A very common failure mode is for money to be commingled in an FBO account and improperly accounted for.

In that case the company setting up the account is responsible for accurately keeping track of whose money is whose. The bank will require occasional documentation that this can be done and the bank regulators will do very occasional audits, but generally speaking the bank is not on the hook for keeping track of whose money is whose in the big FBO bucket. But all of it is FDIC insured (up to the limits) in the face of bank failure.

It’s not insured in the face of the company failure or improper accounting.

This is an area where the European regulators are much stricter than American ones.

Yeah, it seems there should be equally strict regulations on whatever entity is managing the FBO.