Comment by alexey-salmin | Hacker News Reader

Comment by alexey-salmin | Hacker News Reader

Did I get this right:

1) non-bank fintech put client's money in the bank

2) they told clients that money in the bank are covered by FDIC which is technically true

3) fintech moved money out of the bank

4) bank insurance doesn't apply because the bank didn't "lose" anything

At least this seems to match the Evolve's part of the story from the article. And Evolve is a real bank so they should have all the records to prove it. If so then it's a clear fraud by fintechs, but FDIC can't do much. Otherwise Evolve is lying and in this case FDIC can take over.

I wonder what is a reliable way to know if in the end your money is covered or not. Trusting what the contract tells you is evidently not enough. Having a "real" individual account number in a real bank? Not sure either, if intermediary can move the money out of your personal account then account insurance likely won't work either.

A very common failure mode is for money to be commingled in an FBO account and improperly accounted for.

In that case the company setting up the account is responsible for accurately keeping track of whose money is whose. The bank will require occasional documentation that this can be done and the bank regulators will do very occasional audits, but generally speaking the bank is not on the hook for keeping track of whose money is whose in the big FBO bucket. But all of it is FDIC insured (up to the limits) in the face of bank failure.

It’s not insured in the face of the company failure or improper accounting.

This is an area where the European regulators are much stricter than American ones.

Yeah, it seems there should be equally strict regulations on whatever entity is managing the FBO.

>In June, the FDIC made it clear that its insurance fund doesn’t cover the failure of nonbanks like Synapse, and that in the event of such a firm’s failure, recovering funds through the courts wasn’t guaranteed.

Apparently not FDIC insured, despite the advertising. How is a consumer supposed to know whether their money is with a true “bank” or with a “fintech”?

Edit Re-read your comment again and we are saying the same things

It's usually in the fine print of their website, something like "insolvency.io is not a bank, your funds are handled by <some bank you've never heard of>".

Yes, brokerages do this with your cash sweep funds, but they always name actual partner banks. I believe the issue here is those banks moved the funds into non-banks

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