The Financial Technology Association (FTA) has sent a letter to the Federal Deposit Insurance Corporation (FDIC) telling them to modify rules designed to address custodial deposits.
The letter was sent in response to proposed rulemaking on the accounts. The FTA says it supports the FDIC’s move to maintain “robust financial controls and recordkeeping processes” but adds that the proposed rules are “overly broad” and should only apply to “custodial deposit accounts eligible for FDIC pass-through insurance to multiple depositors.”
Penny Lee, President and CEO of the FTA, says top Fintech firms reconcile accounts on a daily basis, and they believe this is the best practice for the whole industry.
“Where we differ is in the treatment of certain “for the benefit of accounts” based on the use case. We continue to believe that regulations should be fit for purpose and urge the FDIC to tailor this proposal appropriately.”
The FTA explains that numerous business models use “for the benefit of” (FBO) accounts for various reasons, which may not result in providing pass-through deposit insurance to multiple depositors.
The group provides the example of a money transmitter who may open such accounts to abide by state law. Certain payment and settlement networks are also said to make use of omnibus accounts for various operational purposes.
Broker-dealers establish FBO accounts under SEC rules to ensure that deposits are used for their intended purpose, but these accounts may receive an exemption under the proposal.
