Fintech

Federal banking regulators won’t bail out Fintech customers caught up in Synapse’s bankruptcy

Published

8 months ago

17 May, 2024

Federal banking regulators won't bail out Fintech customers caught up in Synapse's bankruptcy

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Federal banking regulators will not intervene to save the thousands of fintech customers who have lost access to their money due to the banking service provider’s ongoing bankruptcy Synapse financial technologies or the other millions of people at risk.

That was the sad news delivered today in a five-hour hearing before U.S. Bankruptcy Court Judge Martin R. Barash of the Central District of California. Earlier this week, he reportedly did federal regulators urged intervene to protect “ordinary people” and avoid a “potential disaster”.

The most immediate cause of pain for individual consumers is a dispute between bankrupt Synapse and one of its banking partners, Arkansas-based Evolve Bank & Trust. This disagreement has left fintech clients Yotta Technologies, Juno Finance and Copper banking unable to access the money in their accounts or use the credit and debit cards linked to them since May 11.

But Assistant U.S. Attorney Elan Levey, who represents the U.S. Trustee (the arm of the Justice Department involved in bankruptcy cases), said he had investigated Barash’s idea and that federal banking regulators could not intervene. “I understand that FDIC insurance coverage is only available in the event of a bank failure,” he said.

While Evolve, as a state bank, falls under the Federal Reserve’s regulatory purview, the Fed, Levey noted, “does not supervise or regulate fintech companies like the debtor, nor mediate or have the authority to mediate disputes between trading companies “. entity.” The Fed, however, said in a statement that Levey read to the court that it “is actively monitoring this situation and will help ensure that Evolve complies with all legal requirements relating to the borrower’s accounts at Evolve, including any applicable securities laws consumer protection and is appropriately prioritizing this issue.”

That provided little comfort to customers who were cut off from their accounts and spoke out during bankruptcy hearings. Yotta customer Patrick Ryan directed his comments to the FDIC. “I can’t believe the FDIC stands here and says there’s absolutely nothing they can do,” he said. “With all the people that are at stake here, the FDIC needs to step up and simply cover these accounts and offer its insurance.”

Another client gave the court a first-hand account of the impact the freezing of funds is having. “I’m a single mom. I just bought my first home, the first mortgage payment is due in a few days. I’m terrified. Why are they pointing fingers at each other?” she said. “I just want to know when I’ll be able to pay my mortgage. That’s the only question I have for anyone involved in this situation.”

Colin Tindall, a Juno Finance customer with more than $50,000 locked up on the platform, filed a report with the court. Fintech financial weekly citing Synapse CEO Sankaet Pathak speculating about a bank run at Evolve during an internal meeting at the company. “Right now, Evolve has completely shut down all access, and I think we all know why, because there’s a deficit and they know that as soon as they turn on access, there’s going to be a bank run,” Pathak said.

In response to the speculation, Evolve lawyer Caroline Stapleton, a partner at Orrick, Herrington & Sutcliffe in Washington, directed Tindall to the bank’s call reports for reassurance about Evolve’s capital position. “There is no question of capital in this bank,” she stressed.

The Synapse platform is an intermediary that allows fintechs – which are not themselves banks – to provide banking and similar services such as checking accounts, credit and debit cards, and in some cases FDIC-insured savings accounts. According to Synapse, it had 100 fintech customers with around 10 million customers at the start of the year.

Since filing for Chapter 11 debtor-in-possession bankruptcy late last month, Synapse has essentially run out of money to pay its employees. Before the court Friday was an emergency motion by the United States Trustee to convert the bankruptcy to a Chapter 7 liquidation under the control of their office. Alternatively, the motion asked that, if the case was not converted, a Chapter 11 trustee be appointed to oversee operations instead of Synapse’s current management. “The debtor has grossly mismanaged the assets and there is a substantial and continuing loss or diminution of the assets and the absence of a reasonable likelihood of reorganization,” the motion states.

But Barash postponed a decision on the motion until next Friday, after Synapse bankruptcy attorney Ron Bender, of the firm Levene, Neale, Bender, Yoo & Golubchik in Los Angeles, argued in favor of giving the current management more time to address the problems that prevent fintech customers from accessing their money. He added that Synapse is receiving inquiries from potential buyers and that current management is best placed to address such discussions. “A Chapter 11 trustee would have a hard time trying to figure anything out in this case,” Bender said. “If the current management leaves, a Chapter 11 trustee would be completely lost.”

Meanwhile, some of Synapse’s fintech clients – desperate to avoid a messy shutdown that could leave their customers cut off from their money – have offered to give Synapse money to pay employees. “These customers simply send money, effectively giving it away, to minimize inconvenience,” Bender said. Lawyers for secured creditors TriplePoint Capital and First Citizens Bank did not object to using the donated funds to pay employees and maintain operations.

The hearing has not concluded the controversy This led Evolve to block customer access to funds, after Synapse apparently cut off access to a dashboard needed for the bank to run compliance checks and determine how much money each individual fintech customer actually has in their accounts grouped managed for their own benefit. Synapse says access was restored last Monday, but Evolve insists it still doesn’t have what it needs.

Barash did what he could to force a resolution. He ordered Synapse to provide settlement and ledger reports that Christopher Staab, Evolve’s chief technology officer, testified the bank had not received. He also directed executive and technical team members from Evolve and Synapse to meet and confer by Monday to discuss how to restore consumers’ access to their funds. The parties agreed to hire a private mediator. Synapse’s other banking partners, including Lineage Bank, AMG Bank and American Bank, are permitted, but not required, to participate in the meeting, Barash said.

Source

Related Topics:Chapter 11 Copper banking Evolve Bank and Trust Failure FDIC Fintech Juno Finance neobank Synapses Yotta Finance

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

6 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

6 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

6 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

6 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”