In the aftermath of the collapse of fintech company Synapse, a U.S. regulator has announced plans to enhance recordkeeping requirements for bank deposits that third-party companies receive on behalf of their customers.
Earlier this year, the Banking as a Service (BaaS) firm Synapse failed due to a dispute with its banking partner, Evolve Bank & Trust. This situation left customers of several Synapse clients, including Copper and Yotta, unable to access their funds.
Generally, Synapse and similar non-bank companies do not place their customers’ funds into individual accounts at banks. Instead, they consolidate these funds into a single custodial account, which may contain money from thousands of consumers and businesses. This method complicates banks’ ability to quickly identify the individual owners of the funds within that custodial account.
To address this issue, the proposed rule from the Federal Deposit Insurance Corporation (FDIC) mandates that banks holding certain custodial accounts must ensure accurate account records are maintained to identify the individual owners of the funds. This includes a requirement for daily account reconciliations for each individual owner.
Additionally, the primary federal supervisor of the banks would have the authority to review compliance with this rule and enforce it as necessary.
FDIC Chairman Martin Gruenberg remarked that the initiative represents “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.”