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Are FBOs risky?

An FBO typically poses the same level of risk as other business bank accounts, from a bank counterparty perspective. Extending FDIC coverage to sub or virtual account holders adds some level of operational risk as the company is required to keep accurate, real time ledgers of account balances for their users.

While an FBO may provide your business with a degree of regulatory coverage, you will be relying on the sponsor bank to continue supporting the FBO product. Should the bank decide to, or be forced to stop providing the service, your business may face serious disruption to service.

An example FBO account.

Other questions about FBO accounts

An FBO account, or a For Benefit Of account, allows a company to manage funds on behalf of—or for the benefit of—one or more of their users, without assuming legal ownership of the account.

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The beneficial owner of the account (or the party in whose name the account or sub-account was opened) owns the funds in an FBO.

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An FBO account is not technically a trust account, although some similarities exist between the two.

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One benefit of an FBO account is that it may provide the user regulatory coverage and may allow some companies to avoid the cumbersome process of becoming registered money transmitters.

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The “FBO” in an FBO account stands for “for benefit of.”

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