# FDIC FIL-113-2020: Combined Final Rule on Brokered Deposits and Interest Rate Restrictions

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/FDIC_FIL20113

## Section

- **Citation:** FDIC FIL-113-2020
- **Heading:** Combined Final Rule on Brokered Deposits and Interest Rate Restrictions
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** FDIC Financial Institution Letters / Combined Final Rule on Brokered Deposits and Interest Rate Restrictions

## Text

6742
Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
1 12 U.S.C. 1831f (also referred to herein as
‘‘Section 29’’).
2 See Public Law 101–73, August 9, 1989, 103
Stat. 183.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 303 and 337
RIN 3064–AE94; 3064–AF02
Unsafe and Unsound Banking
Practices: Brokered Deposits and
Interest Rate Restrictions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The FDIC is finalizing
revisions to its regulations relating to
the brokered deposits and interest rate
restrictions that apply to less than well
capitalized insured depository
institutions. For brokered deposits, the
final rule establishes a new framework
for analyzing certain provisions of the
‘‘deposit broker’’ definition, including
‘‘facilitating’’ and ‘‘primary purpose.’’
For the interest rate restrictions, the
FDIC is amending its methodology for
calculating the national rate, the
national rate cap, and the local market
rate cap. Further, the FDIC is explaining
when nonmaturity deposits are accepted
and when nonmaturity deposits are
solicited for purposes of applying the
brokered deposits and interest rate
restrictions.
DATES: Effective Date: April 1, 2021;
with an extended compliance date of
January 1, 2022, as provided in section
I(C)(4).
FOR FURTHER INFORMATION CONTACT: Rae-
Ann Miller, Senior Deputy Director,
rther, the FDIC is explaining
when nonmaturity deposits are accepted
and when nonmaturity deposits are
solicited for purposes of applying the
brokered deposits and interest rate
restrictions.
DATES: Effective Date: April 1, 2021;
with an extended compliance date of
January 1, 2022, as provided in section
I(C)(4).
FOR FURTHER INFORMATION CONTACT: Rae-
Ann Miller, Senior Deputy Director,
(202) 898–3898, rmiller@fdic.gov,
Division of Risk Management
Supervision; or Vivek V. Khare,
Counsel, (202) 898–6847, vkhare@
fdic.gov, Legal Division.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Brokered Deposits
A. Policy Objectives
B. Background
1. Historical Statutory Framework
2. Current Regulation
3. Advance Notice of Proposed Rulemaking
4. Overview of Notice of Proposed
Rulemaking and Comments Received
C. Final Rule and Discussion of Comments
1. Deposit Broker Definition
a. Exclusive Deposit Placement
Arrangements
b. Engaged in the Business of Placing
Deposits
c. Engaged in the Business of Facilitating
the Placement of Deposits
d. Engaged in the Business of Placing
Deposits With Insured Depository
Institutions for the Purpose of Selling
Interests in Those Deposits to Third
Parties
2. Exceptions to the ‘‘Deposit Broker’’
Definition
a. Bank Operating Subsidiaries and the IDI
Exception
b. Primary Purpose Exception
3. Notice and Application Process for the
Primary Purpose Exception
a. Notice Requirement
b. Notice Contents and Reporting
Requirement
c. Overview of the Application Process
d. Application Contents
e. Reporting for Approved Applicants
f. Monitoring for IDIs
g. Requesting Additional Information,
Requiring Re-Application, Imposing
Additional Conditions, and Withdrawing
Approvals
h. Additional Third Parties
4. Effective Date and Extended Compliance
5. Prior FDIC Staff Advisory Opinions
D. Discussion of Certain Other Deposit
Placement Arrangements Raised by
Commenters
E. Other Supervisory Matters Related to
Brokered Deposits
F. Alternatives
G
. Requesting Additional Information,
Requiring Re-Application, Imposing
Additional Conditions, and Withdrawing
Approvals
h. Additional Third Parties
4. Effective Date and Extended Compliance
5. Prior FDIC Staff Advisory Opinions
D. Discussion of Certain Other Deposit
Placement Arrangements Raised by
Commenters
E. Other Supervisory Matters Related to
Brokered Deposits
F. Alternatives
G. Expected Effects
II. Interest Rate Restrictions
A. Policy Objectives
B. Background
C. Regulatory Approach
D. Need for Further Rulemaking
E. Advance Notice of Proposed Rulemaking
and Notice of Proposed Rulemaking
1. National Rate
2. National Rate Cap
3. Local Rate Cap
4. Off-Tenor Maturity Products
F. Discussion of Comments
1. Discussion of Public Comment on the
National Rate
2. Discussion of Public Comment on the
National Rate Cap
3. Discussion of Public Comment on Local
Rate Cap
4. Discussion of Other Comments
G. Final Rule
1. National Rate
2. National Rate Cap
3. Local Market Rate Cap in the Final Rule
4. Off-Tenor Maturity Products
H. Alternatives
I. Expected Effects
III. Treatment of Nonmaturity Deposits
A. Background
B. Proposed Rulemakings
C. Comments
D. Final Rule
1. Solicitation of Funds by Offering Rates
of Interest
2. Acceptance of Brokered Deposits
3. Acceptance of Brokered Deposits Subject
to a Waiver Into a Nonmaturity Account
4. Summary of Treatment of Nonmaturity
Deposits
IV. Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Riegle Community Development and
Regulatory Improvement Act of 1994
D. Congressional Review Act
E. Use of Plain Language
I. Brokered Deposits
A. Policy Objectives
Significant technological changes
have affected many aspects of the
banking industry, including the manner
in which banks source deposits
Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Riegle Community Development and
Regulatory Improvement Act of 1994
D. Congressional Review Act
E. Use of Plain Language
I. Brokered Deposits
A. Policy Objectives
Significant technological changes
have affected many aspects of the
banking industry, including the manner
in which banks source deposits. For
many banks, brokered deposits are an
important source of funds, and the
marketplace for brokered deposits has
evolved in response to technological
developments and new business
relationships. The FDIC recognizes that
its regulations governing brokered
deposits are outdated and do not reflect
current industry practices and the
marketplace. As such, the FDIC initiated
an extensive rulemaking process to seek
input from stakeholders and to develop
new regulations that take into
consideration current industry practices
and that allow for continued innovation.
Banks often collaborate with third
parties, including financial technology
companies, for a variety of business
purposes including access to deposits.
Moreover, banks are increasingly relying
on new technologies to engage and
interact with their customers, and it
appears that this trend will continue.
Through this rulemaking process, the
FDIC attempted to ensure that the
brokered deposit regulations would
continue to promote safe and sound
practices while ensuring that the
classification of a deposit as brokered
appropriately reflects changes in the
banking landscape.
B. Background
1. Historical Statutory Framework
Section 29 of the Federal Deposit
Insurance Act (FDI Act) 1 restricts the
acceptance of deposits by certain
insured depository institutions (or
‘‘IDIs’’) from a ‘‘deposit broker.’’ Section
29, entitled ‘‘Brokered Deposits,’’ was
added to the FDI Act by the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA)
scape.
B. Background
1. Historical Statutory Framework
Section 29 of the Federal Deposit
Insurance Act (FDI Act) 1 restricts the
acceptance of deposits by certain
insured depository institutions (or
‘‘IDIs’’) from a ‘‘deposit broker.’’ Section
29, entitled ‘‘Brokered Deposits,’’ was
added to the FDI Act by the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). The
law originally restricted troubled
institutions (i.e., those that did not meet
the minimum capital requirements)
from (1) accepting deposits from a
deposit broker without a waiver and (2)
soliciting deposits by offering rates of
interest on deposits that were
significantly higher than the prevailing
rates of interest on deposits offered by
other insured depository institutions
having the same type of charter in such
depository institution’s normal market
area.2
Two years later, Congress enacted the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA),
which added the Prompt Corrective
Action (PCA) capital regime to the FDI
Act and also amended the threshold for
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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
3 See Public Law 102–242, Dec. 19, 1991, 105 Stat
2236.
4 See 12 U.S.C. 1831f.
5 See id.
6 See id.
7 12 U.S.C. 1831f(i)(2)(E).
8 See 12 CFR 337.6. The FDIC issued two
rulemakings related to the interest rate restrictions
under this section. The FDIC is also adopting a final
rule for the interest rate restrictions as discussed in
Part II of this Notice.
9 See 12 U.S.C. 1831f.
10 12 U.S.C. 1831f(g)(4).
11 See 57 FR 23933, 23040 (1992)
2236.
4 See 12 U.S.C. 1831f.
5 See id.
6 See id.
7 12 U.S.C. 1831f(i)(2)(E).
8 See 12 CFR 337.6. The FDIC issued two
rulemakings related to the interest rate restrictions
under this section. The FDIC is also adopting a final
rule for the interest rate restrictions as discussed in
Part II of this Notice.
9 See 12 U.S.C. 1831f.
10 12 U.S.C. 1831f(g)(4).
11 See 57 FR 23933, 23040 (1992). The FDIC
indicated in the preamble for the 1992 final rule
that implemented the FDICIA revisions to Section
29 that those revisions were not intended to apply
to deposits placed by insured depository
institutions assisting government departments and
agencies in administration of minority or women-
owned deposit programs.
