A framework proposed in December for determining whether bank deposits made through placement arrangements qualify as brokered deposits is slated for publication in the Federal Register Monday, with a 60-day public comment period ending on or about April 10.
The proposed rule, issued by the Federal Deposit Insurance Corp. (FDIC) Board during its Dec. 12 open meeting, would create a new framework for analyzing certain provisions of the “deposit broker” definition, including “facilitating” and “primary purpose.” It would also establish an application and reporting process with respect to the primary purpose exception. The application process would be available to insured depository institutions and third parties that wish to utilize the exception, according to the proposed rule summary.
In issuing the proposal, the agency said in December that the proposal would “modernize a regulatory framework built for a different era to remove regulatory disincentives to offering deposit accounts to customers through different channels.”
The proposal follows an advance notice of proposed rulemaking issued in December 2018. It would include in the analysis for determining the status of a deposit as “brokered” 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.
The proposed rule would apply the “facilitating” prong of the deposit broker definition to any person that engages in specified activities; a wholly owned operating subsidiary would be eligible for the “IDI exception” to the “deposit broker” definition under certain circumstances. The rule’s “primary purpose” exception would be revised 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.
An agent’s placement of brokered certificates of deposit (CDs) would continue to be considered deposit brokering under the proposal, and it would continue to be reported as brokered, the agency said in December. “Brokered CDs constitute the core type of brokered deposit that prompted Congress to enact the brokered deposits restrictions 30 years ago,” it said.