The Federal Deposit Insurance Corporation (FDIC), a key U.S. banking regulator, has proposed new rules for Banks collaborate with fintech companies.
The proposal aims to strengthen record-keeping requirements for accounts held by fintechs on behalf of their customers, a move that could have a significant impact on the growing Banking-as-a-Service (BaaS) sector.
Under the new rules, banks partnering with fintech companies will have to identify the beneficial owners of each account and its balance.
Beneficial ownership refers to the person or entity that ultimately controls or benefits from an account, a concept that is critical to preventing financial crime and ensuring transparency.
FDIC proposal comes after Synapse collapse
The proposal follows the bankruptcy of Synapse Financial Technologies earlier this year.
Synapse, a BaaS provider that acts as an intermediary between banks and fintech companies, filed for bankruptcy in April, freezing thousands of customer accounts.
FDIC Chairman Martin Gruenberg said, “These new requirements would ensure consumers have timely access to their funds, even if a bank fails. We’ve seen how the collapse of a single fintech partner can disrupt the entire ecosystem, and we’re taking steps to mitigate those risks.”
The proposed rules would allow third parties like Synapse to retain records, provided certain conditions are met. These include ensuring that banks retain unrestricted access to customer data even if an intermediary goes bankrupt or insolvent.
The Synapse bankruptcy has exposed the vulnerabilities of the current system. While the exact number of affected accounts remains unclear, regulators estimate it could be in the tens of thousands.
A court-appointed trustee in the bankruptcy case claimed in June that there was an £85 million ($112 million) shortfall between Synapse’s partner banks and what is owed to depositors.