FDIC Proposes New Rule to Regulate Bank-Fintech Custodial Deposit Accounts

FDIC Proposes New Rule to Regulate Bank-Fintech Custodial Deposit Accounts

According to an article by the Venable firm, the FDIC has issued a proposed rule targeting bank-fintech custodial deposit accounts with transactional features, often known as “FBO” (for-benefit-of) accounts. If adopted, the rule will impose new regulatory requirements on banks, affecting their contracts with fintechs and third-party service providers. This includes adjustments in data sharing, recordkeeping, and business continuity plans.

Prompted by recent bank failures and the bankruptcy of a middleware provider, the rule seeks to mitigate risks associated with digital financial services, particularly the threat of faster bank runs. It requires daily account reconciliation and mandates that banks either maintain or have direct access to ledgers held by third parties, such as fintech. Additionally, banks must submit an annual certification and report on their compliance with these rules.

Exemptions apply to certain types of bank-fintech custodial deposit accounts, such as those established by broker-dealers or tied to property owners, but banks will be held accountable for third-party recordkeeping and validation. Contracts between banks and third parties must clearly define responsibilities for managing account records.

Commenters have until mid-November to respond to the rule, and many are expected to raise concerns about its technological and operational feasibility. If finalized, the rule would create more explicit obligations for banks to ensure accurate and timely account reconciliation, potentially increasing their compliance burden. While some exemptions exist, there is a call for further clarification and potentially expanding the list of exceptions to reduce the regulatory impact on the industry.