Representatives of two of America’s leading bodies for the banking industry have hit out at Robinhood Financial over their checking and savings accounts, which claim to offer an alternative to mainstream bank accounts.
Announcing its new account products last week, Robinhood promised interest of 3% while claiming funds would be invested in the “safest assets,” such as Treasurys. However, industry representatives have pointed out that the accounts are backed by the Securities Investor Protection Corp., but crucially not by the Federal Deposit Insurance Corp., as with regulated bank accounts.
Senior regulatory counsel for the Independent Community Bankers of America, Chris Cole, said there were several concerns that regulators should address. In an interview with the American Banker, Cole said, “This is supposed to be a brokerage account, but they’re running around making it look like a banking account.”
Sarah Grano of the American Bankers Association said that the industry was keen to maintain consumer trust through providing accurate information about deposit protections.
“Consumer trust is critical to the safety and soundness of the banking system, and that is why it is so important that consumers have clear and accurate information about deposit insurance,” Grano noted.
Robinhood has previously met with the Office of Comptroller of the Currency, which would be a precursory step to gaining banking approval. In November, Joseph Otting, of the Office of Comptroller of the Currency, said many fintech firms who had initially sought banking approval changed course after learning of the requirements.
Otting said at the time, “There were probably 250 fintech companies that thought they wanted to be a bank. But as people started to realize what it took to be a bank, that you had to have capital and liquidity and policies and procedures and risk management, often that is completely the opposite of what a fintech company is, which is quickness to market.”
There was no suggestion Robinhood was amongst those companies. It remains to be seen whether regulators agree with the banking industry and its concerns over the accounts and their marketing.
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