Rule2021-28540
Unsafe and Unsound Banking Practices: Brokered Deposits
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 10, 2022
Effective
January 10, 2022
Issuing agencies
Federal Deposit Insurance Corporation
Abstract
The FDIC is identifying an additional business relationship, or "designated exception," that meets the "primary purpose" exception to the deposit broker definition. The business relationship relates to specific, non-discretionary custodial services offered by third parties to depositors or depositors' agents. Entities that meet the criteria detailed below will be permitted to rely upon the primary purpose exception without submitting a notice or application.
Full Text
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<title>Federal Register, Volume 87 Issue 6 (Monday, January 10, 2022)</title>
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[Federal Register Volume 87, Number 6 (Monday, January 10, 2022)]
[Rules and Regulations]
[Pages 1065-1066]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-28540]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 337
RIN 3064-ZA30
Unsafe and Unsound Banking Practices: Brokered Deposits
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notification of additional designated business relationship
that meets the primary purpose exception.
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SUMMARY: The FDIC is identifying an additional business relationship,
or ``designated exception,'' that meets the ``primary purpose''
exception to the deposit broker definition. The business relationship
relates to specific, non-discretionary custodial services offered by
third parties to depositors or depositors' agents. Entities that meet
the criteria detailed below will be permitted to rely upon the primary
purpose exception without submitting a notice or application.
DATES:
Effective date: January 10, 2022.
Applicability date: December 29, 2021.
FOR FURTHER INFORMATION CONTACT: Division of Risk Management
Supervision: Rae-Ann Miller, Associate Director, (202) 898-3898,
<a href="/cdn-cgi/l/email-protection#3f4d525653535a4d7f595b565c11585049"><span class="__cf_email__" data-cfemail="b9cbd4d0d5d5dccbf9dfddd0da97ded6cf">[email protected]</span></a>. Legal Division: Vivek V. Khare, Counsel, (202) 898-
6847, <a href="/cdn-cgi/l/email-protection#b5c3deddd4c7d0f5d3d1dcd69bd2dac3"><span class="__cf_email__" data-cfemail="81f7eae9e0f3e4c1e7e5e8e2afe6eef7">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
On December 15, 2020, the FDIC adopted a final rule on brokered
deposits and the interest rate restrictions that apply to less than
well capitalized insured depository institutions (``IDIs'').\1\ For
brokered deposits, the final rule established a new framework for
analyzing certain parts of the ``deposit broker'' definition, including
a new interpretation for the ``primary purpose'' exception and the
business relationships that meet the exception. The final rule took
effect on April 1, 2021. Full compliance with the rule was extended to
January 1, 2022.
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\1\ 86 FR 6742 (Jan. 22, 2021); 12 CFR 337.6.
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II. Primary Purpose Exception
Section 29 of the FDI Act provides that the primary purpose
exception applies to an ``agent or nominee whose primary purpose is not
the placement of funds with depository institutions.'' \2\ In the final
rule, the FDIC provided that the primary purpose exception will apply
when the primary purpose of the agent or nominee's business
relationship with its customers is not the placement of funds with
depository institutions.\3\ In addition, the FDIC identified a number
of business relationships (or ``designated exceptions'') that meet the
``primary purpose'' exception. The final rule also provided that, as
part of the enumerated list of designated exceptions, the FDIC would
make publicly available any additional business arrangements not
described in the rulemaking that the FDIC later determines meet the
primary purpose exception (without requiring an application).\4\
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\2\ 12 U.S.C. 1831f.
\3\ 86 FR 6742, 6749 (Jan. 22, 2021).
\4\ Id. at 6755; 12 CFR 337.6(a)(5)(v)(I)(1)(xiv).
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III. Additional Designated Exception
As described below, the FDIC has identified the following
additional business arrangement that meets the primary purpose
exception and intends
[[Page 1066]]
to make conforming changes to the Call Report instructions in
coordination with the Federal Financial Institutions Examination
Council.\5\
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\5\ The additional designated exception will be posted to the
FDIC's Banker Resource Center (Brokered Deposits web page),
available at: <a href="https://www.fdic.gov/resources/bankers/brokered-deposits/">https://www.fdic.gov/resources/bankers/brokered-deposits/</a>, will be updated to reflect this additional designated
business exception.
The agent or nominee is ``engaged in the business of placing''
customer funds at IDIs, in a custodial capacity, based upon
instructions received from a depositor or depositor's agent specific
to each IDI and deposit account, and the agent or nominee neither
plays any role in determining at which IDI(s) to place any
customers' funds, nor negotiates or set rates, terms, fees, or
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conditions, for the deposit account.
Over the past several months, in response to questions received,
the FDIC has been considering the role that certain custodial agents
play in various deposit placement arrangements. Specifically, in some
deposit placement arrangements, a depositor, or a depositor's agent,
uses a custodial agent in placing depositor or customer funds at IDIs.
Based on the ``deposit broker'' definition, these agents likely meet
the ``engaged in the business of placing'' part of the definition
because they receive third party funds and place those funds at more
than one IDI.\6\
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\6\ 12 CFR 337.6(a)(5)(i)(A).
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The FDIC recognizes, however, that in certain arrangements, the
agent or nominee, in a custodial capacity, places deposits but has no
discretion over where the deposits are placed and acts solely upon
instructions given by the depositor or the depositor's agent specific
to each deposit account. Moreover, in these arrangements, when the
agent or nominee, acting in a custodial capacity, places deposits based
upon instructions received from a depositor or depositor's agent, it
does so without playing any role in determining at which banks the
depositor's funds are to be placed nor does the agent negotiate or set
rates, terms, fees, or conditions for the deposit account.
As such, in these specific arrangements, it is the FDIC's view that
the agent or nominee's primary purpose in placing deposits at IDIs is
to provide non-discretionary custodial services on behalf of the
depositor or depositor's agent. Therefore, such entities will be deemed
to meet the primary purpose exception. Accordingly, through this
Notice, the FDIC is identifying this specific business relationship as
a designated business relationship that meets the primary purpose
exception. Entities that meet the criteria described in this Notice
will be permitted to rely upon the exception without the submission of
an application or notice.
As noted above, a custodial agent that plays any role in
determining at which IDI(s) to place any customers' funds will not be
eligible for the designated exception. As an example, a custodial agent
that plays any role in creating, operating, or using an algorithm that
is used to determine or recommend at which IDI(s) any customer funds
are placed would be viewed as playing a role in determining at which
banks the depositor's funds are to be placed and thus not eligible for
the designated exception.
Involvement of Additional Third Party Deposit Brokers
The FDIC notes that a depositor or depositor's agent that meets the
deposit broker definition and uses the services of a custodial agent
that meets this designated exception to place deposits would result in
such deposits being classified as brokered deposits. The involvement of
the non-discretionary custodial agent does not change the
classification of deposits placed by, or through the facilitation of,
an entity that otherwise meets the deposit broker definition.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, on December 29, 2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021-28540 Filed 1-7-22; 8:45 am]
BILLING CODE 6714-01-P
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