Trade creditors often find themselves categorized as “general unsecured creditors” when a customer files for bankruptcy. However, some creditors benefit from liens that have been contractually negotiated or statutorily granted, potentially elevating the priority of their claims. To secure this priority, the lien must be properly granted and perfected under applicable law before the customer files for bankruptcy, and in a manner that does not expose the lien to avoidance as a “preferential transfer.”

Guest Contributors: Jonah Crane and Adam Shapiro of Klaros Group

This is the second of three articles focused on a key question: as bank-fintech partnerships continue to play a vital role in driving financial services, how does the industry make this system safer and better?

In this second article,[i] we focus on encouraging the industry and regulators to adopt the right lessons from Synapse Financial Technologies’ (Synapse) bankruptcy by drawing from the root causes of its failure. We offer some best practices and discuss the potential role of the Federal Deposit Insurance Corporation’s (FDIC) recently proposed recordkeeping rule (Records NPR) — including areas of potential improvement — and conclude by noting how enhanced account ledgering by banks helps address one root cause of the Synapse failure: faulty account ledgering performed only by a third party.

When a company files for bankruptcy, creditors often wonder about the likelihood of getting paid. The answer largely depends on the priority and treatment of each creditor’s claim in the bankruptcy process. The doctrines of recharacterization and equitable subordination can significantly impact the priority of a claim, potentially postponing or eliminating payment.

Today, both the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) finalized new guidelines regarding bank mergers. According to the agencies, these updates aim to enhance transparency and provide clearer guidance on the evaluation of merger applications under the Bank Merger Act (BMA).

On September 17, the Federal Deposit Insurance Corporation (FDIC) announced a notice of proposed rulemaking (Proposal) aimed at enhancing recordkeeping for bank deposits received from fintech and other third-party, non-bank companies. The FDIC is accepting public comments on the Proposal for 60 days after publication in the Federal Register.

This is the first of three articles focused on a key question: as bank-fintech partnerships continue to play a vital role in driving financial services, how does the industry make this system safer and better?

Fintechs and their partner banks are on edge. Regulators are concerned. But as counselors to a wide range of banks and nonbanks, we are confident that the bank-fintech partnership model is not broken. We have seen these partnerships work well — not just for clients, but for consumers and other end-users — with rigorous, risk-based controls that satisfy both the regulators and the public.