FDIC Extends Comment Period for Proposed Custodial Account Recordkeeping Rule

The Federal Deposit Insurance Corp. (FDIC) has extended the public comment period for its proposed rule on recordkeeping for banks’ custodial accounts.

Previously scheduled to end Dec. 2, the comment period now runs through Jan. 16, the FDIC said in a Monday (Nov. 18) press release.

“The FDIC has determined that an extension of the comment period until January 16, 2025, is appropriate,” it said in an announcement. “This action will allow interested parties additional time to analyze the proposal and prepare comments.”

The regulator announced its Notice of Proposed Rulemaking on Sept. 17 and said in the release that the proposed rule would strengthen recordkeeping for bank deposits received from third-party, non-bank companies that accept deposits on behalf of consumers and businesses, and would address risks related to these arrangements, protect depositors and boost public confidence in insured deposits.

“Under the proposed rule, FDIC-insured banks holding certain custodial accounts, as defined in the proposal, would be required to take certain steps to ensure accurate account records are maintained in order to determine the individual owner of the funds, including a requirement to reconcile the account for each individual owner on a daily basis,” the FDIC said in its Monday press release.

When announcing the notice of proposed rulemaking in September, FDIC Chairman Martin J. Gruenberg pointed to the Chapter 11 bankruptcy of Synapse Financial Technologies.

“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,” Gruenberg said.

“In addition, it will strengthen the FDIC’s ability to make deposit insurance determinations and, if necessary, pay deposit insurance if the bank fails,” Gruenberg said. “Further, the proposed rule will strengthen compliance with anti-money laundering and countering the finance of terrorism law.”

Currently, when non-bank companies deposit their customers’ funds in a bank, they do so in a single custodial account that may hold the 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 at the time in a press release.

Cross River Founder and CEO Gilles Gade said in October that the proposed requirements for custodial deposit accounts are a proper response to the collapse of Synapse.

“In the past, we’ve been the first to push back on regulator overreach,” Gade said in an Oct. 22 statement. “But on this occasion, regulators at the FDIC are undeniably right to take responsive action.”