12 84 FR 2366 (Feb. 6, 2019).
the brokered deposit and interest rate
restrictions from a troubled institution
to a bank falling below the ‘‘well
capitalized’’ PCA level. At the same
time, the FDIC was authorized to waive
the brokered deposit restrictions for a
bank that is adequately capitalized upon
a finding that the acceptance of such
deposits does not constitute an unsafe
or unsound practice with respect to the
institution.3 Thus, under current law, a
‘‘well capitalized’’ insured depository
institution is not restricted from
accepting deposits from a deposit
broker. An ‘‘adequately capitalized’’
insured depository institution may
accept deposits from a deposit broker
only if it has received a waiver from the
FDIC.4 A waiver may be granted by the
FDIC ‘‘upon a finding that the
acceptance of such deposits does not
constitute an unsafe or unsound
practice’’ with respect to that
institution.5 An ‘‘undercapitalized’’
depository institution is prohibited from
accepting deposits from a deposit
broker.6
In 2018, Section 29 of the FDI Act was
amended as part of the Economic
Growth, Regulatory Relief, and
Consumer Protection Act, to except a
capped amount of certain ‘‘reciprocal
deposits’’ from treatment as brokered
deposits.7
2
ound
practice’’ with respect to that
institution.5 An ‘‘undercapitalized’’
depository institution is prohibited from
accepting deposits from a deposit
broker.6
In 2018, Section 29 of the FDI Act was
amended as part of the Economic
Growth, Regulatory Relief, and
Consumer Protection Act, to except a
capped amount of certain ‘‘reciprocal
deposits’’ from treatment as brokered
deposits.7
2. Current Regulations
Section 337.6 of the FDIC’s Rules and
Regulations implements and closely
tracks the statutory text of Section 29,
particularly with respect to the
definition of ‘‘deposit broker’’ and its
exceptions.8 Section 29 of the FDI Act
does not directly define a ‘‘brokered
deposit,’’ rather, it defines a ‘‘deposit
broker’’ for purposes of the restrictions.9
Thus, the meaning of the term
‘‘brokered deposit’’ turns upon the
definition of ‘‘deposit broker.’’
Section 29 and the FDIC’s
implementing regulation define the term
‘‘deposit broker’’ to include:
Æ Any person engaged in the business
of placing deposits, or facilitating the
placement of deposits, of third parties
with insured depository institutions or
the business of placing deposits with
insured depository institutions for the
purpose of selling interests in those
deposits to third parties; and
Æ an agent or trustee who establishes
a deposit account to facilitate a business
arrangement with an insured depository
institution to use the proceeds of the
account to fund a prearranged loan.
This definition is subject to the
following nine statutory exceptions:
1. An insured depository institution,
with respect to funds placed with that
depository institution (the ‘‘IDI
exception’’);
2. an employee of an insured
depository institution, with respect to
funds placed with the employing
depository institution;
3. a trust department of an insured
depository institution, if the trust in
question has not been established for
the primary purpose of placing funds
with insured depository institutions;
4
o funds placed with that
depository institution (the ‘‘IDI
exception’’);
2. an employee of an insured
depository institution, with respect to
funds placed with the employing
depository institution;
3. a trust department of an insured
depository institution, if the trust in
question has not been established for
the primary purpose of placing funds
with insured depository institutions;
4. the trustee of a pension or other
employee benefit plan, with respect to
funds of the plan;
5. a person acting as a plan
administrator or an investment adviser
in connection with a pension plan or
other employee benefit plan provided
that that person is performing
managerial functions with respect to the
plan;
6. the trustee of a testamentary
account;
7. the trustee of an irrevocable trust
(other than one described in paragraph
(1)(B)), as long as the trust in question
has not been established for the primary
purpose of placing funds with insured
depository institutions;
8. a trustee or custodian of a pension
or profit sharing plan qualified under
section 401(d) or 403(a) of the Internal
Revenue Code of 1986; or
9. an agent or nominee whose primary
purpose is not the placement of funds
with depository institutions (the
‘‘primary purpose exception’’).
The statute and regulation also define
an ‘‘employee’’ to mean any employee:
(1) Who is employed exclusively by the
insured depository institution; (2)
whose compensation is primarily in the
form of a salary; (3) who does not share
such employee’s compensation with a
deposit broker; and (4) whose office
space or place of business is used
exclusively for the benefit of the insured
depository institution which employs
such individual.10
In 1992, the FDIC amended its
regulations to include the following
tenth exception: ‘‘An insured depository
institution acting as an intermediary or
agent of a U.S. government department
or agency for a government sponsored
minority or women-owned depository
institution program.’’ 11
3
ed
exclusively for the benefit of the insured
depository institution which employs
such individual.10
In 1992, the FDIC amended its
regulations to include the following
tenth exception: ‘‘An insured depository
institution acting as an intermediary or
agent of a U.S. government department
or agency for a government sponsored
minority or women-owned depository
institution program.’’ 11
3. Advance Notice of Proposed
Rulemaking
On December 18, 2018, the FDIC
Board approved an Advance Notice of
Proposed Rulemaking (ANPR), inviting
comment on all aspects of the FDIC’s
brokered deposit and interest rate
regulations to obtain input from the
public on its brokered deposit and
interest rate regulations in light of
significant changes in technology,
business models, the economic
environment, and products since the
regulations were adopted.
The ANPR discussed issues with
sweep deposits, deposit listing services,
statutory exceptions (particularly the
primary purpose exception), software
products, prepaid cards, and interest
rate restrictions applicable to less than
well-capitalized institutions
(particularly the definition and
calculation of the national rate). The
ANPR also included historical and
statistical analysis, in addition to other
information, including the FDIC’s
experience with brokered deposit
questions. The ANPR was published in
the Federal Register on February 6,
2019.12 The FDIC received over 130
comments to the ANPR from
individuals, banking organizations, non-
profits, as well as industry and trade
groups, representing banks, insurance
companies, and the broader financial
services industry.
Of the total comments, 59 related to
the FDIC’s rules on the interest rate
restrictions. The majority of these
commenters expressed concerns about
the national rate calculation
ved over 130
comments to the ANPR from
individuals, banking organizations, non-
profits, as well as industry and trade
groups, representing banks, insurance
companies, and the broader financial
services industry.
Of the total comments, 59 related to
the FDIC’s rules on the interest rate
restrictions. The majority of these
commenters expressed concerns about
the national rate calculation. Concerns
included the effect of calculating an
average rate by including branches
(minimizing the significance of online-
focused banks, which have few or no
branches) and data issues with banks’
published rates. Commenters suggested
that to make rates appropriate for
different economic environments and
maximum transparency, the FDIC
should set national rates at the higher of
the current rates and the previous (1992)
rates based on US Treasury yields.
Other comments addressed the local
rate, stressing the necessity to compete
for particular products within local
market areas.
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6744
Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
13 85 FR 7453 (Feb. 10, 2020).
14 84 FR 2366 (Feb. 6, 2019).
15 This Notice also uses the term ‘‘third party’’ in
reference to the subject of the ‘‘deposit broker’’
definition. Consistent with section 29, this Notice
also refers to the potential deposit broker with
respect to the primary purpose exception as the
‘‘agent or nominee.’’
16 The comment period was extended for another
60 days to provide commenters with additional
time to address the matters raised in the NPR. 85
FR 19706 (Apr. 8, 2020).
17 12 U.S.C. 1831f(g)(1)(A).
18 12 U.S.C. 1831f(g)(1)(B).
19 12 U.S.C. 1819(a)(Tenth)
n 29, this Notice
also refers to the potential deposit broker with
respect to the primary purpose exception as the
‘‘agent or nominee.’’
16 The comment period was extended for another
60 days to provide commenters with additional
time to address the matters raised in the NPR. 85
FR 19706 (Apr. 8, 2020).
17 12 U.S.C. 1831f(g)(1)(A).
18 12 U.S.C. 1831f(g)(1)(B).
19 12 U.S.C. 1819(a)(Tenth).
Comments to the ANPR referring to
brokered deposit issues other than
interest rate caps focused on the need
for clarity, specifically requesting the
FDIC to clarify its historical
interpretation of the ‘‘deposit broker’’
definition and its corresponding
statutory and regulatory exceptions.
Many commenters stated that the FDIC
had interpreted the definition of deposit
broker too broadly and had significantly
expanded the types of entities
considered to be deposit brokers beyond
what was originally contemplated when
Section 29 was enacted.
Commenters also requested clarity in
the deposit broker definition,
specifically with the primary purpose
exception. Many commenters preferred
a bright-line test and noted certain types
of deposits are designed for a purpose
other than establishing a depository
account, provide stable sources of
funding, do not have the risks
associated with traditional brokered
deposits, and, therefore, should meet
the primary purpose exception.
Because of the strong interest in both
interest rate cap issues and other
brokered deposit issues and to better
address commenters’ concerns, the FDIC
decided to issue separate proposed
rulemakings, one relating to interest rate
caps and the second, relating to
proposed changes in the regulations
other than those relating to interest rate
caps.
4
uld meet
the primary purpose exception.
Because of the strong interest in both
interest rate cap issues and other
brokered deposit issues and to better
address commenters’ concerns, the FDIC
decided to issue separate proposed
rulemakings, one relating to interest rate
caps and the second, relating to
proposed changes in the regulations
other than those relating to interest rate
caps.
4. Overview of Notice of Proposed
Rulemaking and Comments Received
In its notice of proposed rulemaking
(‘‘Brokered Deposits NPR,’’ or, in this
Part, ‘‘proposal’’ or ‘‘proposed rule’’),13
and in response to comments submitted
in response to the ANPR,14 the FDIC
proposed a number of significant
changes to its brokered deposit
regulation to modernize the regulation
in light of technological and other
innovations in the way banks source
deposits. The FDIC proposed
clarifications to the circumstances
under which a person 15 meets the
deposit broker definition by interpreting
when a person is considered to be
engaged in the business of ‘‘placing’’ or
‘‘facilitating the placement’’ of deposits
on behalf of its customers. These
proposed changes were intended to
provide clarity for industry participants
as to what types of deposit arrangements
would be considered ‘‘brokered’’ and
which would not. In addition, the FDIC
proposed an expansion of the IDI
exception to permit wholly owned
subsidiaries that meet certain criteria to
be eligible for the exception.
The FDIC also proposed an
interpretation for the ‘‘primary purpose’’
exception to the ‘‘deposit broker’’
definition and sought to provide a
mechanism through which IDIs or third
parties could apply to the FDIC to
receive approval for meeting the
primary purpose exception. The FDIC
proposed that brokered CDs would
continue to be considered to be
brokered
o
be eligible for the exception.
The FDIC also proposed an
interpretation for the ‘‘primary purpose’’
exception to the ‘‘deposit broker’’
definition and sought to provide a
mechanism through which IDIs or third
parties could apply to the FDIC to
receive approval for meeting the
primary purpose exception. The FDIC
proposed that brokered CDs would
continue to be considered to be
brokered. Finally, the FDIC proposed
that existing staff FDIC advisory
opinions would either be rescinded if
they were no longer applicable under
the final rule or codified as part of the
final rule if relevant under the new
regulation.
