In April 2024, Synapse Financial Technologies collapsed. More than $265 million was frozen across 100,000 accounts. Partner banks could not retrieve accurate customer balance records. Months later, a significant number of users still could not access their funds. The court-appointed trustee identified shortfalls between $65 million and $95 million against customer claims and urged the Federal Reserve, FDIC, and OCC to provide relief.
The Synapse story has been well covered as a fintech failure. What has received less attention is what it reveals about a custody architecture that extends far beyond one company. Synapse was not holding funds directly. It was reconciling pooled customer funds across omnibus accounts at partner banks using an internal ledger. When that ledger became unreconcilable, the entire structure failed. The question is not what went wrong at Synapse. The question is how many platforms are operating on the same structural foundation.
How pooled accounts work
A pooled account, often called a For Benefit Of (FBO) account, is a single bank account held in the name of an intermediary on behalf of multiple end customers. The bank sees one account with one balance. The intermediary maintains a separate ledger tracking which funds belong to which customer. Customers assume they have individual accounts. In reality, they have entries in a database.
This architecture exists because it is operationally efficient. Opening individual bank accounts for every end customer is expensive and slow. A pooled structure lets a platform onboard thousands of users and route funds through a single account. The cost savings are real. So is the risk.
The risk is the gap between what the customer believes and what the bank sees. The customer sees a balance in their app. The bank sees one aggregated balance in one account. If the intermediary's ledger drifts from the bank's records, there is no structural mechanism to resolve the discrepancy. The ownership of funds becomes a question of which ledger you trust, and in an insolvency, the answer is neither.
The pattern, not the exception
Synapse is the most visible example, but the vulnerability is structural. As CNBC's reporting on the trustee's findings detailed, Synapse apparently commingled funds among several institutions, using multiple banks to serve the same companies. The source of the shortfall could not be determined because the ledger data was unreliable and there were no former employees available to interpret the proprietary systems. The trustee lacked funds to engage external forensics firms.
The UK pattern mirrors the US. According to Mayer Brown's analysis of the FCA's safeguarding reforms, when UK payment and e-money firms became insolvent between 2018 and 2023, customers recovered on average 35 pence per pound. E-money institutions were safeguarding approximately 26 billion pounds by 2024, up from 11 billion pounds in 2021. The market is growing rapidly. The safeguarding infrastructure is not keeping pace.
Pooled account structures were the common factor in these failures. The funds existed. The bank accounts existed. What did not exist was a reliable, auditable link between each customer's balance and the funds held on their behalf. This is not a question of bad actors. It is a question of architecture. When client funds are tracked by internal ledgers rather than structurally segregated at the custodian level, every platform carrying pooled balances carries the same risk.
The regulatory response is accelerating
Regulators across multiple jurisdictions have moved decisively in response. The direction is consistent: prescriptive requirements for how client funds are held, reconciled, and reported.
- US: FDIC proposed rulemaking. The FDIC's custodial accounts rule, prompted directly by the Synapse bankruptcy, would require banks to maintain daily reconciliation of beneficial ownership records, with accurate tracking at the individual customer level. By June 2025, the trustee had sought to convert the case to Chapter 7, citing the estate's lack of funds to investigate the $65-95 million shortfall further.
- UK: FCA Supplementary Regime. PS25/12, effective 7 May 2026, mandates daily reconciliation on every business day, resolution packs, a named senior manager responsible for safeguarding, annual audits, and monthly regulatory returns.
- EU: PSD3 segregation at receipt. PSD3, expected to take effect in the EU by 2027, will require relevant funds to go directly into a safeguarding account at receipt with no commingling or later segregation. Cross-border firms will need to satisfy both the UK's trust-based approach and the EU's strict segregation model.
- DFSA and MAS have both tightened custody requirements for licensed institutions operating within their jurisdictions.
The regulatory window for pooled-only architectures is closing. Platforms that have not yet addressed their custody infrastructure face increasing compliance cost, audit complexity, and operational risk.
The infrastructure alternative
Named custody accounts invert the pooled model. Each client receives a distinct account held in their name at the custodial institution. The bank sees individual accounts with individual balances. There is no intermediary ledger to reconcile because ownership is structural, not derived from a database entry.
When a regulator asks who owns the funds in an account, the answer is visible in the account structure itself. There is no dependency on a third-party reconciliation process. The compliance is built in. The audit trail is the account.
Platforms can provision named custody accounts programmatically via API, maintaining the operational speed of a pooled model while eliminating the structural risk. The custody architecture explains itself to regulators, auditors, and insolvency practitioners without requiring interpretation of internal ledger data.
For platforms serving fintech and PSP clients, or managing funds on behalf of payroll and EOR workers, the choice between pooled and named accounts is increasingly not a choice at all. It is a regulatory requirement taking shape across every major jurisdiction.
Lorum provides named custody accounts across 30+ markets as part of its cash management infrastructure, with structural segregation by design rather than by process. The regulatory trajectory is clear. The infrastructure should be too.
