Synapse Partner Banks Sued Over Fund Mismanagement

Synapse’s collapse has sparked a lawsuit against four partner banks—American Bank, AMG National Trust, Lineage Bank, and Evolve Bank & Trust—accusing them of mismanaging customer funds. The case, filed in Colorado, involves $85 million in untraceable funds, impacting 100,000 customers, due to ledger irregularities after Synapse filed for bankruptcy in April.

The banks reportedly struggled to reconcile accounts, with Evolve blaming flawed Synapse data and claiming it had returned $46 million so far. AMG and Lineage denied holding substantial additional funds, asserting they had already disbursed 90-99% of customer money. Meanwhile, many end users found their payouts lower than expected.

The lawsuit highlights inadequate risk management, lack of contingency planning, and poor oversight of Synapse’s ledger as key failures. Plaintiffs are demanding damages, restitution, and reforms to prevent similar issues.

Have a great start to the week and I'll be back with more Digital Banking industry updates tomorrow!

Cheers,

Marcel

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DIGITAL BANKING NEWS

???? Synapse partner banks hit with lawsuit over fund mismanagement. Synapse's four partner banks—American Bank, AMG National Trust, Lineage Bank, and Evolve Bank & Trust—along with Evolve Bancorp, face a class action lawsuit in Colorado over alleged mishandling of customer funds following the FinTech's collapse.

???? Revolut Legal has quietly been working on an AI copilot with Google Gemini. This will be the future for in-house legal teams in global (multi-regulated) financial services orgs. In Q4, Revolut's MVP for commercial contracts is live & early testing shows an absolute accuracy difference of only 6.75% against our commercial lawyers.?

???? Revolut has moved over to their own BSB’s in Australia, moving away from the banking system offered by ANZ. This move means Revolut owns their own bank account number and is registered on the Aussie Banking system. It also allows customers in Australia to sign up for direct debits from their accounts.

???? Wise was forced into a formal remediation plan by European regulators over its anti-money laundering controls, the Financial Times reported on Friday, citing five people familiar with the matter. Wise created a remediation plan, approved by the regulator, to contact all customers within weeks for proof of address, the report said.

???? Maybank and ESGpedia team up to simplify sustainability reporting for SMEs. Maybank Singapore's myimpact SME programme now includes a feature powered by ESGpedia, enabling SMEs to calculate carbon emissions, report key ESG metrics, and enhance access to sustainable financing and opportunities.

???? HSBC pulling back from China credit card business after struggling to expand. The Asia-focused bank has stopped issuing new cards and is working towards winding down the service offered to a large part of China onshore customers, three sources with direct knowledge of the matter said.

???? Coventry Building Society to take over Co-op Bank in January. The FCA and the Bank of England's Prudential Regulation Authority have approved the ￡780m takeover, set to complete on 1 January 2025, making Co-op Bank a subsidiary of Coventry while both retain their banking licenses.

???? Bulgarians plead guilty to involvement in Jan Marsalek spy ring. The pleas from Orlin Roussev, 46, and Biser Dzhambazov, 43, were reported last Thursday for the first time at the start of a trial at the Old Bailey involving three other alleged accomplices.?

???? Tencent’s Neo investment comes as national security scrutiny of FinTechs ramps up. Chinese tech giant Tencent’s reported lead investment in Neo Financial’s recent funding round comes as Canadian regulators are tightening oversight of foreign ownership of FinTechs, raising questions about the Calgary startup’s future.

GOLDEN NUGGET

What is an Intermediary Bank & What's the difference from a Correspondent Bank?

Here is how it works:

An intermediary bank is a bank that connects two different banks to help transfer funds, acting as a "go-between," "third party," or "middleman."

They are essential when transferring money between banks that do not have a working relationship, such as between a domestic bank and a foreign bank.

An intermediary bank can handle both domestic and international transactions, but they are more common in international transfers.

Depending on the locations and banking networks involved, multiple intermediary banks may be used in a single transaction.

Retail bank customers usually don’t interact with intermediary banks, as these banks operate behind the scenes.

However, customers may notice the influence of intermediary banks through added fees or delays in their transactions.

The overview below?? shows how Intermediary banks work.

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? An intermediary bank acts as a "middleman" that facilitates transactions between two banks that do not have a working relationship, especially in international transfers.

? A single transaction may involve more than one intermediary bank.

? Intermediary banks charge fees in addition to those imposed by the sending and receiving banks.

Multiple intermediary banks can significantly increase the total cost of a transfer.

? The sender and receiver can choose who covers the fees.

The options are "OUR" (sender pays all fees), "SHA" (fees shared between sender and receiver), or "BEN" (receiver pays all fees).

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Both "intermediary banks" and "correspondent banks" facilitate international financial transactions and are often used interchangeably, but there are subtle differences.

In the US, correspondent banks are usually larger institutions that proceed with several currencies and handle a broader range of services beyond financial transactions, such as cash management or trade finance.

In contrast, intermediary banks are smaller and manage transactions in a single currency.

Above is the breakdown of the main differences.

I highly recommend reading the complete deep dive source article by Bertrand Theaud from Statrys for more info.

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