The Brokered Deposits NPR solicited
comment on all aspects of the proposed
rule. The comment period ended on
June 9, 2020.16 In response to the
proposal, the FDIC received more than
160 comments from individuals,
banking organizations, non-profits, as
well as industry and trade groups
representing banks, insurance
companies, and the broader financial
services industry. A number of
commenters supported the FDIC’s
efforts to modernize the rule and
provide clarifications to key definitions.
Generally, a common theme amongst
the commenters was a desire for the
FDIC to provide additional clarification
to its proposed changes to the ‘‘deposit
broker’’ definition and its corresponding
statutory and regulatory exceptions.
Some commenters suggested that a
legislative change to Section 29 was
needed, including replacing the
brokered deposit restrictions with a
restriction on asset growth for less than
well capitalized institutions.
Commenters also suggested that the
FDIC revise certain aspects of the
proposal to permit certain types of
arrangements that, under the proposal,
would continue to be considered to be
brokered to instead either fall within an
exception or otherwise to be determined
to be non-brokered
kered deposit restrictions with a
restriction on asset growth for less than
well capitalized institutions.
Commenters also suggested that the
FDIC revise certain aspects of the
proposal to permit certain types of
arrangements that, under the proposal,
would continue to be considered to be
brokered to instead either fall within an
exception or otherwise to be determined
to be non-brokered. A small number of
commenters opposed the proposed
changes, with one commenter stating
that the changes would create new
loopholes in the statutory restrictions on
brokered deposits, threatening safety
and soundness of banks and the Deposit
Insurance Fund (DIF), without evidence
that the changes are necessary and
without knowing the impact of the
changes. Another commenter criticized
the proposal for failing to focus on the
underlying risks of brokered deposits
and weakening the FDIC’s ability to
understand deposit volatility and
balance sheet risks of supervised IDIs. A
summary of comments received on
specific aspects of the proposed rule is
provided below in section.
C. Final Rule and Discussion of
Comments
1. Deposit Broker Definition
Section 29 of the FDI Act provides
that a person is a ‘‘deposit broker’’ if it
is engaged in the business of placing
deposits, or facilitating the placement of
deposits, of third parties with insured
depository institutions or the business
of placing deposits with insured
depository institutions for the purpose
of selling interests in those deposits to
third parties.17 An agent or trustee also
meets the ‘‘deposit broker’’ definition
when establishing a deposit account to
facilitate a business arrangement with
an insured depository institution to use
the proceeds of the account to fund a
prearranged loan.18
The statute does not further define the
categories that make up the definition of
‘‘deposit broker,’’ and the FDIC has
authority under the FDI Act to issue
regulations to further clarify the types of
activities that cause a person to be
cons
ccount to
facilitate a business arrangement with
an insured depository institution to use
the proceeds of the account to fund a
prearranged loan.18
The statute does not further define the
categories that make up the definition of
‘‘deposit broker,’’ and the FDIC has
authority under the FDI Act to issue
regulations to further clarify the types of
activities that cause a person to be
considered to be a deposit broker.19
Historically, the FDIC has considered
several factors in evaluating whether or
not an entity is a ‘‘deposit broker,’’
including, for example, whether or not
the entity receives fees from IDIs based
upon the volume of deposits placed and
whether the entity provides marketing
or referral services on behalf of the IDIs.
In the Brokered Deposits NPR, the
FDIC proposed a new framework for
analyzing the deposit broker definition
in an effort to provide clarity around
when a third party meets the definition.
In this context, the FDIC described the
circumstances under which a third
party would be:
Æ Engaged in the business of placing
deposits;
Æ engaged in the business of
facilitating the placement of deposits;
and
Æ engaged in the business of placing
deposits with insured depository
institutions for the purpose of selling
interests in those deposits to third
parties.
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deposits;
Æ engaged in the business of
facilitating the placement of deposits;
and
Æ engaged in the business of placing
deposits with insured depository
institutions for the purpose of selling
interests in those deposits to third
parties.
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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
In general, commenters raised
concerns that the proposed deposit
broker definition was overly broad and
would create barriers to innovation.
Commenters also argued that the listed
activities in the proposal, specifically in
the proposed ‘‘facilitation’’ definition,
would capture many third party service
providers and would prevent
community banks from using those
providers for any purpose without
having the deposits be classified as
brokered. Commenters also requested
that the definition be further narrowed
and that the FDIC identify specific
activities in which a person could
engage without being a deposit broker.
The specific issues raised by
commenters are summarized below.
a. Exclusive Deposit Placement
Arrangements
Section 29 provides that a person
meets the ‘‘deposit broker’’ definition
(as described above) when it is
‘‘engaged in the business of placing
deposits, or facilitating the placement of
deposits, of third parties with insured
depository institutions or the business of
placing deposits with insured
depository institutions for the purpose
of selling interests in those deposits to
third parties’’ (emphasis added). The
FDIC recognizes that a number of
entities, including some financial
technology companies, partner with one
insured depository institution to
establish exclusive deposit placement
arrangements
ured
depository institutions or the business of
placing deposits with insured
depository institutions for the purpose
of selling interests in those deposits to
third parties’’ (emphasis added). The
FDIC recognizes that a number of
entities, including some financial
technology companies, partner with one
insured depository institution to
establish exclusive deposit placement
arrangements. Under these
arrangements, the third party has
developed an exclusive business
relationship with the IDI and, as a
result, is less likely to move its customer
funds to other IDIs in a way that makes
the deposits less stable.
As such, in an effort to clarify the
types of persons that meet the ‘‘deposit
broker’’ definition, and consistent with
the statute, under this final rule, any
person that has an exclusive deposit
placement arrangement with one IDI,
and is not placing or facilitating the
placement of deposits at any other IDI,
will not be ‘‘engaged in the business’’ of
placing, or facilitating the placement of,
deposits and therefore will not meet the
‘‘deposit broker’’ definition.
This change is also intended to
address comments, further described
below, that the FDIC would be
inundated with applications from banks
and third parties seeking the primary
purpose exception under the proposed
application process.
The FDIC notes, however, that a
person that creates or utilizes multiple
entities that each place deposits at
different IDIs to evade this rule, while
still maintaining a relationship with one
or more of such entities, will
collectively still be viewed as one
‘‘person’’ and thus qualify as a deposit
broker.
b. Engaged in the Business of Placing
Deposits
The statute provides that a person
meets the definition of ‘‘deposit broker’’
if the person is ‘‘engaged in the business
of placing deposits’’ on behalf of a third
party (i.e., a depositor) at insured
depository institutions
or more of such entities, will
collectively still be viewed as one
‘‘person’’ and thus qualify as a deposit
broker.
b. Engaged in the Business of Placing
Deposits
The statute provides that a person
meets the definition of ‘‘deposit broker’’
if the person is ‘‘engaged in the business
of placing deposits’’ on behalf of a third
party (i.e., a depositor) at insured
depository institutions. As provided in
the proposed rule, the FDIC considers a
person to be engaged in the business of
placing deposits if that person has a
business relationship with its
customers, and as part of that
relationship, places deposits with IDIs
on behalf of the customer (e.g., acting as
custodian or agent for the underlying
depositor).
Commenters suggested that the FDIC
provide additional clarity to this part of
the ‘‘deposit broker’’ definition with one
commenter suggesting that the FDIC
include the description provided above
in the final rule text, which the FDIC
agrees would provide clarity. As such,
the FDIC is amending the ‘‘deposit
broker’’ definition in the final rule by (1)
including that the person must have a
business relationship with its customers
to be ‘‘engaged in business’’ and (2)
providing that the person must receive
customer funds before placing deposits
to satisfy the ‘‘engaged in the business
of placing deposits’’ part of the
definition.
c. Engaged in the Business of
Facilitating the Placement of Deposits
In contrast to the first part of the
deposit broker definition, the
‘‘facilitation’’ part of the definition
refers to activities where the person
does not directly place deposits on
behalf of its customers with insured
depository institutions. Historically, the
term ‘‘facilitating the placement of
deposits’’ has been interpreted by staff
at the FDIC to include actions taken by
third parties to connect insured
depository institutions with potential
depositors
cilitation’’ part of the definition
refers to activities where the person
does not directly place deposits on
behalf of its customers with insured
depository institutions. Historically, the
term ‘‘facilitating the placement of
deposits’’ has been interpreted by staff
at the FDIC to include actions taken by
third parties to connect insured
depository institutions with potential
depositors.
Under the proposed rule, a person
would meet the ‘‘facilitation’’ prong of
the ‘‘deposit broker’’ definition by,
while engaged in business, engaging in
any one, or more than one, of the
following activities:
Æ The person directly or indirectly
shares any third party information with
the insured depository institution;
Æ The person has legal authority,
contractual or otherwise, to close the
account or move the third party’s funds
to another insured depository
institution;
Æ The person provides assistance or
is involved in setting rates, fees, terms,
or conditions for the deposit account;
or,
Æ The person is acting, directly or
indirectly, with respect to the placement
of deposits, as an intermediary between
a third party that is placing deposits on
behalf of a depositor and an insured
depository institution, other than in a
purely administrative capacity.
i. Comments in Response to the
Proposed ‘‘Facilitation’’ Definition
The FDIC sought to provide clarity
and consistency with respect to what it
means to facilitate the placement of
deposits. The proposed ‘‘facilitation’’
definition was the issue that received
the most comments; of the 166 comment
letters received (47 of which were form
letters), 118 commented on the
proposed definition.
In general, commenters raised
concerns that some of the listed
activities in the proposal were overly
broad and, as proposed, would result in
all deposits sourced through some use
of third party service providers to be
classified as brokered
sue that received
the most comments; of the 166 comment
letters received (47 of which were form
letters), 118 commented on the
proposed definition.
In general, commenters raised
concerns that some of the listed
activities in the proposal were overly
broad and, as proposed, would result in
all deposits sourced through some use
of third party service providers to be
classified as brokered. Some
commenters suggested that all
‘‘relationship accounts’’ and transaction
accounts ‘‘owned by a bank’’ with no
direct relationship between the third
party and the depositor should be
exempt from the definition of
‘‘facilitating.’’ Below is a summary of
the comments received on each of the
four prongs of the proposed
‘‘facilitation’’ definition.
