Tsingha25 | Istock | Getty Images
The Federal Deposit Insurance Company on Tuesday proposed a new rule that would force banks to keep more detailed data for customers of fintech apps after the failure of tech company Synapse led to thousands of Americans losing access to their accounts.
The rule, aimed at accounts opened by fintech companies that partner with banks, will require the institution to maintain records of who owns the account and the daily balances attributed to the owner, according to an FDIC memo.
Fintech apps often use a type of account that pools many customers’ money into one large account at a bank, which relies on the fintech or a third party to maintain ledgers of transactions and ownership.
That situation exposed customers to the risk that the non-banks involved would keep poor or incomplete records, making it difficult to determine who should pay out in the event of a bankruptcy. That’s what happened in the Synapse collapse, which affected more than 100,000 end users of fintech apps, including Yotta and Juno. Customers with money in these ‘for the benefit of’ accounts have no longer had access to their money since May.
“In many cases, the funds were advertised as being FDIC insured, and consumers may have believed that their funds would remain safe and accessible because of representations about the placement of those funds in FDIC member banks,” the regulator said in its report . memo.
Keeping better records would allow the FDIC to quickly pay depositors in the event of a bank failure by helping meet the requirements needed for “pass-through insurance,” FDIC officials said in a briefing Tuesday .
While FDIC insurance will not be paid out in the event the fintech provider fails, as in the Synapse situation, improved banking records will help a bankruptcy court determine who owes what, the officials added.
If approved by the FDIC Board of Directors, the rule will be published in the Federal Register for a 60-day comment period.