FBO account
FBO account means a 'for the benefit of' bank account that a company holds on behalf of its customers. It pools their money while records show each customer's share.
United States: FDIC pass-through deposit insurance rules apply. The FDIC custodial account proposal (FIL-64-2024, September 2024) was not confirmed as final at the time of review; check its current status.
How it works
A fintech or payment firm usually opens the account at a bank, titled for example 'XYZ FBO customers'. Money from many end users is pooled. End users can direct transfers out, such as payments to recipients. The firm is the account holder; its customers are the beneficial owners.
Pass-through deposit insurance depends on records. The FDIC requires that funds be owned by the principals, not the firm. Bank records must show the custodial nature of the account. The owners and their interests must also be identifiable.
In September 2024 the FDIC proposed rules for custodial accounts with transactional features. Banks would need records of each beneficial owner's balance and reconciliation at least daily. Commentators linked the proposal to the bankruptcy of middleware provider Synapse. Pitfalls include ledgers held only by an intermediary and unreconciled pooled balances.
Example
Illustrative example: An FBO account holds $12,000,000. The firm's ledger shows 40,000 customers with balances totalling $11,950,000. The $50,000 gap is unexplained. It needs investigation before the next daily reconciliation, since the ledger should match the pooled balance.
Frequently asked questions
Are funds in an FBO account FDIC-insured?
Possibly, on a pass-through basis to each customer. That requires the FDIC's ownership, account-record and identification conditions to be met. Gaps in records can put coverage at risk.
Who must reconcile an FBO account?
Under the 2024 FDIC proposal, the bank would carry the duty, reconciling at least daily as of close of business. It could rely on a third party's records only with direct, continuous access and annual independent validation.
Related terms
Sources
- Pass-through Deposit Insurance Coverage · Federal Deposit Insurance Corporation
- Requirements for Custodial Deposit Accounts with Transactional Features and Prompt Payment of Deposit Insurance to Depositors (FIL-64-2024) · Federal Deposit Insurance Corporation
- Custody Battles: The FDIC's Latest Proposed Rule on FBO Accounts · Venable LLP
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