New US Regulator Bank Rules Set to Protect FinTech’s and Customer Funds
US Federal Deposit Insurance Corporation (FDIC) is set to introduce strict rules and regulations for banks that work with fintech companies.
According to Reuters, the new US regulator bank rules will require banks to reinforce recordkeeping for accounts that fintech companies hold on behalf of customers.
Custodial Accounts
In a statement posted on the FDIC website, the US regulator noted that banks hold customer funds in individual deposit accounts. Fintech companies- which are typically non-bank firms, don’t place funds belonging to their customers in individual accounts within banks. Instead, all customer funds are lumped up together in a one custodial account in a bank.
Often, custodial accounts hold funds belonging to thousands of fintech customers. This means that banks that host such accounts for fintechs may not necessarily know the individual owners of the funds held in the custodial accounts.
The new FDIC proposal for banks seeks to change this situation. Under the proposed rules, FDIC-insured banks will be required to maintain accurate records of individual owners of funds held in custodial accounts. Additionally, such banks will be expected to reconcile accounts for each individual owner each day.
Safeguarding Customer Funds
FDIC’s bank proposal comes months after Synapse Financial Technologies collapsed early this year. Synapse was a bank-fintech middleman whose collapse led to the freezing of numerous accounts. Through the new rules, the banking regulator will ensure that customers can access their funds in a timely manner, even in situations where there is a failure on the part of the bank.
“The Notice of Proposed Rulemaking approved by the FDIC Board today is an important step to ensure that banks know the actual owner of deposits placed in a bank by a third party such as Synapse, whether the deposit has actually been placed in the banks, and that the banks are able to provide the depositor their funds even if the third party fails,” FDIC Chairman Martin J. Gruenberg said.
Under the new US regulator strengthened rules third parties such as Synapse will have to maintain beneficiary records for as long as they meet specific requirements. These requirements include banks maintaining open access to beneficiary records even in the event of insolvency or bankruptcy.
Synapse filed a bankruptcy application in April 2024. Accounts belonging to thousands of customers from partner banks were frozen. One of its partner banks, Evolve Bank & Trust, was providing banking services like deposit accounts to fintech firms.
Bank Merger Regulation
The US banking regulator is planning to introduce a new policy to tighten scrutiny of bank mergers that combine banks with assets that are valued at over $100 million. The new policy will underscore the need to maintain stability in the banking sector. The policy is set to update FDIC’s merger guidelines that have been in existence for the last 16 years.
