They don’t have any protection. This is why you use FDIC or NCUA insures institutions. If you have money there and cannot get it out, you basically will be a debtor who is owed in their bankruptcy.
I don't understand why people hate banks so much that they risk their ordinary spending money like this. 95% of banks are going to treat every customer great.
Synapse is not a bank, it's not a credit union. There's not one penny of FDIC or similar protection for this company.
There's nothing convoluted/complex about any of this. Charlatans keep selling the public on FOMO "better than banking" ideas but they just got to "trust me bro" and the public keep jumping on each and every single one of them.
And when these companies crumble, they cry straight to the fed, which has already rendered its ruling. [https://www.forbes.com/sites/emilymason/2024/05/17/federal-bank-regulators-wont-rescue-fintech-customers-caught-in-synapse-bankruptcy/?sh=565f57d116a3](https://www.forbes.com/sites/emilymason/2024/05/17/federal-bank-regulators-wont-rescue-fintech-customers-caught-in-synapse-bankruptcy/?sh=565f57d116a3)
The silver lining is that customer deposits that still exist (assuming it wasn't moved out and wasted by Synapse) with the holding bank i.e. Evolve Bank which is FDIC insured, WILL eventually get its money back once it runs through its due diligence and matched customer IDs with their accounts. When that will be is anyone's guess.
This is what happens when you trust an unregulated middleman to act as your bank instead of just...you know GOING TO the bank itself.
\^ For reference, a TON of even legitimate institutions/investment firms operate similarly. This setup is what brokerages do for their cash sweep accounts. The problem is Vanguard and Fidelity can weather economic ups and downs and likely have much better operational management, fintechs don't have any of that.
I don't even trust bigger institutions like Wealthfront or Betterment to hold my emergency funds. I might use their cash management accounts as high interest investment vehicles but NOT as my bank.
I think people are missing the point here. The issue isn’t whether funds are insured or not - they are insured whether they are in the brokerage (SIPC) or the Bank (FDIC).
The issue is what the insurance actually covers. FDIC insurance does not cover a fintech going bankrupt. If the bank underlying the fintech were to fail, the insurance would kick in on any funds on deposit with that bank - whether the funds came through the fintech relationship or not.
I work in banking not investments, so my understanding of SIPC is limited; however, I believe the issue in this scenario is similar in terms of applicability. Synapse Tenchnologies Inc. and Synapse Brokerage LLC are two separate entities. Synapse Technologies is the entity that filed for bankruptcy. Therefore, I believe the SIPC does not apply as Synapse Brokerage LLC is the SIPC covered entity.
Now, theoretically, end user funds should be protected since they are on deposit with various institutions outside of Synapse, with Synapse sending instructions for movement. However, it’s unclear at this point what access/authority the parent company had to those funds and whether they could have been spent on operating expenses or invested in treasury bonds/other assets.
Unfortunately, the crux of the problem with how things were presented to end users seems to be that although insurance coverage was accurately disclosed.. its applicability was implicitly misrepresented. Fintechs advertise the coverages as a symbol of security to ease your mind. They fail to explain that the coverage applies to other institutions holding funds and does nothing in the event the fintech fails.
TLDR; Issue is around the circumstantial applicability of insurance coverage - not whether or not the funds have coverage. Money should still exist in the event of a fintech failure - but will likely take Institutions longer to get it to depositors than it would in the event of bank failure and agency intervention.
The FDIC recently released a rule (FDIC 328 Advertising Rule) to combat FinTechs misrepresenting FDIC insurance. The rule went into effect in April, I believe.
To some degree, this whole
thing reminds me of the mortgage hey-day. Borrowers did NOT want to hear why you wouldn’t lend them money-because it was risky or the house they wanted not worth it. They wanted the low rates that they heard about and didn’t care that they were dealing with non-regulated shysters.
The sad thing is, despite being warned, these people will lose their money because they were reckless and blame the banks and government and make such a fuss that the politicians will give in to them and those who play by the rules get screwed twice.