First Prong. Numerous commenters
raised concerns about this first prong of
the definition of ‘‘facilitating,’’ related to
information sharing. Major trade
associations representing the banking
industry suggested that the FDIC delete
the information sharing prong entirely
and focus instead on the extent to which
a third party exercises control over the
account. A law firm commented that the
first prong would capture the core
activities of essentially every financial
technology company or technology
platform solutions provider performed
for or on behalf of depository
institutions, since many financial
technology companies receive and store
consumers’ credentials and share
verified consumer information with a
depository institution. The commenter
expressed that an essential factor
underlying the ‘‘facilitation’’ activities is
whether the person in question is acting
on behalf of the bank or on behalf of the
depositor
ed
for or on behalf of depository
institutions, since many financial
technology companies receive and store
consumers’ credentials and share
verified consumer information with a
depository institution. The commenter
expressed that an essential factor
underlying the ‘‘facilitation’’ activities is
whether the person in question is acting
on behalf of the bank or on behalf of the
depositor. The commenter stated that
where a person is acting on behalf of
and at the direction of the depositor,
that person’s activities should not be
viewed as ‘‘facilitation’’ activities
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6746
Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
because no services are being provided
to a particular depository institution.
One company suggested that the
proposed definition of ‘‘facilitating the
placement of deposits’’ should be
revised to exclude third-parties who
provide services to banks for the
purpose of enabling the bank to
establish deposit accounts directly with
individual depositors.
A number of commenters, including
bankers, a law firm, a trade association,
and private companies, raised a specific
concern that the ‘‘information sharing’’
prong of the definition could be
interpreted to include listing services,
which historically have been viewed by
FDIC staff as excluded from being
considered deposit brokers under
certain circumstances. Several other
bankers expressed similar views,
arguing that entities that simply provide
information, such as listing services,
should not be considered deposit
brokers and that the definition as
proposed could lead to such a result.
Second Prong
ing services,
which historically have been viewed by
FDIC staff as excluded from being
considered deposit brokers under
certain circumstances. Several other
bankers expressed similar views,
arguing that entities that simply provide
information, such as listing services,
should not be considered deposit
brokers and that the definition as
proposed could lead to such a result.
Second Prong. A number of
commenters expressed support for the
second prong to the proposed
‘‘facilitation’’ definition, which
included activities where the person has
legal authority, contractual or otherwise,
to close the account or move the third
party’s funds to another insured
depository institution. Specifically,
commenters stated that this activity is
indicative of the type of active and
meaningful relationship that should be
required to find that a third party is
facilitating the placement of deposits
under the deposit broker definition. One
commenter asked that the FDIC limit the
second prong to include exclusive legal
authority over the movement of funds.
Third Prong. Commenters expressed
concerns with the proposed third prong
of the facilitation definition, believing
that the definition was overly broad,
contained unnecessary terms, and
would capture services the FDIC did not
intend to capture. Some community
bankers believed that the proposed third
prong would result in classifying service
providers that provide assistance (but
not the final determination) in setting
rates, fees, terms or conditions for
various deposit account programs, as
deposit brokers. Other commenters
mentioned that the phrase ‘‘providing
assistance’’ was unnecessary and
ambiguous and should be deleted from
the final rule. The commenters
explained that because the proposed
rule would cover anyone ‘‘involved in’’
setting rates, fees, terms or conditions,
the term ‘‘providing assistance’’ would
only create ambiguity and could be read
more broadly
s, as
deposit brokers. Other commenters
mentioned that the phrase ‘‘providing
assistance’’ was unnecessary and
ambiguous and should be deleted from
the final rule. The commenters
explained that because the proposed
rule would cover anyone ‘‘involved in’’
setting rates, fees, terms or conditions,
the term ‘‘providing assistance’’ would
only create ambiguity and could be read
more broadly.
Some commenters believed that the
overly broad definition could include
listing services. However, one
commenter believed that listing services
should be included in the third prong
and cited legislative history to support
its position. Lastly, commenters
mentioned that the definition could be
used to capture a bank’s use of
consulting or advisory services that
assist them with developing, delivering
and improving their deposit offerings.
Fourth Prong. A number of
commenters expressed concerns that the
proposed fourth prong of the definition
of ‘‘facilitation,’’ which excluded
persons involved in a purely
administrative capacity, was also
ambiguous and should be clarified by
providing a list of activities that would
be considered to be purely
administrative. A law firm commented
that the FDIC should clarify its intent
with respect to the exclusion for ‘‘purely
administrative’’ conduct, and argued
that a third party conducting only
administrative functions should be
permissible without the third party
being considered a deposit broker. A
trade association suggested that the
FDIC provide that an intermediary
between an IDI and a third party placing
deposits is not ‘‘facilitating’’ if the third
party is itself not a deposit broker and
if the third party would not be a deposit
broker if performing the intermediary’s
activities itself regardless of whether
those activities were ‘‘purely
administrative.’’
ii
eposit broker. A
trade association suggested that the
FDIC provide that an intermediary
between an IDI and a third party placing
deposits is not ‘‘facilitating’’ if the third
party is itself not a deposit broker and
if the third party would not be a deposit
broker if performing the intermediary’s
activities itself regardless of whether
those activities were ‘‘purely
administrative.’’
ii. Final Rule Discussion for
‘‘Facilitation’’ Definition
The FDIC is adopting the general
approach taken in the proposed rule
with respect to the ‘‘facilitation’’ part of
the deposit broker definition, but is
making certain revisions to the
definition. Under the final rule, a person
is engaged in the business of facilitating
the placement of deposits if that person
is engaged in certain activities with
respect to deposits placed at more than
one IDI. The activities that result in a
person being ‘‘engaged in the business
of facilitating the placement of
deposits,’’ as discussed in the proposed
rule, is intended to capture activities
that indicate that the third party takes
an active role in the opening of an
account or maintains a level of
influence or control over the deposit
account even after the account is open.
Having a certain level of influence over
account opening, or retaining a level of
control over the movement of customer
funds after the account is open,
indicates that the deposit relationship is
between the depositor and the person
rather than the depositor and the
insured depository institution.
Moreover, when a third party can
influence a depositor to either open the
account with a particular insured
depository institution or move funds
between insured depository institutions,
the deposits tend to be less stable than
if the deposits were brought to the
insured depository institution through a
single point of contact where that
contact does not have influence over the
movement of deposits between insured
depository institutions
itor to either open the
account with a particular insured
depository institution or move funds
between insured depository institutions,
the deposits tend to be less stable than
if the deposits were brought to the
insured depository institution through a
single point of contact where that
contact does not have influence over the
movement of deposits between insured
depository institutions.
Consistent with this approach to
defining the ‘‘facilitating’’ part of the
deposit broker definition, and in
response to issues raised by
commenters, the final rule provides that
if a person engages in any one of the
following activities, while engaged in
business, the person will be a deposit
broker and any deposits placed by the
person will be brokered:
• The person has legal authority,
contractual or otherwise, to close the
account or move the third party’s funds
to another insured depository
institution;
• The person is involved in
negotiating or setting rates, fees, terms,
or conditions for the deposit account; or
• The person engages in
matchmaking, as defined in the rule.
Proposed Information Sharing Prong
The FDIC is not retaining the first
proposed prong of the ‘‘facilitation’’
definition. The FDIC agrees with
commenters that the ‘‘direct or indirect
sharing of customer information’’ is
overly broad and could have the
unintended effect of capturing persons
that do not have influence or control
over the placement of deposits. The
proposed first prong was generally
intended to capture activities where the
person shares information in an effort to
match prospective depositors with
particular banks, and that specific
activity, as part of the final rule, will
now be included in the matchmaking
prong of the facilitation definition
discussed below.
Legal Control
The FDIC is finalizing the proposed
prong relating to legal control over the
account as part of the ‘‘facilitation’’
definition
the
person shares information in an effort to
match prospective depositors with
particular banks, and that specific
activity, as part of the final rule, will
now be included in the matchmaking
prong of the facilitation definition
discussed below.
Legal Control
The FDIC is finalizing the proposed
prong relating to legal control over the
account as part of the ‘‘facilitation’’
definition. Although one commenter
suggested that having legal control of
moving customer funds was too broad,
many commenters supported this
criterion’s inclusion in the ‘‘facilitation’’
definition. The FDIC believes that the
activity clearly demonstrates that a third
party has meaningful, substantial
influence or control over an account
and, therefore, is acting as a deposit
broker.
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20 See FDIC Federal Register Citations, Unsafe
and Unsound Banking Practices: Brokered Deposits
Restrictions—Comments and Staff Disclosures,
available at: https://www.fdic.gov/regulations/laws/
federal/2020/2020-unsafe-unsound-banking-
practices-brokered-deposits-3064-ae94.html.
21 In the final rule, this activity will be included
in the second prong of the facilitation definition.
22 For ease of reference, the ‘‘depositor’s agent’’ in
the ‘‘matchmaking’’ definition in 12 CFR
337.6(a)(5)(iii)(C) is referred to here as the ‘‘third
party’’.
23 This view aligns with the FDIC’s intent not to
disrupt business arrangements that have existed for
a number of years in reliance on prior staff guidance
related to affiliate sweep arrangements, when the
resulting adjustments to business operations would
be solely for the purpose of complying with
regulatory changes
12 CFR
337.6(a)(5)(iii)(C) is referred to here as the ‘‘third
party’’.
23 This view aligns with the FDIC’s intent not to
disrupt business arrangements that have existed for
a number of years in reliance on prior staff guidance
related to affiliate sweep arrangements, when the
resulting adjustments to business operations would
be solely for the purpose of complying with
regulatory changes.
24 See section I(C)(2)(b)(ii)(F) for further
discussion of the treatment of additional third
parties who may qualify as a deposit broker.
25 See section I(C)(5) for further discussion of
listing services.
