(Bloomberg) -- The Federal Deposit Insurance Corp. has started to more closely track financial-technology companies that partner with banks across the US, according to people familiar with the regulator’s supervisory operations.
The system will help FDIC examiners anticipate potential vulnerabilities before they become a problem for banks, according to the people, who asked not to be named because they were not authorized to speak publicly.
Specifically, the system would make it easier to maintain consistent oversight of fintechs even if they were to switch banking partners, and complements the agency’s existing bank oversight mechanisms, the people said. The FDIC declined to comment on its internal processes.
The internal database is largely about ensuring the regulator knows which third-parties banks are working with, said one of the people.
Financial technology companies typically do not have banking licenses of their own, requiring them to enter into partnerships with so-called sponsor banks to accept payments or provide deposit-taking services. Nor does the FDIC regulate financial technology companies.
In recent months, US financial regulators have ratcheted up oversight of banks that partner with fintech startups. This effort included a proposed rule from the FDIC to strengthen bank record-keeping requirements for deposits received through third parties, including fintechs. In another proposed rule, the FDIC suggests broadening what qualifies as a brokered deposit, a move which would include fintech funds.
In a statement released jointly with Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency in July, the FDIC said it supports “responsible innovation” while “reminding banks of potential risks” associated with these sponsor arrangements.
This increased scrutiny has come after the the bankruptcy of Andreessen Horowitz-backed “banking as a service” startup Synapse Financial Technologies Inc., which offered record-keeping services that enabled fintechs to provide financial products by connecting them with FDIC-insured banks.
Synapse imploded in April, and in the months since has been embroiled in a dispute with one of its sponsors, Evolve Bank & Trust. Evolve was itself hit with an enforcement action by the Federal Reserve in June. And potentially thousands of people have been left without access to their funds.
FDIC Chairman Martin Gruenberg has told lawmakers that the FDIC would not advance major rule-making before 2025. The new internal monitoring system gives financial examiners another lever that does not require the two proposed rules to have come into effect.
Gruenberg, 71, said in November that he will step down from his post on Jan. 19, the eve of the inauguration of President-elect Donald Trump.
Trump has so far nominated two different fintech CEOs for key roles in his incoming administration. On Dec. 4 he tapped Frank Bisignano of Fiserv Inc. to be the commissioner of the Social Security Administration, and billionaire Jared Isaacman of Shift4 Payments to run NASA.
--With assistance from Katanga Johnson and Evan Weinberger.
(Adds additional detail about the fintech system in the third and fourth paragraphs, extract from joint statement in seventh paragraph and details on fintech CEOs nominated by Trump in last paragraph)
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