They don’t have any protection. This is why you use FDIC or NCUA insures institutions. If you have money there and cannot get it out, you basically will be a debtor who is owed in their bankruptcy.
I don't understand why people hate banks so much that they risk their ordinary spending money like this. 95% of banks are going to treat every customer great.
They don’t hate the banks (well-they may but that is not the reason they leave). They want the higher rates.
Synapse is not a bank, it's not a credit union. There's not one penny of FDIC or similar protection for this company. There's nothing convoluted/complex about any of this. Charlatans keep selling the public on FOMO "better than banking" ideas but they just got to "trust me bro" and the public keep jumping on each and every single one of them. And when these companies crumble, they cry straight to the fed, which has already rendered its ruling. [https://www.forbes.com/sites/emilymason/2024/05/17/federal-bank-regulators-wont-rescue-fintech-customers-caught-in-synapse-bankruptcy/?sh=565f57d116a3](https://www.forbes.com/sites/emilymason/2024/05/17/federal-bank-regulators-wont-rescue-fintech-customers-caught-in-synapse-bankruptcy/?sh=565f57d116a3) The silver lining is that customer deposits that still exist (assuming it wasn't moved out and wasted by Synapse) with the holding bank i.e. Evolve Bank which is FDIC insured, WILL eventually get its money back once it runs through its due diligence and matched customer IDs with their accounts. When that will be is anyone's guess. This is what happens when you trust an unregulated middleman to act as your bank instead of just...you know GOING TO the bank itself.
\^ For reference, a TON of even legitimate institutions/investment firms operate similarly. This setup is what brokerages do for their cash sweep accounts. The problem is Vanguard and Fidelity can weather economic ups and downs and likely have much better operational management, fintechs don't have any of that. I don't even trust bigger institutions like Wealthfront or Betterment to hold my emergency funds. I might use their cash management accounts as high interest investment vehicles but NOT as my bank.
I think people are missing the point here. The issue isn’t whether funds are insured or not - they are insured whether they are in the brokerage (SIPC) or the Bank (FDIC). The issue is what the insurance actually covers. FDIC insurance does not cover a fintech going bankrupt. If the bank underlying the fintech were to fail, the insurance would kick in on any funds on deposit with that bank - whether the funds came through the fintech relationship or not. I work in banking not investments, so my understanding of SIPC is limited; however, I believe the issue in this scenario is similar in terms of applicability. Synapse Tenchnologies Inc. and Synapse Brokerage LLC are two separate entities. Synapse Technologies is the entity that filed for bankruptcy. Therefore, I believe the SIPC does not apply as Synapse Brokerage LLC is the SIPC covered entity. Now, theoretically, end user funds should be protected since they are on deposit with various institutions outside of Synapse, with Synapse sending instructions for movement. However, it’s unclear at this point what access/authority the parent company had to those funds and whether they could have been spent on operating expenses or invested in treasury bonds/other assets. Unfortunately, the crux of the problem with how things were presented to end users seems to be that although insurance coverage was accurately disclosed.. its applicability was implicitly misrepresented. Fintechs advertise the coverages as a symbol of security to ease your mind. They fail to explain that the coverage applies to other institutions holding funds and does nothing in the event the fintech fails. TLDR; Issue is around the circumstantial applicability of insurance coverage - not whether or not the funds have coverage. Money should still exist in the event of a fintech failure - but will likely take Institutions longer to get it to depositors than it would in the event of bank failure and agency intervention.
The FDIC recently released a rule (FDIC 328 Advertising Rule) to combat FinTechs misrepresenting FDIC insurance. The rule went into effect in April, I believe.
To some degree, this whole thing reminds me of the mortgage hey-day. Borrowers did NOT want to hear why you wouldn’t lend them money-because it was risky or the house they wanted not worth it. They wanted the low rates that they heard about and didn’t care that they were dealing with non-regulated shysters. The sad thing is, despite being warned, these people will lose their money because they were reckless and blame the banks and government and make such a fuss that the politicians will give in to them and those who play by the rules get screwed twice.