Urges FDIC to narrow proposed rule to cover only custodial deposit accounts eligible for pass-through insurance
WASHINGTON, D.C. – The Financial Technology Association (FTA) submitted a comment letter in response to the Federal Deposit Insurance Corporation’s (FDIC) proposed rule regarding custodial deposit accounts. FTA supports the FDIC’s efforts to ensure that custodial deposit accounts are subject to robust financial controls and recordkeeping processes. However, the proposal is overly broad and should be narrowed to only apply to custodial deposit accounts eligible for FDIC pass-through insurance to multiple depositors.
“Leading fintech companies reconcile accounts on a daily basis, and we believe that is a best practice for the entire industry,” said Penny Lee, President and CEO of the Financial Technology Association. “Where we differ is in the treatment of certain “for the benefit of accounts” based on the use case. We continue to believe that regulations should be fit for purpose and urge the FDIC to tailor this proposal appropriately.”
FTA supports the FDIC’s effort to enhance protections for depositors by formalizing requirements for financial controls and recordkeeping when a custodial deposit account is used to provide pass-through deposit insurance. However, numerous business models use “for the benefit of” (FBO) accounts for various reasons, which may not result in providing pass-through deposit insurance to multiple depositors. For example, money transmitters may open such accounts to abide by state law. Certain payment and settlement networks make use of omnibus accounts for various operational purposes. Broker dealers establish FBO accounts under Securities and Exchange Commission (SEC) rules to ensure that deposits are used for their intended purpose, but these accounts may receive an exemption under the proposal.
Imposing broad requirements on these accounts could inadvertently stifle innovation, hinder operational efficiency, and undermine competition in financial services. In many cases, these accounts are also subject to independent regulatory requirements under federal and state laws, making additional requirements redundant and burdensome. Similarly, they may not present any challenges for timely FDIC insurance determinations, which is the legal foundation of this proposal. Therefore, FTA urges the FDIC to recognize the diversity of arrangements that may use custodial deposit accounts and revise its rulemaking appropriately to ensure these new requirements only apply to accounts structured to be eligible for pass-through deposit insurance.
Click here to read FTA’s complete response to the FDIC’s custodial deposit accounts proposal.
ABOUT US
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
FTA Supports Efforts to Build on Industry-Leading Reconciliation and Recordkeeping Practices and Protect Depositors
Urges FDIC to narrow proposed rule to cover only custodial deposit accounts eligible for pass-through insurance
WASHINGTON, D.C. – The Financial Technology Association (FTA) submitted a comment letter in response to the Federal Deposit Insurance Corporation’s (FDIC) proposed rule regarding custodial deposit accounts. FTA supports the FDIC’s efforts to ensure that custodial deposit accounts are subject to robust financial controls and recordkeeping processes. However, the proposal is overly broad and should be narrowed to only apply to custodial deposit accounts eligible for FDIC pass-through insurance to multiple depositors.
“Leading fintech companies reconcile accounts on a daily basis, and we believe that is a best practice for the entire industry,” said Penny Lee, President and CEO of the Financial Technology Association. “Where we differ is in the treatment of certain “for the benefit of accounts” based on the use case. We continue to believe that regulations should be fit for purpose and urge the FDIC to tailor this proposal appropriately.”
FTA supports the FDIC’s effort to enhance protections for depositors by formalizing requirements for financial controls and recordkeeping when a custodial deposit account is used to provide pass-through deposit insurance. However, numerous business models use “for the benefit of” (FBO) accounts for various reasons, which may not result in providing pass-through deposit insurance to multiple depositors. For example, money transmitters may open such accounts to abide by state law. Certain payment and settlement networks make use of omnibus accounts for various operational purposes. Broker dealers establish FBO accounts under Securities and Exchange Commission (SEC) rules to ensure that deposits are used for their intended purpose, but these accounts may receive an exemption under the proposal.
Imposing broad requirements on these accounts could inadvertently stifle innovation, hinder operational efficiency, and undermine competition in financial services. In many cases, these accounts are also subject to independent regulatory requirements under federal and state laws, making additional requirements redundant and burdensome. Similarly, they may not present any challenges for timely FDIC insurance determinations, which is the legal foundation of this proposal. Therefore, FTA urges the FDIC to recognize the diversity of arrangements that may use custodial deposit accounts and revise its rulemaking appropriately to ensure these new requirements only apply to accounts structured to be eligible for pass-through deposit insurance.
Click here to read FTA’s complete response to the FDIC’s custodial deposit accounts proposal.
ABOUT US
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.