The Federal Deposit Insurance Corporation (FDIC) has proposed a significant rule that compels banks to maintain detailed records of fintech customers' data, CNBC reported. This initiative follows the collapse of tech firm Synapse, which left thousands of users locked out of their accounts, many of them customers of fintech apps.

Ensuring Customer Protection

The proposal aims to prevent a repeat of this situation by ensuring banks, rather than fintech companies, keep track of ownership records and account balances.

The FDIC's rule primarily targets the type of pooled accounts often used by fintech apps. In these setups, many customers' funds are combined into a single large account, with the fintech provider or a third party responsible for maintaining ledgers of who owns what. When the records are incomplete or inaccurate, customers are exposed to significant risks, as seen in the Synapse incident. For months, affected users have reportedly been unable to access their funds.

The new rule aims to close this gap by making banks responsible for maintaining the records of fintech customers, ensuring that in the event of a failure, it's clear who owns what. The regulator mentioned that enhanced record-keeping would also make it easier for bankruptcy courts to determine payouts in cases like Synapse.

The FDIC explained that better records would allow them to pay depositors more quickly in case of a bank failure by meeting the requirements for “pass-through insurance.”

This would represent a significant change in responsibility, shifting the burden of record-keeping from fintech firms to their banking partners, who are already FDIC-insured and more closely regulated. If approved, the rule would undergo a 60-day public comment period, during which industry participants could provide feedback.

Heightened Compliance Measures

In addition to the new record-keeping rule, the FDIC also issued a statement on its policy toward bank mergers. This new stance promises to heighten scrutiny, especially for mergers that would result in banks with assets exceeding $100 billion.

Fintech companies, which often operate in grey regulatory areas, could face increased scrutiny in their relationships with traditional banks. As the proposal moves toward a vote by the FDIC board of governors, fintech firms and their partner banks will likely need to rethink their data management practices. The rule represents a fundamental shift in how financial partnerships will operate.