Proposed Recordkeeping for Custodial Accounts

Synapse Financial Technologies, Inc.’s failure resulted in significant hardship for consumers. The well-known difficulties reconstructing consumers’ account balances and reconciling Synapse’s and partner banks’ records also reveal that it might have been time consuming and difficult—perhaps even impossible—for the FDIC to have paid deposit insurance to depositors had one of the partner banks failed. These and other risks manifested by Synapse’s failure merit consideration by regulators for potential action within congressionally defined mandates and powers.

I generally support today’s proposal and its goal of strengthening recordkeeping for the types of deposit accounts implicated by Synapse’s failure. I also appreciate the depositor- and consumer-protection benefits the proposal could provide. While my inclination would be for a more targeted proposal addressing the issues raised clearly by Synapse’s failure, I recognize there arguably might be merit in addressing more broadly recordkeeping for accounts eligible for pass-through deposit insurance, particularly given how difficult it might be to draw clear boundaries. 

I am mindful, nonetheless, that this is a complex area that requires thoughtful changes to our regulatory approach. My support for a final rule will depend on whether I am convinced that the final version is appropriately targeted, tailored, and consistent with our statutory authorities. To that end, I am eager for public feedback on the proposal. In addition to the questions in the proposal, I believe the FDIC would benefit from public input on the following questions:

1. The proposal’s substantive requirements are grounded in (i) the FDIC’s responsibility to pay deposit insurance claims “as soon as possible” in the event of the failure of an IDI and (ii) the statutory prohibition on IDI’s entering into a written or oral contract with any person to provide goods, products, or services to or for the benefit of the IDI if the performance of that contract would adversely affect the safety or soundness of the IDI.¹ Are there aspects of the proposal that go beyond these statutory authorities? In finalizing the proposal, to what extent can or should the FDIC look to achieving policy objectives—such as depositor- or consumer-protection benefits—beyond those related directly to those statutory authorities, such as seeking to reduce risk to deposit owners in the absence of the failure of an IDI or if the account holder is not providing goods, products, or services to or for the benefit of the IDI?
2. Could any of the policy goals underlying the proposal be achieved better or more directly under other statutory authorities, such as those related to prohibitions on misrepresentations about insured status, or by other regulators?
3. Should the proposal distinguish between types of custodial accounts? For example, should the applicability of any requirements depend on whether the account holder provides goods, products, or services to or for the benefit of the IDI? If so, how can those custodial accounts be identified while minimizing the risk of circumvention of the proposal’s requirements?
4. Should the proposal distinguish between types of arrangements between IDIs and account holders?²
5. Should the proposal tailor or tier requirements based on an objective metric, such as the total account balance of an IDI’s “custodial deposit accounts with transactional features” not exempt from the proposal’s requirements, or the total number of beneficial owners of such accounts?
6. Are there aspects of the proposal that duplicate, overlap, or potentially conflict with the requirements of 12 C.F.R. § 360.9 or 12 C.F.R. pt. 370? If so, should any changes be made to the proposal, 12 C.F.R. § 360.9, or 12 C.F.R. pt. 370?
7. What are the advantages and disadvantages of requiring an IDI to have “direct, continuous, and unrestricted access to the records of the beneficial owners” when those records are not the IDI’s records? If that requirement may introduce security vulnerabilities, is there a better approach?
8. In its role as insurer or resolution authority, does the FDIC have the statutory authority to require all IDIs to have policies and procedures to achieve compliance with the proposal? Regardless, is such a requirement or expectation better imposed by the IDI’s primary federal supervisor?
9. Even taking into consideration the types of deposit accounts exempted from the proposal’s requirements, is the proposal’s definition of “custodial deposit account with transactional features” too broad or vague? Would the definition be improved by limiting its scope to deposit accounts for which an IDI’s deposit account records disclose the existence of a relationship that might provide a basis for additional deposit insurance in accordance with 12 C.F.R. §§ 330.5 or 330.7?³ Would the definition be improved by adopting the definition of “transactional features” used in 12 C.F.R. pt. 370?⁴
10. Do the benefits of the annual certification and report requirements outweigh the costs and burdens of those requirements? Could the requirements be adjusted to better balance those benefits with the costs and burdens for all or any subtype of accounts or relationships?

11. Are there aspects of the proposal that may be impracticable or overly burdensome to comply with, such as requiring an account holder to agree to contractual obligations if that account holder does not provide goods, products, or services to or for the benefit of an IDI? Should the proposal include a procedure for an IDI to request an exemption from one or more of the rule’s requirements?⁵