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The Federal Deposit Insurance Corporation proposed a new rule on Tuesday that would force banks to keep detailed records of fintech app customers after the collapse of tech company Synapse locked out thousands of Americans’ accounts.
The rule, which targets accounts opened by fintech companies that work with banks, will require the agency to keep records of account owners and the owners’ daily balances, according to a memo from the Federal Deposit Insurance Corporation (FDIC).
Fintech applications often rely on a practice where many customers’ funds are pooled into a large account at a bank, which relies on the fintech or a third party to maintain a ledger of transactions and ownership.
This situation puts customers at risk that the non-bank institutions involved may keep shoddy or incomplete records, making it difficult to determine who to pay in the event of a failure. That’s what happened with the Synapse crash, which affected more than 100,000 fintech app users, including Yotta and Juno. Customers with funds in these “benefit” accounts have been unable to withdraw their funds since May.
In a statement, the regulator said, “In many cases, these funds are advertised as being insured by the FDIC, and consumers may believe that their funds will remain safe and secure because of representations about depositing these funds with an FDIC member bank. Easy to use”. memorandum.
FDIC officials said in a briefing on Tuesday that keeping better records would allow the FDIC to quickly pay depositors in the event of a bank failure, helping meet the conditions required for “pass-through insurance.”
Officials added that while FDIC insurance would not pay out in the event a fintech provider fails, as was the case with Synapse, the enhanced records will help bankruptcy courts determine who owes what to whom.
If approved by the FDIC Board of Governors in Tuesday’s vote, the rule will be published in the Federal Register with a 60-day comment period.
Separately, the FDIC also issued a statement on bank merger policy that will increase scrutiny of the impact of mergers, particularly transactions that create banks with more than $100 billion in assets.
A slowdown in bank mergers under the Biden administration has drawn criticism from industry analysts who say the mergers will create stronger rivals for large banks, including JPMorgan Chase.
