The Federal Deposit Insurance Corporation (FDIC) has rolled out a fresh strategy to enhance its oversight of fintech companies working alongside banks across the United States.
According to insiders familiar with the regulatory body’s supervision, this new monitoring framework is designed to help FDIC examiners pinpoint vulnerabilities early on, thereby averting potential problems before they can negatively affect banks.
Enhanced Monitoring Framework
Sources, who chose to remain unnamed due to restrictions on speaking publicly about the matter, noted that this approach significantly bolsters the FDIC’s capability to supervise fintech firms, even when those firms switch to different banking partners.
This initiative is meant to supplement the FDIC’s current oversight mechanisms for banks.
Typically, fintech companies do not possess their own banking licenses; instead, they establish partnerships with sponsor banks to handle payment processing and deposit services.
Regulatory Scrutiny and Recent Developments
Recently, there has been a surge in regulatory scrutiny targeting banks that collaborate with fintech startups.
One notable development is a proposed rule from the FDIC that seeks to strengthen record-keeping standards for deposits processed through third parties, like fintechs.
Additionally, regulators are considering broadening the definition of brokered deposits to include funds sourced from fintech companies, which illustrates a significant shift in the regulatory landscape.
This heightened focus on fintech partnerships was partly prompted by the bankruptcy of Synapse Financial Technologies Inc. Earlier this year, the startup, backed by Andreessen Horowitz and crucial for providing record-keeping services for fintechs, collapsed.
Its downfall has sparked legal disputes between Synapse and its sponsor, Evolve Bank & Trust, which has also faced actions from the Federal Reserve.
This situation may have resulted in many individuals losing access to their funds.
Future Changes and Oversight Resources
In the meantime, FDIC Chairman Martin Gruenberg has informed lawmakers that major rule-making initiatives will be paused until after 2025.
Meanwhile, the newly implemented internal monitoring framework offers examiners an additional resource for effective oversight, independent of the forthcoming regulatory changes.
Gruenberg, who recently announced his resignation effective January 19, will step down just before the swearing-in of President-elect Donald Trump.
This transition may lead to further shifts in how the FDIC interacts with the evolving landscape of fintech.
Source: Insurancejournal.com
