The FDIC board unanimously voted today to advance a proposed rule to establish new recordkeeping requirements for banks that enter into arrangements with third-party fintech firms to provide deposit products and services. According to the agency, the rule would require FDIC-insured banks holding certain custodial accounts to maintain accurate account records so that the individual owner of the funds can be identified, including a requirement to reconcile the account for each individual owner on a daily basis.
“If a bank fails, the FDIC cannot pay deposit insurance to the depositors based on inaccurate or incomplete records,” FDIC Chairman Martin Gruenberg said. “Knowing the identity of the actual owners of the deposits — the so-called ‘beneficial owners,’ who are often consumers — and knowing their account balances are necessary for the deposit insurance to pass through the nonbank third-party company… to the actual owners of the funds.”
Gruenberg also cited the collapse of the fintech firm Synapse earlier this year as a reason a new rule was needed. That failure locked more than 100,000 U.S. customers with $265 million in deposits out of their accounts, according to CNBC.
The proposed rule would require banks to have “direct, continuous and unrestricted” access to the records of the beneficial owners, including in the event of a business interruption or bankruptcy of the third party. Banks would be required to establish and maintain written policies and procedures to ensure compliance with the rule’s requirements. They would be required to complete an annual certification of compliance, signed by an executive officer, stating that the institute has implemented and tested its recordkeeping requirements. They also would be required to file annual reports that, among other things, list the account holders that maintain custodial deposit accounts with transactional features, the total balance of those custodial deposit accounts, and the total number of beneficial owners.
While all five board members voted to advance the proposal, the two Republican board members expressed some concerns about the proposed requirements. FDIC Board Member Travis Hill said his vote shouldn’t be construed as support for the eventual final rule. “I have some pause whether it is fully within our statutory authorities, and I have some questions whether it reconciles with the existing regulations governing pass-through insurance,” he said.
Public comments on the proposal are due 60 days after its publication in the Federal Register.