Setting Rates, Terms, Conditions
With respect to the proposed third
prong, commenters viewed that
providing assistance with setting rates,
terms, or conditions would be over-
inclusive and capture consulting or
advisory services that assist banks in
improving their deposit offerings. As
provided in a staff memorandum to the
Brokered Deposits NPR comment file,20
certain activities such as market
research, general consulting or advisory
services, and advertising by including a
link on a website, were not intended to
be included in the third prong of the
proposed facilitation definition. As
such, the FDIC is revising this prong to
clarify that it only includes activities
where a third party is negotiating or
setting rates, terms, or conditions for a
particular deposit product (on behalf of
a particular depositor or particular
banks).21 By striking the ‘‘providing
assistance’’ factor, this revised prong
will appropriately capture third parties
that influence or control the placement
of deposits by negotiating deposit terms
between depositors and insured
depository institutions
negotiating or
setting rates, terms, or conditions for a
particular deposit product (on behalf of
a particular depositor or particular
banks).21 By striking the ‘‘providing
assistance’’ factor, this revised prong
will appropriately capture third parties
that influence or control the placement
of deposits by negotiating deposit terms
between depositors and insured
depository institutions.
Providing Matchmaking Services
Finally, the FDIC is incorporating
concepts from the proposed first prong
(‘‘information sharing’’) and the
proposed fourth prong with the new
third prong to provide a clear
description of the types of activities that
were intended to be captured under the
facilitation definition.
This prong in the final rule will
capture persons that engage in
matchmaking. The final rule will define
matchmaking as follows:
Æ A person is engaged in
matchmaking if the person proposes
deposit allocations at, or between, more
than one bank based upon both (a) the
particular deposit objectives of a
specific depositor or depositor’s agent,
and (b) the particular deposit objectives
of specific banks, except in the case of
deposits placed by a depositor’s agent
with a bank affiliated with the
depositor’s agent. A proposed deposit
allocation is based on the particular
objectives of:
Æ A depositor or depositor’s agent
when the person has access to specific
financial information of the depositor or
depositor’s agent and the proposed
deposit allocation is based upon such
information; and
Æ a bank when the person has access
to specific information of the deposit-
balance objectives of the bank and the
proposed deposit allocation is based
upon such information.
Specifically, this prong captures
certain entities that utilize their
relationships with prospective
depositors or depositor’s agents and
banks to propose deposit allocations at
particular banks
h
information; and
Æ a bank when the person has access
to specific information of the deposit-
balance objectives of the bank and the
proposed deposit allocation is based
upon such information.
Specifically, this prong captures
certain entities that utilize their
relationships with prospective
depositors or depositor’s agents and
banks to propose deposit allocations at
particular banks. These activities
indicate that the person has influence
over the movement of deposits between
insured depository institutions. These
activities also indicate that the person is
not only satisfying the deposit
objectives of the depositor or its agent
but also of the insured depository
institution. Such a relationship could
allow less than well capitalized
institutions to utilize a third party to bid
for considerable volumes of funding,
quickly, which could present
heightened risks to the DIF.
Additionally, such a relationship could
increase the likelihood of a third party
withdrawing funds from a less than well
capitalized institution (or under other
circumstances, such as in the event an
institution is the subject of an
enforcement action), which could
present sudden liquidity concerns.
This prong would not include persons
that engage in activities that would
otherwise satisfy the matchmaking
prong if, and to the extent that, these
activities are conducted between a bank
and an affiliated third party.22 With
respect to this specific function, the
FDIC views such services by an
intermediary as administrative in nature
due to the direct relationship between
the person placing the deposits and the
bank.23 However, deposits placed at
banks, with the assistance of persons
engaging in matchmaking activities, by
an affiliated third party that meets the
deposit broker definition would be
brokered.
This prong will include third parties
that engage in matchmaking as part of
an unaffiliated deposit sweep program
between a depositor, its broker dealer,
and various unaffiliated banks
d the
bank.23 However, deposits placed at
banks, with the assistance of persons
engaging in matchmaking activities, by
an affiliated third party that meets the
deposit broker definition would be
brokered.
This prong will include third parties
that engage in matchmaking as part of
an unaffiliated deposit sweep program
between a depositor, its broker dealer,
and various unaffiliated banks. These
third parties propose deposit allocations
by matching the deposit obligations of
either the depositor(s) or the broker
dealers with the target deposit balances
of various unaffiliated banks. It may be
the case that a third party with a
primary purpose exception sweeps
deposits to an affiliated IDI, and those
sweep deposits would not be brokered,
while the same third party uses an
intermediary that would qualify as a
deposit broker under this prong in the
placement of deposits at unaffiliated
IDIs, in which case those deposits
would be brokered.24
The third prong will not include third
parties that provide administrative
services as part of a deposit sweep
program between a depositor, its broker
dealer, and unaffiliated banks. In these
cases, the third party may assist in the
placement of sweep deposits with
unaffiliated banks but does not propose
deposit allocations, as described above.
The third prong is defined to capture
specific forms of matchmaking that are
active in nature; more passive forms of
matching depositors and banks, such as
those in which traditional listing
services often engage, would not be
captured.25
Unlike the fourth prong of the
proposed rule, the final rule will not
distinguish between the activities of a
person that interfaces directly with a
depositor and the activities of a person
that interfaces with an intermediary or
a depositor’s agent
passive forms of
matching depositors and banks, such as
those in which traditional listing
services often engage, would not be
captured.25
Unlike the fourth prong of the
proposed rule, the final rule will not
distinguish between the activities of a
person that interfaces directly with a
depositor and the activities of a person
that interfaces with an intermediary or
a depositor’s agent. Rather, the
facilitation definition, and its three
criteria, will apply, generally, to any
third party that plays a role in the flow
of funds between a prospective
depositor and the opening of a deposit
account at an insured depository
institution.
Anti-Evasion. It may be possible for
an entity that meets the matchmaking
prong to modify its business
arrangements in such a way that evades
the terms of the regulation while
maintaining effectively the same
business relationships. The FDIC has
included in the regulation an anti-
evasion provision that would allow the
FDIC to determine that such attempts to
evade the matchmaking prong still meet
the matchmaking prong. The purpose of
the anti-evasion authority is not to
capture an entity that restructures it
business in such a manner that it is no
longer engaged in the type of
matchmaking captured by the rule, but
rather to avoid creating an unintended
incentive for entities to modify or
restructure businesses solely to evade
the regulation. In this regard, the FDIC
expects to use this authority sparingly.
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type of
matchmaking captured by the rule, but
rather to avoid creating an unintended
incentive for entities to modify or
restructure businesses solely to evade
the regulation. In this regard, the FDIC
expects to use this authority sparingly.
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26 84 FR 2366, 2370 (Feb. 6, 2019).
27 12 U.S.C. 1831f((g)(2)(A)–(B).
To provide an example, in the event
that a third party that would otherwise
satisfy the criteria of the matchmaking
prong sells or licenses software that
provides deposit placement or
allocation services between depositors
or banks in a manner that is intended
to evade this prong, and continues to
play an ongoing role in providing the
matchmaking function, the deposits
placed through the assistance of the
software may be considered brokered.
Conversely, in the event that a third
party sells or licenses software that
provides deposit placement or
allocation services between depositors
or banks and does not subsequently play
an ongoing role in providing any
function related to matchmaking, then
the deposits placed would not be
considered brokered. As such, whether
a third party meets the matchmaking
prong will, under the anti-evasion
provision, depend in part on whether
the third party continues to play an
ongoing role in providing functions
related to matchmaking.
d. Engaged in the Business of Placing
Deposits With Insured Depository
Institutions for the Purpose of Selling
Interests in Those Deposits to Third
Parties
i
rokered. As such, whether
a third party meets the matchmaking
prong will, under the anti-evasion
provision, depend in part on whether
the third party continues to play an
ongoing role in providing functions
related to matchmaking.
d. Engaged in the Business of Placing
Deposits With Insured Depository
Institutions for the Purpose of Selling
Interests in Those Deposits to Third
Parties
i. Overview and Proposal
The third part of the ‘‘deposit broker’’
definition includes a person ‘‘engaged
in the business of placing deposits with
insured depository institutions for the
purpose of selling interests in those
deposits to third parties.’’ As provided
in the proposed rule, this part of the
definition specifically captures the
brokered certificates of deposit (CD)
market (referred to herein as ‘‘brokered
CDs’’). These are typically deposit
placement arrangements where brokered
CDs are issued in wholesale amounts by
a bank seeking to place funds under
certain terms and sold through a
registered broker-dealer to investors,
typically in fully insured amounts.
ii. Final Rule Discussion of Brokered
CDs
In response to the proposal, a
commenter clarified that the current
brokered CD market operates in a
manner different than as described in
the notice of proposed rulemaking.
Rather than being arrangements in
which institutions issue a brokered CD
in a wholesale amount in the name of
a broker dealer, who then sells
participations in the wholesale CD, in
current financial markets, an insured
depository institution issues a master
CD in the name of the third party that
has organized the funding of the CD, or
in the name of a custodian or a sub-
custodian of the third party
being arrangements in
which institutions issue a brokered CD
in a wholesale amount in the name of
a broker dealer, who then sells
participations in the wholesale CD, in
current financial markets, an insured
depository institution issues a master
CD in the name of the third party that
has organized the funding of the CD, or
in the name of a custodian or a sub-
custodian of the third party. The
certificate is funded by individual
depositors through the third party, with
each individual depositor receiving an
ownership interest in the certificate that
is reflected on the books and records of
the third party in a manner to permit
pass-through treatment for purposes of
deposit insurance for the individual
depositors. The FDIC acknowledges that
the brokered CD market has evolved, in
part, to ensure that its underlying
depositors receive pass-through deposit
insurance and to allow the beneficial
owners of the deposits to trade their
accounts in a secondary market
maintained by the broker.
Nevertheless, under the final rule,
without exception, and as further
explained below in the section
discussing the primary purpose
exception, brokered CDs continue to be
classified as brokered. Brokered CDs,
which were offered well before Section
29 of the FDI Act was enacted, were
specifically intended to be included as
part of the statute. Moreover, and as
provided in the ANPR, brokered CDs
have caused significant losses to the
DIF.26 Regardless of any future
innovations and re-structuring in the
brokered CD market, the FDIC intends
that third parties that assist in the
placement of brokered CDs, or any
similar deposit placement arrangement
with a similar purpose, will continue to
be considered deposit brokers under
this part of the deposit broker
definition.
This final rule revises the proposed
definition of a brokered CD in part 303
to more accurately reflect the current
marketplace.
