Cross River CEO: FDIC Proposed Rule Would Protect Bank-FinTech Model

Cross River Founder and CEO Gilles Gade has spoken out in favor of the Federal Deposit Insurance Corp.’s (FDIC) proposed requirements for custodial deposit accounts.

The proposed requirements are a proper response to the collapse of Synapse and the fallout that impacted its FDIC-insured banking partner, Evolve Bank & Trust, and several FinTechs, Gade said in a Tuesday (Oct. 22) statement.

“In the past, we’ve been the first to push back on regulator overreach,” Gade wrote. “But on this occasion, regulators at the FDIC are undeniably right to take responsive action.”

The FDIC proposed the rule on Sept. 17, saying it would strengthen recordkeeping for bank deposits received from third-party, non-bank companies that accept those deposits on behalf of consumers and businesses, PYMNTS reported at the time.

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.

It 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.

“Many of us already have the proposed systems in place and operate with a crystal-clear understanding that regulatory safety and soundness is the responsibility of the partner bank in the bank-fintech relationship,” Gade wrote in his Tuesday statement. “However, given recent history and behaviors of others, the proposed rule around Requirements for Custodial Accounts is an absolute, yet reasonable and balanced response, necessary to protect both consumers and the future of the bank-fintech model.”

Gade added that bad actors must be held accountable, gaps in regulations should be filled, and any inference of systemic compliance issues in the bank-FinTech model should be dispelled so that financial services innovation can continue.

“A collaborative model built foremost on compliance, fosters innovation and expands access to financial services for millions of consumers, especially to those excluded from traditional banking systems,” Gade wrote.

“The FDIC is right to hold bad actors accountable and require we all rise to the occasion,” he added.

The FDIC invites public comments on its notice of proposed rulemaking by Dec. 2.