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The Federal Deposit Insurance Corporation on Tuesday proposed a new rule requiring banks to keep detailed records of fintech app customers after the bankruptcy of tech firm Synapse left thousands of Americans locked out of their accounts.
The rule, aimed at accounts opened by fintech companies that partner with banks, would require the institution to keep records of who owns them and the daily balances attributed to the owner, according to an FDIC memo.
Fintech apps often rely on a practice where many customers’ funds are pooled into a single large account at a bank, which relies on the fintech or a third party to maintain transaction and ownership records.
That situation exposed customers to the risk that the non-banks involved kept poor or incomplete records, making it difficult to determine who to pay in the event of bankruptcy. That’s what happened in the collapse of Synapse, which affected more than 100,000 users of fintech apps including Yotta and Juno. Customers with funds in these “for the benefit of” accounts have been unable to access their money since May.
“In many cases, funds were advertised as being FDIC-insured, and consumers may have believed that their funds would remain safe and accessible because of representations made regarding the placement of those funds at” FDIC member banks, the regulator said in its memo.
Better record keeping would allow the FDIC to pay depositors quickly if a bank fails, helping to satisfy the conditions necessary for “pass-through insurance,” FDIC officials said at a briefing Tuesday.
While FDIC insurance does not pay out if the fintech provider fails, as in the case of Synapse, the enhanced records would help a bankruptcy court determine who is owed what, officials added.
If approved by the FDIC's board of governors in a vote on Tuesday, the rule will be published in the Federal Register for a 60-day comment period.
Separately, the FDIC also released a statement on its policy on bank mergers, which would step up scrutiny of the impacts of consolidation, especially for deals that create banks with more than $100 billion in assets.
Bank mergers have slowed under the Biden administration, prompting criticism from industry analysts who say consolidation would create stronger competitors for megabanks like JPMorgan Chase.