2
D market, the FDIC intends
that third parties that assist in the
placement of brokered CDs, or any
similar deposit placement arrangement
with a similar purpose, will continue to
be considered deposit brokers under
this part of the deposit broker
definition.
This final rule revises the proposed
definition of a brokered CD in part 303
to more accurately reflect the current
marketplace.
2. Exceptions to the ‘‘Deposit Broker’’
Definition
Section 29 provides nine statutory
exceptions to the definition of deposit
broker and, as described earlier, the
FDIC established one regulatory
exception to the definition. In the
proposal, the FDIC proposed amending
two exceptions—(1) the exception for an
insured depository institution, with
respect to funds placed with that
depository institution (the ‘‘IDI
exception’’) and (2) the exception for an
agent or nominee whose primary
purpose is not the placement of funds
with depository institutions (the
‘‘primary purpose exception’’). In
response to comments, as described
below, the final rule makes revisions to
both exceptions.
a. Bank Operating Subsidiaries and the
IDI Exception
Under the IDI Exception, an IDI is not
considered to be a deposit broker when
it places (or its employees place) funds
at the bank.27 As provided in the
proposed rule, the IDI Exception
applies, for example, in the case of a
division of an IDI that places deposits
exclusively with the parent IDI, but does
not apply if a separately incorporated
subsidiary of the IDI places deposits
exclusively with the parent. However,
the FDIC proposed changes to expand
the IDI exception to permit wholly
owned subsidiaries that meet certain
criteria to be eligible for the exception.
In doing this, the FDIC recognized that
a wholly owned operating subsidiary
that meets certain criteria can be
considered similar to a division of an
IDI for certain purposes.
i
he IDI places deposits
exclusively with the parent. However,
the FDIC proposed changes to expand
the IDI exception to permit wholly
owned subsidiaries that meet certain
criteria to be eligible for the exception.
In doing this, the FDIC recognized that
a wholly owned operating subsidiary
that meets certain criteria can be
considered similar to a division of an
IDI for certain purposes.
i. Comments Received in Response to
the IDI Exception
Of those who commented on this
aspect of the proposed rule, a majority
were in favor of the expansion of the
exception to include wholly owned
subsidiaries. Many also argued that the
exception should be further broadened,
so as to allow affiliates, in addition to
wholly owned subsidiaries, to also fit
within the exception (although one
commenter expressly stated that it
should not be further expanded in this
way). Those who argued for further
expansion suggested that there is little
practical difference between a wholly
owned subsidiary and an affiliate and
that deposits placed through an affiliate
were not ‘‘hot’’ money that should be
considered to be a brokered deposit.
Some commenters also asked the FDIC
to clarify how ‘‘dual-hatted’’ or ‘‘dual-
employees’’ would be treated as part of
the new regulation.
ii. Final Rule Discussion for the IDI
Exception
The final rule is not adopting the
proposed changes to the IDI exception.
Under this final rule, the deposit broker
definition does not include third parties
that have an exclusive deposit
placement arrangement with one
insured depository institution. As a
result, the proposed expansion of the
IDI exception to wholly owned
subsidiaries is no longer necessary. This
is because, under the proposal, in order
to meet the IDI exception, a wholly
owned subsidiary would have to place
deposits exclusively with the parent IDI
among other conditions
es
that have an exclusive deposit
placement arrangement with one
insured depository institution. As a
result, the proposed expansion of the
IDI exception to wholly owned
subsidiaries is no longer necessary. This
is because, under the proposal, in order
to meet the IDI exception, a wholly
owned subsidiary would have to place
deposits exclusively with the parent IDI
among other conditions. As such,
wholly owned subsidiaries that would
have met the proposed IDI exception
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28 12 U.S.C. 1831(g)(4).
29 Under the proposal, the FDIC only would have
considered fees, interest, or other remuneration
paid to the underlying depositor.
will not meet the ‘‘deposit broker’’
definition under this final rule because
they have an exclusive deposit
placement arrangement with one bank,
their parent bank.
In response to comments regarding
the status of ‘‘dual-hatted’’ or ‘‘dual’’
employees under the final rule, the
FDIC notes that the statutory
‘‘employee’’ exception applies solely to
an ‘‘employee’’ who satisfies the
definition of an employee provided by
the statute. The statute defines an
‘‘employee’’ as any employee: ‘‘(i) who
is employed exclusively by the insured
depository institution; (ii) whose
compensation is primarily in the form of
a salary; (iii) who does not share such
employee’s compensation with a
deposit broker; and (iv) whose office
space or place of business is used
exclusively for the benefit of the insured
depository institution, which employs
such individual.’’ 28 This exception does
not apply to a contractor or dual
employee because they are not
employed exclusively by insured
depository institutions
of
a salary; (iii) who does not share such
employee’s compensation with a
deposit broker; and (iv) whose office
space or place of business is used
exclusively for the benefit of the insured
depository institution, which employs
such individual.’’ 28 This exception does
not apply to a contractor or dual
employee because they are not
employed exclusively by insured
depository institutions. The exception
would, however, apply to ‘‘dual-hatted’’
employees that are employed
exclusively by the bank so long as the
employees meet each of the other
statutory elements of the ‘‘employee’’
definition.
b. Primary Purpose Exception
i. Overview of Proposal and Comments
Section 29 provides that the primary
purpose exception applies to ‘‘an agent
or nominee whose primary purpose is
not the placement of funds with
depository institutions.’’ In the Brokered
Deposits NPR, the FDIC proposed a new
interpretation for the primary purpose
exception based on the relationship
between the agent or nominee and its
customers. Specifically, the primary
purpose exception would apply when
the primary purpose of the agent’s or
nominee’s business relationship with its
customers is not the placement of funds
with depository institutions.
Along with the new interpretation,
the FDIC proposed a new framework for
evaluating business relationships that
may meet the primary purpose
exception and identified two types of
relationships that would be deemed to
qualify for the exception. Under the
proposal, the FDIC would evaluate
whether a particular business
relationship meets the primary purpose
exception through an application
process, available to both IDIs and third
parties. The proposed application
process was intended to allow the FDIC
to ensure that the applicant met the
relevant criteria for the exception and to
promote transparency and consistency
for applicants. The proposal also
established an ongoing reporting
process for approved applicants.
General Comments
purpose
exception through an application
process, available to both IDIs and third
parties. The proposed application
process was intended to allow the FDIC
to ensure that the applicant met the
relevant criteria for the exception and to
promote transparency and consistency
for applicants. The proposal also
established an ongoing reporting
process for approved applicants.
General Comments. In response to the
proposed framework, many commenters
suggested that the FDIC (1) establish
more bright-line tests, or business
arrangements, that qualify for the
primary purpose exception, and (2)
eliminate the application process, or
revise it to create a more streamlined
process. Commenters generally argued
that if the FDIC identified more bright-
line tests, or business relationships,
with respect to the primary purpose
exception then there would be little, if
any, need for an application process.
Two commenters were critical of the
proposed changes to the definition of
the primary purpose exception. In
particular, one commenter stated the
proposed changes would invite evasion
and create opportunities for nonbanks
instead of protecting the DIF. The
commenter believed that the primary
purpose exception should be based on
the primary purpose of deposits, not the
purpose of the agent and its customer.
Another commenter stated that the
proposal reflected rulemaking centered
on non-bank third parties, whereas the
FDIC’s mandate and responsibilities
direct the agency to focus on IDIs that
it insures and supervises.
One commenter representing large
financial institutions suggested that
bright-line criteria will be more efficient
because banks can evaluate their
individual circumstances for a primary
purpose exception and not have to wait
for the FDIC’s approval. The commenter
stated that the banks would make good
faith determinations that would be
subject to review in the examination
process
vises.
One commenter representing large
financial institutions suggested that
bright-line criteria will be more efficient
because banks can evaluate their
individual circumstances for a primary
purpose exception and not have to wait
for the FDIC’s approval. The commenter
stated that the banks would make good
faith determinations that would be
subject to review in the examination
process. The commenter, and several
others, raised concerns that, unless the
FDIC eliminates or revises the proposed
application process, the FDIC would be
inundated with applications from banks
and third parties seeking the primary
purpose exception.
Primary purpose exception based on
25 percent test. In addition to the
general comments about the overall
framework for evaluating primary
purpose exceptions, the FDIC also
received numerous comments on the
proposed primary purpose exception for
entities placing less than 25 percent of
customer assets under management with
insured depository institutions (the ‘‘25
percent’’ test or business relationship).
Most of those comments sought
additional clarity as to the definitions of
‘‘business line’’ and ‘‘customer assets
under management.’’ One commenter
noted that the phrase ‘‘customer assets
under management’’ is a term of art in
securities law and limited in use for
broker dealers or investment advisors,
which the commenter suggested could
lead to confusion and limit the scope of
the exception. At least one commenter
suggested that the threshold be raised to
50 percent, while another suggested that
the 25 percent threshold was too high
and would allow significant amounts of
deposits to flow to IDIs without
restricting business models that create
risk.
Primary purpose exception based on
enabling transactions
uggested could
lead to confusion and limit the scope of
the exception. At least one commenter
suggested that the threshold be raised to
50 percent, while another suggested that
the 25 percent threshold was too high
and would allow significant amounts of
deposits to flow to IDIs without
restricting business models that create
risk.
Primary purpose exception based on
enabling transactions. In the Brokered
Deposits NPR, the FDIC proposed a
second business relationship that would
meet the proposed primary purpose
exception for parties that place funds at
depository institutions for the purpose
of enabling transactions (the ‘‘the
enabling transactions’’ test or business
relationship). The FDIC received
comments suggesting that the FDIC
provide clarity regarding the terms
‘‘enabling transactions’’ and
‘‘transaction account’’ to further clarify
the types of deposit arrangements that
would meet the exception. Other
commenters indicated that the existence
of some fees, remuneration, or interest
paid, should not prevent an entity from
being eligible for the primary purpose
exception. One commenter noted that
receiving a fee for wire transfer
processing or other related transaction
services does not necessarily transform
a third party’s primary intent from
processing ordinary business
transactions into deposit placement
activity.29
Application process. For both the 25
percent and the enabling transactions
business relationships, the FDIC
proposed an application process
through which applicants would
demonstrate that they meet the criteria
for the particular exception and the
FDIC, on an expedited basis, would
review and approve the application.
