Report: FDIC Ramps Up FinTech Scrutiny

The Federal Deposit Insurance Corporation (FDIC) reportedly has begun more closely tracking FinTechs that partner with banks, aiming to spot potential problems before they affect the banks.

This tracking system complements the agency’s existing oversight of banks and gives FDIC examiners a way to oversee these FinTechs, even when they switch banking partners, Bloomberg reported Wednesday (Dec. 4), citing unnamed sources.

The FDIC did not immediately reply to PYMNTS’ request for comment.

The agency put the system in place after the bankruptcy of banking-as-a-service (BaaS) startup Synapse, according to the Bloomberg report.

The system enables FDIC examiners to oversee FinTechs and know which third parties banks are working with even without the implementation of two proposed rules from the FDIC that would apply to FinTechs: one that would strengthen banks’ recordkeeping requirements for third-party deposits and another that would broaden what qualifies as a brokered deposit.

The BaaS-led collaborative efforts between FinTechs and smaller banks drew the attention of regulators, Ingo Payments CEO Drew Edwards told PYMNTS CEO Karen Webster in an interview posted in March.

At that time, regulators were turning their attention to the downstream risks associated with know your customer (KYC), compliance and risk management, fraud, and the financial safety of FinTechs and their partners, Edwards said.

Events around the Synapse bankruptcy in April further highlighted the pressures on middleman relationships within BaaS, PYMNTS reported in May.

The FDIC cited the Synapse situation when proposing its rule that would strengthen recordkeeping for bank deposits received from third party, non-bank companies that accept those deposits on behalf of consumers and businesses.

“The Notice of Proposed Rulemaking approved by the FDIC Board today is an important step to ensure that banks know the actual owner of deposits placed in a bank by a third party such as Synapse, whether the deposit has actually been placed in the banks, and that the banks are able to provide the depositor their funds even if the third party fails,” FDIC Chairman Martin J. Gruenberg said in a Sept. 17 press release.

Currently, when non-bank companies deposit their customers’ funds in a bank, they do so in a single custodial account that may holds funds of thousands of consumers and businesses — and the bank may not know the individual owners of funds in the custodial account, the FDIC said in the release.