FDIC Proposes Rule Mandating Banks to Keep Fintech Customer Data Following Synapse Collapse

The Federal Deposit Insurance Corp. (FDIC) has proposed a new rule requiring banks to keep more detailed records of customers’ data for fintech apps, following the failure of the tech firm Synapse that left thousands of Americans unable to access their funds. This rule targets accounts opened by fintech companies in partnership with banks and mandates that financial institutions maintain records of account ownership and daily balances, according to an FDIC memo.

Fintech apps often operate by pooling customers’ funds into a single account at a bank, leaving the responsibility of tracking transactions and ownership to the fintech provider or a third party. This practice exposed customers to significant risks when the fintech provider had incomplete or inaccurate records, which became evident after the Synapse debacle, affecting over 100,000 users of apps like Yotta and Juno. Since May, many of these users have been locked out of their funds due to the collapse.

The FDIC highlighted that, in some cases, customers believed their funds were insured based on fintech companies’ claims of partnering with FDIC-insured banks. However, incomplete records made it difficult to trace ownership, complicating the payout process for customers.

The new rule aims to address this by ensuring better record-keeping, which would enable the FDIC to quickly pay out depositors in the event of a bank failure and help bankruptcy courts determine entitlements during fintech failures like Synapse. The rule, if approved by the FDIC board, will enter a 60-day comment period.

In addition, the FDIC also released a statement on its merger policies, signaling increased scrutiny on bank mergers, particularly for deals creating banks with assets exceeding $100 billion. Under the Biden administration, the pace of bank mergers has slowed, sparking debate on whether consolidation would create stronger competitors for large institutions like JPMorgan Chase.