FDIC Proposes Deposit Insurance Recordkeeping Rule for Banks’ Third-Party Accounts

WASHINGTON – The Federal Deposit Insurance Corporation (FDIC) Board of Directors today approved a notice of proposed rulemaking that would strengthen recordkeeping for bank deposits received from third party, non-bank companies accepting those deposits on behalf of consumers and businesses. The proposal seeks to address risks related to these third-party arrangements, protect depositors, and promote public confidence in insured deposits. 

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

Banks typically hold customers’ funds in an individual deposit account designated for that customer, such as a checking account. Non-bank companies, however, generally do not place their customers’ funds in individual accounts at banks.  Instead, non-banks often deposit these funds together into a single custodial account at a bank. These custodial accounts may hold funds of many thousands of consumers and businesses, and the bank may not readily know or be able to determine the individual owners of funds in the custodial account.

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. These requirements, as well as others, apply if the bank uses a third party to maintain records.

The proposal’s provisions also provide for oversight by the banks’ primary federal supervisor to review for compliance with this rule and enforcement authority to compel compliance if the bank fails to meet these requirements.

The FDIC invites public comments on all aspects of the proposal. Public comments on the proposal are due 60 days after publication in the Federal Register.

BACKGROUND:
 The FDIC has taken a number of actions in recent years to address risks related to third party deposit relationships, including:

• Issuing information on supervisory observations on bank arrangements with fintechs to deliver bank deposit products and services;
• Issuing a request for information to solicit input on bank-fintech arrangements;
• Issuing a rule to modernize deposit insurance sign and advertising requirements, including websites and mobile apps, and to address misrepresentations of deposit insurance; 
• Issuing advisory letters to stop misrepresentations of deposit insurance;
• Launching a public awareness campaign, Know Your Risk. Protect Your Money., and providing other resources to reach consumers using alternative banking services that may appear to be FDIC-insured but are not.

FDIC insurance does not protect against the default, insolvency, or bankruptcy of any non-bank entity, nor does it cover fraud or theft.