Commenters who addressed this process
were critical, suggesting that, at least for
the two business relationships that meet
the criteria set forth in the proposal, at
most a notice requirement should exist
ocess
through which applicants would
demonstrate that they meet the criteria
for the particular exception and the
FDIC, on an expedited basis, would
review and approve the application.
Commenters who addressed this process
were critical, suggesting that, at least for
the two business relationships that meet
the criteria set forth in the proposal, at
most a notice requirement should exist.
Commenters raised concerns about
FDIC’s ability to evaluate so many
applications in a timely manner and
suggested that the FDIC could evaluate
the business relationships as part of an
examination rather than requiring
approval in advance.
Other business relationships. As
noted above, the FDIC also proposed
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30 Additional discussion regarding the concept of
a ‘‘business line’’ is provided in section
I(C)(2)(b)(ii)(E).
31 The FDIC recognizes that some of these
arrangements may be between an agent or nominee
and one insured depository institution. Under this
final rule, if the agent or nominee has an exclusive
deposit placement arrangement with one IDI, and
does not place or facilitate the placement of
deposits at any other IDI, then it will not meet the
‘‘deposit broker’’ definition.
that parties that did not qualify under
either the ‘‘25 percent’’ business
relationship or the ‘‘enabling
transactions’’ business relationship
could apply for a primary purpose
exception. A number of commenters
raised concerns about the application
process, in some cases arguing it should
be eliminated and in most cases stating
that it would be too cumbersome and
time consuming both for the applicants
and for the FDIC to evaluate the
applications in a timely manner
tionship or the ‘‘enabling
transactions’’ business relationship
could apply for a primary purpose
exception. A number of commenters
raised concerns about the application
process, in some cases arguing it should
be eliminated and in most cases stating
that it would be too cumbersome and
time consuming both for the applicants
and for the FDIC to evaluate the
applications in a timely manner.
Commenters suggested that the FDIC
instead should establish additional
‘‘bright-line’’ categories of business
arrangements that are eligible for the
primary purpose exception, which
would largely obviate the need for an
application process aside from entities
that did not fit within one of the
predetermined business relationships.
Specifically, commenters noted that
some business arrangements have been
provided the primary purpose exception
in the past via staff advisory opinions,
and that such arrangements should also
be included in the list of arrangements
that are deemed to meet the primary
purpose exception.
ii. Primary Purpose Exception in the
Final Rule
As described below, and in response
to the comments, the final rule retains
the proposal’s interpretation of the
primary purpose exception and revises
the proposed framework for the primary
purpose exception in several ways. Like
in the proposal, the primary purpose
exception, in the final rule, will apply
when, with respect to a particular
business line, the primary purpose of
the agent’s or nominee’s business
relationship with its customers is not
the placement of funds with depository
institutions. Whether an agent or
nominee qualifies for the primary
purpose exception will be based on an
analysis of the agent’s or nominee’s
relationship with those customers.
However, the FDIC agrees with
commenters that the proposed
application process for business
relationships that the FDIC designates as
meeting the primary purpose exception
is not necessary
funds with depository
institutions. Whether an agent or
nominee qualifies for the primary
purpose exception will be based on an
analysis of the agent’s or nominee’s
relationship with those customers.
However, the FDIC agrees with
commenters that the proposed
application process for business
relationships that the FDIC designates as
meeting the primary purpose exception
is not necessary.
In the final rule, the FDIC (1)
identifies several, specific business
relationships as meeting the primary
purpose exception, described as
‘‘designated exceptions,’’ and (2) allows
agents or nominees that do not meet one
of these designated exceptions to apply
for a primary purpose exception.
Business relationships that qualify for a
designated exception will not be
required to go through the application
process. For two of the designated
exceptions, the FDIC will require a
notice, while for the other designated
exceptions, no notice, application, or
reporting will be required. Under the
final rule, entities that do not meet one
of the designated exception may apply
for a primary purpose exception. The
final rule will also authorize the FDIC
to identify additional relationships as
designated exceptions to the primary
purpose exception (and therefore will
not require an application).
The FDIC also notes that certain
agents or nominees may only place
deposits at one IDI, in which case the
agent or nominee would not be a
deposit broker, regardless of whether
the agent or nominee satisfies the
primary purpose exception
the FDIC
to identify additional relationships as
designated exceptions to the primary
purpose exception (and therefore will
not require an application).
The FDIC also notes that certain
agents or nominees may only place
deposits at one IDI, in which case the
agent or nominee would not be a
deposit broker, regardless of whether
the agent or nominee satisfies the
primary purpose exception. However,
the FDIC notes that if an agent or
nominee places deposits at one IDI as
part of one business line,30 such as part
of a sweep program, and places deposits
at one or more other IDIs as part of one
or more other business lines, such as
issuing brokered CDs, that agent or
nominee would still qualify as a deposit
broker unless it satisfied the primary
purpose exception, with respect to a
particular business line, or one of the
other nine exceptions to the definition
of ‘‘deposit broker.’’
A. Designated Exceptions
In the final rule, the FDIC recognizes
a number of business relationships,
known as ‘‘designated exceptions,’’
described below, as meeting the primary
purpose exception. Two of these
relationships are the relationships
described in the proposal as business
relationships deemed to meet the
primary purpose exception—the ‘‘25
percent’’ business relationship and the
‘‘enabling transactions’’ business
relationship. Unlike in the proposal,
these two relationships will not be
required to go through the application
process, and instead will only require a
notice. The final rule also adds a
number of designated exceptions that
will neither require a notice nor an
application
the
primary purpose exception—the ‘‘25
percent’’ business relationship and the
‘‘enabling transactions’’ business
relationship. Unlike in the proposal,
these two relationships will not be
required to go through the application
process, and instead will only require a
notice. The final rule also adds a
number of designated exceptions that
will neither require a notice nor an
application. The additional designated
exceptions include business
relationships that have previously been
viewed by staff at the FDIC as meeting
the primary purpose exception, and
were evaluated as part of this
rulemaking process to meet the primary
purpose exception under the
interpretation of the exception adopted
in this final rule, as well as certain
business arrangements identified by
commenters as meeting the primary
purpose exception. The following
business relationships are identified as
designated exceptions under the final
rule: Business relationships in which,
with respect to a particular business
line: 31
(1) Less than 25 percent of the total
assets that the agent or nominee has
under administration for its customers
is placed at depository institutions;
(2) 100 percent of depositors’ funds
that the agent or nominee places, or
assists in placing, at depository
institutions are placed into transactional
accounts that do not pay any fees,
interest, or other remuneration to the
depositor;
(3) a property management firm
places, or assists in placing, customer
funds into deposit accounts for the
primary purpose of providing property
management services;
(4) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts for the primary
purpose of providing cross-border
clearing services to its customers;
(5) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts for the primary
purpose of providing mortgage
servicing;
primary purpose of providing property
management services;
(4) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts for the primary
purpose of providing cross-border
clearing services to its customers;
(5) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts for the primary
purpose of providing mortgage
servicing;
(6) a title company places, or assists
in placing, customer funds into deposit
accounts for the primary purpose of
facilitating real estate transactions;
(7) a qualified intermediary places, or
assists in placing, customer funds into
deposit accounts for the primary
purpose of facilitating exchanges of
properties under section 1031 of the
Internal Revenue Code;
(8) a broker dealer or futures
commission merchant places, or assists
in placing, customer funds into deposit
accounts in compliance with 17 CFR
240.15c3–3(e) or 17 CFR 1.20(a);
(9) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts for the primary
purpose of posting collateral for
customers to secure credit-card loans;
(10) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts for the primary
purpose of paying for or reimbursing
qualified medical expenses under
section 223 of the Internal Revenue
Code;
(11) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts for the primary
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purpose of investing in qualified tuition
programs under section 529 of the
Internal Revenue Code;
stomer funds into
deposit accounts for the primary
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purpose of investing in qualified tuition
programs under section 529 of the
Internal Revenue Code;
(12) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts to enable participation
in the following tax-advantaged
programs: Individual retirement
accounts under section 408(a) of the
Internal Revenue Code, Simple
individual retirement accounts under
section 408(p) of the Internal Revenue
Code, and Roth individual retirement
accounts under section 408A of the
Internal Revenue Code;
(13) a Federal, State, or local agency
places, or assists in placing, customer
funds into deposit accounts to deliver
funds to the beneficiaries of government
programs; and
(14) the agent or nominee places, or
assists in placing, customer funds into
deposit accounts pursuant to such other
relationships as the FDIC specifically
identifies as a designated business
relationship that meets the primary
purpose exception.
1. Deposit Placements of Less Than 25
Percent of Customer Assets Under
Management by the Third Party
Under the proposal, the FDIC
provided that the primary purpose of an
agent’s or nominee’s business
relationship with its customers will not
be considered to be the placement of
funds at a depository institution, subject
to an application process, if less than 25
percent of the total assets that the agent
or nominee has under management for
its customers, in a particular business
line, is placed at depository institutions
ided that the primary purpose of an
agent’s or nominee’s business
relationship with its customers will not
be considered to be the placement of
funds at a depository institution, subject
to an application process, if less than 25
percent of the total assets that the agent
or nominee has under management for
its customers, in a particular business
line, is placed at depository institutions.
The FDIC is finalizing the proposed
‘‘25 percent’’ test generally as proposed
but, in response to comments, is
revising the phrase ‘‘assets under
management’’ to ‘‘assets under
administration.’’ The FDIC is also
providing additional clarity regarding
the concept of a ‘‘business line’’ in
section I(C)(2)(b)(ii)(E).
The FDIC is also reiterating for
clarification that if more than 25 percent
of the total customer assets that an agent
or nominee has under administration is
placed at depository institutions, the
agent or nominee may still apply for a
primary purpose exception through the
application process described in section
I(C)(3)(c).
Customer assets under management.
