FDIC unveils rule forcing banks to keep fintech customer data in aftermath of Synapse debacle

cnbc.com:

The Federal Deposit Insurance Corporation on Tuesday proposed a new rule forcing banks to keep detailed records for customers of fintech apps after the failure of tech firm Synapse resulted in thousands of Americans being locked out of their accounts.

The rule, aimed at accounts opened by fintech firms that partner with banks, makes the institution maintain records of who owns it and the daily balances attributed to the owner, according to an FDIC memo.

Fintech apps often lean on a practice where many customers' funds are pooled into a single large account at a bank, which relies on either the fintech or a third party to maintain ledgers of transactions and ownership.

That situation exposed customers to the risk that the nonbanks involved would keep shoddy or incomplete records, making it hard to determine who to pay out in the event of a failure. That's what happened in the Synapse collapse, which impacted more than 100,000 end users of fintech apps including Yotta and Juno, customers with funds in these «for benefit of» accounts have been unable to access their money since May.

«In many cases, it was advertised that the funds were FDIC-insured, and consumers may have believed that their funds would remain safe and accessible due to representations made regarding placement of those funds in» FDIC-member banks, the regulator said in its memo.

Keeping better records would allow the FDIC to quickly pay depositors in the event of a bank failure by helping to satisfy conditions needed for «pass-through insurance,» FDIC officials said Tuesday in a briefing.

While FDIC insurance doesn't get paid out in the event the fintech provider fails, like in the Synapse situation, enhanced records would help a bankruptcy court determine