Avoiding Over-Regulation: American Fintech Council Warns That FDIC New Act Could Hinder Innovation

Due to the risk of stifling innovation, the American Fintech Council (AFC), the trade association representing responsible fintech companies and banks, has requested that the Federal Deposit Insurance Corporation (FDIC), the independent agency created by Congress to maintain stability and public confidence in the nation’s financial system, withdraws its Proposed Rule on Recordkeeping for Custodial Accounts.

The new proposal will allegedly strengthen FDIC-insured depository institutions’ (IDI) recordkeeping for custodial deposit accounts with transactional features. It would also preserve beneficial owners’ and depositors’ entitlement to the protections afforded by Federal deposit insurance. The intended purpose of this proposal is to give the FDIC the ability to promptly make deposit insurance determinations and, if necessary, pay deposit insurance claims ‘as soon as possible” in the event of the failure of an IDI holding custodial accounts with transactional features.

However, the AFC, on its mission to promote a transparent, inclusive, and customer-centric financial system by supporting responsible innovation in financial services and encouraging sound public policy, has taken issue with this proposal suggesting it is overregulating the market, and could potentially impact the freedom of regulation.

“Withdraw the proposal”

Sharing its concerns with the FDIC, the AFC sent a comment letter to the independent agency. In it, the AFC urged the FDIC to withdraw the proposal stating that if enacted, the act could stifle responsible innovation and harm consumers without addressing broader market concerns.

Some of the issues outlined in the letter include a reliance on insufficient data, a reactive basis in response to a single industry event, and a failure to align with broader regulatory and market realities. Ultimately, the AFC argued the new act could hinder financial inclusion as it would impose unnecessary burdens on responsible financial institutions and consequently make custodial accounts prohibitively expensive to offer. Underserved consumers relying on these services would be the ones feeling this impact the most.

AFC’s letter recommends that the FDIC withdraw the Proposed Rule and engage with industry leaders to promote best practices and leverage existing regulatory frameworks. By collaborating with stakeholders, the FDIC can foster responsible innovation while ensuring transparency, accuracy, and security in custodial account recordkeeping.

Undermining confidence and over-regulation
Phil Goldfeder, CEO, AFC
Phil Goldfeder, CEO of the American Fintech Council

Phil Goldfeder, chief executive officer of AFC said: “While AFC agrees with the principles of the Proposed Rule, reacting to an isolated event, rather than addressing systemic issues, risks creating an overly prescriptive regulatory environment that undermines confidence in financial services and discourages responsible innovation.

“The Proposed Rule fails to reflect the hallmarks of sound policymaking. We urge the FDIC to instead work with industry stakeholders to strengthen existing practices and ensure effective, consumer-focused outcomes.”

Ian P. Moloney, SVP and head of policy and regulatory affairs at AFC
Ian P. Moloney, SVP and head of policy and regulatory affairs at AFC

Ian P. Moloney, SVP and head of policy and regulatory affairs at AFC added: “The Proposed Rule is poorly timed and does not consider the existing industry efforts to remedy the issues covered, nor the state and federal requirements that already govern many custodial accounts.

“The FDIC has acknowledged significant limitations in its own data and analysis, which undermines the rationale for the rule and calls into question the accuracy of its projected costs. Pragmatic policymaking should address market-wide issues with input from stakeholders—not impose a blanket response to a single failure.”

The post Avoiding Over-Regulation: American Fintech Council Warns That FDIC New Act Could Hinder Innovation appeared first on The Fintech Times.

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