One Year After Synapse, How Much Have We Really Learned?

Welcome to another edition of Washington Weekly, the series in which PYMNTS CEO Karen Webster and QED Investors partner Amias Gerety start their conversation with a Manic Monday check-in. The weekly question: How manic is this Monday?

Well, turns out this Monday — even if only for the moment — was somewhat magical. The freeze of China’s tariff rate at 30% has produced a sense of optimism in the markets and in D.C. But the situation at CFPB headquarters over on G Street is a bit less clear. Late last week it came to light that former Federal Deposit Insurance Corporation (FDIC) Board member Jonathan McKernan will be nominated to serve in a post at the Treasury Department after previously being nominated to lead the Consumer Financial Protection Bureau (CFPB). Treasury Secretary Scott Bessent said in a Friday (May 9) press release that President Donald Trump intends to nominate McKernan to serve as the undersecretary of domestic finance at the Treasury Department. That leaves the CFPB with an acting director who happens to be the same guy who wants to take it apart: Russell Vought.

And we’re not done. On Friday the agency also announced nearly 70 policy and regulatory guidance documents stretching back more than a decade that the agency plans to rescind. Word also circulated late last week that the CFPB plans to ask a federal judge in Kentucky to vacate Rule 1033, the foundation of open banking regulations allowing customers to freely share their bank and credit card account details with FinTechs.

Got Manic?

“This strategy they’re taking is a recipe for fragmentation and uncertainty,” said Gerety, who served as an undersecretary to the treasury under President Barack Obama. Gerety noted that simply dropping enforcement without rewriting the underlying regulations could invite fragmented oversight from state attorneys general and private litigants, creating a chaotic regulatory landscape for banks and FinTech firms alike.

“If you’re going to rewrite the rules, you have to rewrite the rules. That’s what the law says,” Gerety said. Banks, particularly larger and more sophisticated institutions, are approaching the developments with caution. “The more sophisticated you are, the more cautious you’re going to be,” he warned. His advice to clients was clear: “Be cautious, treat your customers right, pay attention to the rules on paper. Until those rules are rewritten, you can’t change your practices.”

Banks may initially welcome fewer rules, but Gerety underscored that such relief would likely be short-lived. Without clear federal oversight, financial institutions face the risk of conflicting state-level regulations and potential lawsuits. This piecemeal enforcement could ultimately prove more burdensome than the original federal rules. FinTech firms, while potentially benefiting in the short term from deregulation, would face similar uncertainty. Gerety cautioned FinTech companies to remain vigilant and prudent, reminding them that compliance and consumer trust remain paramount.

The Fate of Rule 1033

Adding to the uncertainty is Rule 1033, a hotly contested regulation defining consumer data access. Gerety pointed out the essential tension: “Banks want to be paid for others to access their data.” While consumer ownership of data is established by law, he acknowledged the legitimate costs banks incur protecting and managing this data. Gerety advocated for a structured model similar to interchange fees, where costs could be fairly allocated.

“It is the responsibility of the federal government to implement this rule in 1033 and to find a way to make this make sense in the marketplace,” Gerety said.

Webster and Gerety also explored the complexity of establishing a sustainable business model around data sharing. Gerety noted that FinTech companies currently incur costs when accessing data via third-party aggregators such as Plaid, Yodlee and MX. Thus, the market already acknowledges and accommodates these costs. He suggested that regulators and industry participants could adopt a fair-use model, striking a balance between consumer rights and institutional sustainability.

Amid regulatory shifts, Gerety and Webster reflected on recent banking disruptions, including the first anniversary of the Synapse collapse, the uptick in new bank charters and the uncertain fate of stablecoin legislation:

On the Synapse collapse anniversary: “It’s incredibly frustrating how little we’ve learned,” Gerety said. He underscored basic failures by Synapse and its banking partner Evolve Bank & Trust, particularly in routine but crucial tasks like account reconciliation. The lack of transparency about where missing consumer funds went remains troubling, potentially harming innovation by making the FinTech ecosystem appear risky. Gerety emphasized that this uncertainty could discourage investors and FinTechs alike, stifling much-needed innovation in financial services.

Regarding the rise of new banks: Despite the recent momentum behind new bank charters, Gerety urged cautious optimism. “Actually, it should be OK for banks to fail,” he noted. “But every bank needs to protect its customers’ money. That’s non-negotiable.” While new banks introduce innovation and competition, he said, regulators must remain diligent in ensuring fundamental banking operations, such as asset-liability management and compliance, are rigorously maintained. “The right answer isn’t to preserve every bank we have, but rather to ensure that banks that can’t adequately protect consumers’ funds exit the market responsibly,” Gerety added.

On the stablecoin-focused GENIUS bill: Gerety expressed skepticism about the current iteration of the bill due to its vagueness and the unresolved critical question: “What happens if the stablecoin issuer fails?” He called for bipartisan efforts to strengthen the bill, emphasizing that stablecoin legislation could pass swiftly with clearer definitions and robust consumer protection. He pointed out that a lack of clarity around stablecoin definitions, consumer protections and issuer failure could lead to instability and erode confidence in digital financial products.

Stablecoin Clarity Needed

Gerety further stressed that any successful stablecoin legislation must explicitly address consumer protections and anti-money laundering measures and provide clarity on how issuers’ failures would be managed to avoid systemic risks. “If the legislation doesn’t answer these fundamental questions, it won’t garner bipartisan support and could potentially stall altogether,” he cautioned.

Throughout the conversation, Gerety and Webster underscored the need for clear regulatory frameworks that promote consumer safety, innovation and market stability. Gerety reiterated that clear rules provide certainty to businesses, allowing them to innovate responsibly and sustainably. “When you provide a clear, predictable regulatory environment, financial services companies — both banks and FinTechs — can focus on delivering value to their customers rather than navigating regulatory ambiguity,” he said.

In Gerety’s view, stablecoin regulation and consumer data access clarity are not only possible but necessary, provided lawmakers commit to resolving these critical issues pragmatically and transparently. “The opportunity for bipartisan cooperation is significant,” Gerety concluded. “Lawmakers have a responsibility to act decisively, setting clear rules that ensure both consumer protection and industry innovation can coexist.”