The Federal Deposit Insurance Corp. (FDIC) is expected to propose new rules impacting For Benefit Of (FBO) accounts which will affect the neobanking sector.
According to a report by Bloomberg, the FDIC will make the proposal as soon as this month. This follows the Synapse debacle in which the Fintech left account holders wondering if they were ever going to get their money back.
Synapse, a Banking as a Service (BaaS) provider once described as one of the World’s Best Fintech Companies by CNBC, collapsed into bankruptcy earlier this year.
It is anticipated that FBO accounts will be required to do daily reconciliations, which may have helped Synapse avoid its calamitous collapse or at least brought the issue to the attention of regulators sooner.
Earlier this year, the FDIC proposed a new rule on brokered deposit regulations. The FDIC Chairman Martin Gruenberg said at that time the changes to the rule would address the fundamental relationship between a bank, a depositor, and a third-party intermediary. He said this may address the risks as illustrated by the failure of the “nonbank deposit broker Synapse Financial.”
As a growing number of Fintechs or neobanks have started to provide bank like services, the regulatory environment must catch up to better manage any nuances to the ecosystem. Fintechs can provide these services by partnering with chartered banks while adding value for their users. Situations like Synapse provide painful examples of how technology may move faster than regulators.
