[ritikm]

[PM on Brex Cash here]

Thanks for the response, all great questions. Answers below:

> Can you guys elaborate on this in non-marketing/PR speak? If it looks like a duck and walks like a duck…

Brex Cash functions like a checking account, but the structure behind it is different. Traditional banks separate checking and savings accounts, which means customers earn a lower yield on their money as a whole. To be able to offer yield in all of the funds, we use a different structure: customers put their cash into Brex Treasury LLC, a registered broker-dealer affiliate of Brex Inc., that invests the cash in U.S. Treasuries through a money market fund. This means that while we don’t offer FDIC insurance, funds are held in low-risk securities backed by the U.S. government.

> Do we want you to be getting around the regulations? Are those regulations in place to hurt or help us (the business owners)?

Brex Cash is regulated as a broker-dealer, by FINRA. This is a well known structure used by Fidelity and other large financial institutions to offer similar products offering higher yield cash accounts.

> I’m genuinely curious here — I am seriously excited about a real, digital-first, intelligent, non-physical business bank. But I’m immediately concerned that you’re trying to “move fast and break things” and frankly I don’t really want that when it comes to my business checking account.

Totally understand the concern, and this is top of mind for us as well. We’ve spent over a year building the right technical, regulatory, and financial foundation to make sure we can scale this product. This is a product that we have built to be resilient and not to move fast and break things -- when it comes to customer’s money, we simply don’t do that. We’ve been working with customers for months to make sure the product functions well. Lastly, we’re rolling it out slowly, starting with an early access program for existing customers. Our motto internally is: “The Brex Cash rollout should be boring” :).

[perl4ever]

Quote:

"SIPC protects cash that is deposited with a brokerage firm for one limited purpose….the purpose of purchasing securities,” says Harbeck. “Cash deposited for other reasons would not be protected. SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose."

It sounds to me like this would apply to you just as to Robin Hood's ill-fated product. Just saying "we're a broker and cash sweep into a money market fund is what brokers do" doesn't seem like a meaningful argument. Why are you different?

[fro0116]

IANAL, but according to this: https://www.sipc.org/for-investors/what-sipc-protects

> SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm.

It sounds like SIPC protects against loss of cash for the purpose of purchasing securities _and_ the loss of the securities themselves. So in this case it sounds like by sweeping customers' cash into a money market fund, SIPC protection would apply to the money market fund investment.

I think Robinhood's issue might have been that they didn't actually do any securities trading and tried to just rely on SIPC insurance for customers' cash that's just sitting around.

Regardless of if my interpretation is correct, I'd be _really_ surprised if they just somehow ignored the whole Robinhood fiasco and managed to make the exact same mistake on the regulatory side.

[asdfasgasdgasdg]

That distinction doesn't make sense to me, for one simple reason. For Robinhood to promise a return of 3%, they must have been sweeping the money into some sort of investment vehicle. But the SIPC still said they weren't covered.

[fro0116]

I wouldn't be so sure, there was the rather plausible speculation that the 3% from Robinhood was a loss leader that wasn't meant to last long, in order to drum up hype for the launch. They could very well have been planning to earn the fed rate and fronting the difference for a period of time and then bait & switching (and/or introducing some premium plan to make up the difference).

Also, money market funds, which are generally considered cash-equivalents, don't usually yield north 3% either afaik, and I can imagine putting customers deposits in riskier higher yielding investments could have also have ran foul of banking regulations.

Brex is using neither of these strategies here as far as I can tell, and they're providing a decent amount of transparency into how the funds are going to be handled, so it should be fairly easy for regulators to review. If regulators do take issue with their strategy, I suspect we'll probably hear about it in the news soon enough. In the mean time, it's still an early access product, so it's not like we can use it immediately anyways (I'll definitely be signing up though).

[perl4ever]

From the context, I can only infer that money market funds do not fall under the category of "securities" for the SIPC.

[fro0116]

From the first sentence under the "What are securities" section:

> SIPC protects stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds and certain other investments as "securities."

[perl4ever]

Well, I'm not going to take responsibility for reconciling the inconsistency here.

People said at the time that Robin Hood was offering a money market fund by another name, using short term investments to produce that 3%. The head of the SIPC took exception to the idea that the accounts would be covered, as I quoted. I can't say where the confusion lies.

https://www.bloomberg.com/opinion/articles/2018-12-13/robinh...

[tempsy]

IIRC this is what Robinhood did when they tried to launch their 3% APY account. I guess where they went wrong was calling it a “checking and savings account”? I thought they also got in a bit of hot water with the SIPC because the insurance isn’t meant to insure “checking account” like products, which is essentially what this is, no?

[perl4ever]

Based on what I read, the problem was not which magic words were used, but the nature of the product.

[tempsy]

Ok, so how is Brex different in this case? Both are effectively checking accounts, except one is for businesses and the other was for retail customers.

[perl4ever]

I don't know how Brex is different, that's pretty much the theme of my comments in this thread.