Tsingha25 | Istock | Getty Images
THE Federal Deposit Insurance Corporation The government on Tuesday proposed a new rule requiring banks to keep detailed records on fintech app customers after the collapse of tech company Synapse left thousands of Americans bankrupt. locked of their accounts.
The rule, which targets accounts opened by fintech companies in partnership with banks, would require the institution to keep records showing who owns the account and the daily balances attributed to the owner, according to an FDIC memo.
Fintech applications often rely on a practice in which funds from many customers are pooled into one one big account in a bank, which relies either on fintech or a third party to keep records of transactions and ownership.
This has exposed customers to the risk that the non-banks involved will keep poor or incomplete records, making it difficult to determine who will receive compensation in the event of a failure. This is what happened in the collapse of Synapse, which affected more than 100,000 fintech app users, including Yotta and Juno. Customers with funds in these “for the benefit of” accounts have not been able to access their money since May.
“In many cases, funds were advertised as FDIC-insured, and consumers may have believed that their funds would remain safe and accessible because of the representations made regarding the placement of those funds in” FDIC member banks, the regulator said in its memo.
Better recordkeeping would allow the FDIC to pay depositors quickly in the event of a bank failure by helping to satisfy the conditions for “pass-through insurance,” FDIC officials said in a briefing Tuesday.
Although FDIC insurance would not pay out if the fintech provider went bankrupt, as in Synapse’s case, improved records would help a bankruptcy court determine who is owed what, the officials added.
If approved by the FDIC Board of Governors in a vote Tuesday, the rule will be published in the Federal Register for a 60-day comment period.
Separately, the FDIC also issued a statement on its policy on bank mergers, which would strengthen scrutiny of the impacts of consolidation, particularly for transactions creating banks with more than $100 billion in assets.
Bank mergers have slowed under the Biden administration, drawing criticism from industry analysts who say consolidation would create more robust competitors for megabanks, including JPMorgan Chase.