‘New framework’ for determining what makes a brokered deposit ‘brokered’ envisioned in proposal

A new framework for determining whether bank deposits placed through placement arrangements qualify as brokered deposits is part of a proposal issued by the Federal Deposit Insurance Corp. (FDIC) Board Thursday.

Under the notice of proposed rulemaking on brokered deposit regulations, the overall framework of the regulatory regime for the deposits would “modernize a regulatory framework built for a different era to remove regulatory disincentives to offering deposit accounts to customers through different channels,” the agency said in a release.

Under the proposal, the analysis for determining the status of a deposit as “brokered” would include arrangements between insured depository institutions (IDIs) and third parties, such as financial technology companies, for various business purposes, including access to deposits, as well as the IDIs’ “increasing reliance on new technologies to engage and interact with their customers,” the FDIC said.

Further, the agency said it proposes revision of the “facilitation” prong of the deposit broker definition so that it applies to any person that engages in specified activities, and provide that a wholly owned operating subsidiary be eligible for the “IDI exception” to the “deposit broker” definition under certain circumstances.

The FDIC said the proposal also amends the “primary purpose” exception to apply when the purpose of an agent’s or nominee’s business relationship with its customers is not the placement of funds with IDIs. “The availability of the primary purpose exception would be clarified for third parties that place deposits through brokerage sweep accounts, under certain conditions, and to third parties whose primary purpose is enabling customers to make payments, under certain conditions,” the agency said. It added that the FDIC would establish an application process for any third party that wishes to use the primary purpose exception and would require ongoing reporting.

An agent’s placement of brokered CDs would continue to be considered deposit brokering under the proposal, and it would continue to be reported as brokered, the agency said. “Brokered CDs constitute the core type of brokered deposit that prompted Congress to enact the brokered deposits restrictions 30 years ago,” FDIC said.

“Through these proposed changes, the FDIC’s brokered deposit regulations will continue to promote safe and sound practices, while ensuring that the classification of a deposit as brokered appropriately reflects changes in the banking landscape since 1989, when the law on brokered deposits was first enacted,” the agency said in its release.

Comments on the proposal are due 60 days after its publication in the Federal Register.

FDIC Issues Proposed Rule on Brokered Deposit Restrictions