FDIC Proposes Rule to Strengthen Banks’ Recordkeeping for Custodial Accounts

The Federal Deposit Insurance Corp. (FDIC) has proposed a 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 FDIC board of directors approved a notice of proposed rulemaking Tuesday (Sept. 17) and invited public comments on the proposal within 60 days after its publication in the Federal Register, the FDIC said in a Tuesday press release.

This proposal comes after the Chapter 11 bankruptcy of Synapse Financial Technologies that led to a monthslong effort to restore customers’ access to their own funds.

“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 the release.

“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.”

The proposed rule would require FDIC-insured banks holding certain custodial accounts to ensure accurate records are kept to determine the individual owner of the funds and to reconcile the account for each individual owner on a daily basis, according to the release.

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

The proposed rule would also allow banks’ primary federal supervisor to review their compliance with this rule and compel compliance if a bank fails to meet these requirements, per the release.

In a June post on its website, the FDIC said: “The easiest way for most consumers to have confidence that their money is safe continues to be opening an account directly with insured depository institutions, like FDIC-insured banks and savings associations.”