New Brokered Deposit Rule

[vi] In situations where IDIs that are not well capitalized offer certain high-yield deposits, the offering IDI itself is considered a “deposit dealer” and these deposits are therefore “traded deposits”, even without the intervention of third parties. See 12 U.S.C. ยง 1831f(g)(3). On December 15, 2020, the FDIC issued its final rule revising its brokerage deposit regulations. TBS has been actively working with regulators, banks and financial intermediaries as the rule has been finalized and further clarifications are underway. In recent months, in response to questions received, the FDIC has reviewed the role played by certain depository agents in various depository placement agreements. In particular, in some depository agreements, a depositor or its agent uses a depositary agent when placing depositor or client funds with IDI. Under the definition of “deposit dealers”, these agents are likely to meet the “investment business” portion of the definition because they receive funds from third parties and place those funds with more than one IDI. [6] A person participates in matching if they “propose distributions of deposits to or between more than one bank based on both (a) the specific deposit objectives of a particular depositor or deposit-taking agent and (b) the specific deposit objectives of certain banks, except in the case of deposits placed by a depositor`s agent with a bank affiliated with its representative.” 11 While affiliated sweep programs would be excluded from the definition of matchmaking in the definition of facilitation, persons participating in such programs could still be covered by the other points of the definition and could therefore be considered deposit dealers.

In this case, affiliated sweep programs may have to rely on the designated companies exception if they have deposits that represent less than 25% of their assets under management. The notices must (1) contain the proposed exemption invoked by the third party; (2) a brief description of the sector of activity to which the exemption applies; (3) specific information on the proposed exemption; [xliv] (4) a brief description of any participation of an additional third party considered to be a deposit dealer (or a statement that such an interest does not exist); and (5) if the notice is not provided by an IDI, a list of IDIs receiving filings from or through the relevant business unit. The preamble states that notices are filed electronically and that upon receipt of the notice by the FDIC, the third party may invoke the applicable exception for a particular industry. [xlv] However, the FDIC may at any time require the applicant to provide additional information. [xlvi] It is clear from the preamble that such requests will only be made if there is reason to believe that the agent or agent does not meet the criteria of the designated exemption and that such requests “are generally limited to verifying” that the agent or agent meets the applicable criteria. [xlvii] The third party must also provide notification to the FDIC if it no longer meets the criteria of the applicable designated exemption. In addition, a firm filing a notice under the “25%” test must submit quarterly reports to the FDIC that update quantitative information on the total amount of client assets under management and the total amount of deposits made on behalf of clients provided under the initial notice. Similarly, a company that submits a notice under the “enabling transactions” test must provide an annual certificate attesting that the agent or transferee continues to deposit 100% of clients` funds in trading accounts and that depositors will not receive interest, fees or other compensation. Failure to provide accurate information relating to a notice or report, or to provide a required report, or to continue to meet the criteria for a particular exemption, may result in the exemption being revoked by the FDIC for a third party`s primary purpose. As noted above, a custodian agent that plays a role in determining the IDIs with which a client`s funds are to be invested is not eligible for the exemption. For example, a custodian agent that plays a role in creating, operating or using an algorithm used to determine or recommend the funds of IDI clients with whom client funds are invested would play a role in determining the banks with which the depositor`s funds should be invested and would therefore not qualify for the exemption under the exemption.

The new rule makes three fundamental improvements over the previous status quo. First, fintechs that work exclusively with a single bank deposit platform are not considered negotiated deposit agreements under the rule; Only agreements in which a broker can place deposits with one of the banks at its discretion would trigger the regulation of the deposit broker. Second, businesses that simply facilitate consumer deposits with a bank through a more convenient interface and never take possession of consumers` funds are no longer considered negotiated deposit agreements. Third, businesses that accept deposits as part of a consumer credit service package will not be considered deposit brokers under the new “main purpose” exception rule. [xxxix] The preamble states that the FDIC included this exemption designated for administrators of health savings accounts (“HSAs”) because the FDIC was satisfied that the administrators of HSA were convinced that the primary purpose of the relationship between these administrators and depositors was to facilitate the payment or reimbursement of eligible medical expenses. However, the preamble notes that not all individuals use HSA funds for qualified medical expenses and that the FDIC “will continue to monitor the development and use of HSA accounts over time.” In the future, if the FDIC determines that the exception for HSA administrators is no longer warranted, it will make changes to the exception through notification and comment rules. Final version at 49. The 31. In December, the FDIC published a notice in the Federal Register about a new business relationship, which can now be qualified through a new designated exception for the primary purpose exception of the negotiated deposit rule. According to the opinion, the following supplementary trade agreement fulfils the exception for the primary purpose: `[t]he agent or nominee undertakes to place client funds with IDIs [insured depository institutions] as depositaries, based on instructions received from a depositor or depositor agent for each IDI and deposit account, and the agent or nominee has no role in the decision: which ITNs a client`s funds should be placed in.

nor does it negotiate or set the rates, terms, fees or conditions applicable to deposit accounts. A notice or request to the FDIC is not required to invoke this exception. The Notice also stated that “a depositor or depository agent who meets the definition of a deposit dealer and uses the services of a depositary agent who meets this designated exception to place deposits would result in the classification of those deposits as brokered deposits” and that “the intervention of the non-discretionary depositary agent would improve the classification of deposits, by or by facilitating an entity that otherwise meets the definition of a deposit dealer. Full compliance with the new broker deposit rule was required on January 1, 2022.

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