When the records are incomplete or inaccurate,
customers are exposed to significant risks, as seen in the Synapse incident.
For months, affected users have been unable to access their funds, raising
concerns about the safety of these arrangements.
The new rule aims to close this gap by making banks
responsible for maintaining the records of fintech customers, ensuring that in
the event of a failure, it’s clear who owns what. Enhanced record-keeping would
also make it easier for bankruptcy courts to determine payouts in cases like
Synapse.
The FDIC explained that better records would allow
them to pay depositors more quickly in case of a bank failure by meeting the
requirements for “pass-through insurance.”
This would represent a significant shift in
responsibility, shifting the burden of record-keeping from fintechs to their banking partners, who are already FDIC-insured and more closely regulated. If approved, the rule would undergo a 60-day public comment period, during which industry
participants could provide feedback.
Heightened Compliance Measures
In addition to the new record-keeping rule, the FDIC
also issued a statement on its policy toward bank mergers. This new stance
promises to heighten scrutiny, especially for mergers that would result in
banks with assets exceeding $100 billion. Under the Biden administration, bank mergers have
slowed, with critics arguing that consolidation could bolster competition
against industry giants like JPMorgan Chase.
Fintech companies, which often operate in grey regulatory areas, could face increased scrutiny in their relationships with
traditional banks, as the FDIC looks to prevent future debacles like Synapse.
As the proposal moves toward a vote by the FDIC board
of governors, fintech firms and their partner banks will likely need to rethink
their data management practices. The rule represents a fundamental shift in how
financial partnerships will operate.
This post is originally published on FINANCEMAGNATES.