In response to comments indicating that
the phrase ‘‘customer assets under
management’’ is generally limited to
certain broker dealer and investment
advisor business, the FDIC is revising
the term to ‘‘customer assets under
administration.’’ The revised phrase
more accurately reflects the FDIC’s
intention that this test cover both
customer assets managed by the agent or
nominee and those customer assets for
which the agent or nominee provides
certain other services but may not
exercise deposit placement or
investment discretion.
As part of the final rule, in
determining the amount of customer
assets under administration by an agent
or nominee, for a particular business
line, the agent or nominee must measure
the total market value of all the financial
assets (including cash balances) that the
agent or nominee administers on behalf
of its customers that participate in a
particular business line
stment discretion.
As part of the final rule, in
determining the amount of customer
assets under administration by an agent
or nominee, for a particular business
line, the agent or nominee must measure
the total market value of all the financial
assets (including cash balances) that the
agent or nominee administers on behalf
of its customers that participate in a
particular business line.
As a result, under the final rule, an
agent or nominee will meet the
designated exception if less than 25
percent of the total assets that the agent
or nominee has under administration for
its customers, in a particular business
line, is placed at depository institutions.
2. Enabling Transactions
Proposal. As part of the Brokered
Deposits NPR, the FDIC also proposed
that the primary purpose of an agent’s
or nominee’s business relationship with
its customers would not be considered
to be the placement of funds if the agent
or nominee places depositors’ funds
into transactional accounts for the
purpose of enabling transactions.
Under the proposed rule, if 100
percent of an agent’s or nominee’s
customer funds that are placed at
depository institutions are placed into
transaction accounts, and no fees,
interest, or other remuneration is
provided to the depositor, then the
agent or nominee would meet the
primary purpose exception of enabling
transactions.
However, the FDIC also proposed that
if the agent or nominee, or the
depository institution, pays any sort of
interest, fee, or provides any
remuneration (e.g., nominal interest
paid to the deposit account), the agent
or nominee would still be eligible for
the primary purpose exception, but the
FDIC would more closely scrutinize the
agent’s or nominee’s business to
determine whether the primary purpose
is truly to enable payments
agent or nominee, or the
depository institution, pays any sort of
interest, fee, or provides any
remuneration (e.g., nominal interest
paid to the deposit account), the agent
or nominee would still be eligible for
the primary purpose exception, but the
FDIC would more closely scrutinize the
agent’s or nominee’s business to
determine whether the primary purpose
is truly to enable payments. The FDIC
identified factors to be considered in
evaluating such a scenario, including
the number of transactions in customer
accounts, and the interest, fees, or other
remuneration provided, in determining
the applicability of the primary purpose
exception.
Under the final rule, if an agent or
nominee places 100 percent of its
customer funds that have been placed at
depository institutions, with respect to
a particular business line, into
transaction accounts, and no fees,
interest, or other remuneration is
provided to the depositor, the agent or
nominee will meet the designated
exception of enabling transactions.
Entities that wish to avail themselves of
the designated exception for ‘‘enabling
transactions’’ would not be subject to
the application process, as under the
proposal, and would instead be required
to file a notice, as detailed in section
I(C)(3).
Under the final rule, agents or
nominees that place customer deposits
at depository institutions in
transactional accounts in which the
customer earns some amount of interest,
fees, or other remuneration, will
continue to be subject to an application
process
o
the application process, as under the
proposal, and would instead be required
to file a notice, as detailed in section
I(C)(3).
Under the final rule, agents or
nominees that place customer deposits
at depository institutions in
transactional accounts in which the
customer earns some amount of interest,
fees, or other remuneration, will
continue to be subject to an application
process. However, in response to
comments that asked for more clarity on
how these arrangements can meet the
primary purpose exception, the
following criteria will be considered as
part of the application process:
Æ The amount of interest, fees, or
other remuneration;
Æ The amount of transactions that
customers make, on average, on a
month-to-month basis;
Æ The marketing materials provided
by the agent or nominee indicate that
funds placed into insured depository
institutions are to enable transactions
for depositors; and
Æ If any customer funds are placed in
deposit accounts that are not transaction
accounts, the percentage of customer
funds placed in deposit accounts that
are not transaction accounts.
To the extent an agent or nominee
that places all customer deposits at
depository institutions in transactional
accounts can establish via the
application process that it markets and
offers its deposit placement service for
the primary purpose of enabling
transactions and that its customers (1)
earn a nominal amount of interest, fees,
or other remuneration on its deposits,
based on the interest rate environment
at the time, or (2) on average, make more
than six transactions a month, then the
FDIC will determine that the agent or
nominee meets the primary purpose
exception. The FDIC is providing this
guidance in the preamble to provide
clarity to potential applicants and to
streamline the approval of applications
from agents or nominees with a primary
purpose of enabling transactions
environment
at the time, or (2) on average, make more
than six transactions a month, then the
FDIC will determine that the agent or
nominee meets the primary purpose
exception. The FDIC is providing this
guidance in the preamble to provide
clarity to potential applicants and to
streamline the approval of applications
from agents or nominees with a primary
purpose of enabling transactions. The
FDIC is not establishing a designated
exception for such arrangements due to
the lack of bright line standards for
evaluating marketing materials and for
defining ‘‘nominal’’ interest, fees, or
other remuneration in different interest
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6752
Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
32 Under the final rule, the FDIC retains authority
to determine whether a rate of interest paid is
nominal.
33 A full discussion of that review, and the
comments received on previous advisory opinions,
is provided below in section I(C)(5).
34 FDIC Staff Advisory Opinion 17–02 (June 19,
2017).
35 See FDIC Staff Advisory Opinion 16–01 (May
19, 2016).
rate environments.32 The FDIC is less
likely to approve an application in
which customers receive more than a
nominal amount of interest, fees, or
other remuneration on their deposits
and, on average, make fewer than six
transactions per month.
If an agent or nominee that applies for
a primary purpose exception places a
small percentage of deposits in accounts
that are not transaction accounts, the
FDIC may still consider approving the
application, depending on the facts and
circumstances, including an analysis of
the criteria discussed above, but will
more closely scrutinize whether the
primary purpose is enabling
transactions
If an agent or nominee that applies for
a primary purpose exception places a
small percentage of deposits in accounts
that are not transaction accounts, the
FDIC may still consider approving the
application, depending on the facts and
circumstances, including an analysis of
the criteria discussed above, but will
more closely scrutinize whether the
primary purpose is enabling
transactions.
As noted in the Brokered Deposits
NPR, and in response to commenters
asking the FDIC to expand the proposed
exception, the proposed exception was
not intended to apply to all third parties
that place deposits into accounts that
have transactional features and is not
intended to create an incentive for
deposit brokers to move customers from
time deposits to transaction accounts in
order to evade brokered deposits
restrictions. Rather, the proposed
exception was intended to and will, as
part of this final rule, apply only to
third parties whose business purpose is
to place funds at depository institutions
to enable transactions or make
payments.
B. Additional Designated Exceptions
As provided in the proposal, the FDIC
indicated that it would review existing
advisory opinions to determine those
that should be codified in the final rule
and those that were outdated and
should be rescinded.33 A number of the
staff advisory opinions related to the
primary purpose exception, and some of
these opinions interpreted the primary
purpose exception as applying to certain
third parties engaged in certain business
arrangements. While these opinions
were based upon an interpretation of the
primary purpose exception that is
different than the interpretation
provided in this final rule, the outcome
of whether the arrangements meet the
primary purpose exception under the
final rule interpretation would not
necessarily change if evaluated under
the revised interpretation
ies engaged in certain business
arrangements. While these opinions
were based upon an interpretation of the
primary purpose exception that is
different than the interpretation
provided in this final rule, the outcome
of whether the arrangements meet the
primary purpose exception under the
final rule interpretation would not
necessarily change if evaluated under
the revised interpretation. In an effort to
streamline the process for determining
whether an agent or nominee meets the
primary purpose exception, the FDIC
agrees with commenters that it is more
efficient to include some of these
arrangements as part of the bright-line
test for the exception. In this way,
entities that have relied upon previous
staff opinions for the primary purpose
exception will be able to continue to
rely upon the exception.
Moreover, and in response to
comments, the FDIC is also identifying
other business relationships that the
FDIC believes meet the primary purpose
exception as designated exceptions.
Agents or nominees that qualify for a
designated exception listed below do
not have to file an application or notice.
Property Management Services
Certain property management firms
assist clients, such as homeowner’s
associations (‘‘HOAs’’), in managing
their properties. These property
management firms might place deposits
at insured depository institutions
because they need to deposit rent
checks or security deposits on behalf of
their client and may use some of those
funds to pay for maintenance or repairs
needed on the client’s property. Under
the final rule, a property management
firm that places deposits at insured
depository institutions to provide
property management services will be
deemed to meet the primary purpose
and qualify for a designated exception
posit rent
checks or security deposits on behalf of
their client and may use some of those
funds to pay for maintenance or repairs
needed on the client’s property. Under
the final rule, a property management
firm that places deposits at insured
depository institutions to provide
property management services will be
deemed to meet the primary purpose
and qualify for a designated exception.
The primary purpose of the relationship
between a property management service
and its customer is to manage a
property, rather than to place funds in
deposits accounts at IDIs.34
The FDIC also notes that companies
that assist property management firms
or their clients in placing funds at
insured depository institutions to
maximize yield or deposit insurance
may still qualify as deposit brokers.
These companies that either place or
assist in placing funds would not be
eligible for the primary purpose
exception under this particular business
relationship because the primary
purpose of their deposit placement
activity, on behalf of their client (the
property management firm), is not to
provide property management
functions.
Cross-Border Clearing Services
Certain insured depository
institutions provide cross-border
clearing services for customers to
facilitate fund or payment transfers
where the payee and the transaction
recipient are located in separate
countries. Specifically, in these
arrangements, a nonbank entity or a
bank that does not have cross-border
clearing capabilities places, or assists in
placing, its customer funds into bank
accounts at an IDI (the ‘‘clearing IDI’’)
that acts as an intermediary to clear and
settle the transfer of the customer’s
funds into the transaction recipient’s
bank account. In providing cross-border
clearing functions, the customer’s funds
are placed in deposit accounts at the
clearing IDI for a very limited period of
time and are typically disbursed to the
recipient immediately (or almost
immediately)
I (the ‘‘clearing IDI’’)
that acts as an intermediary to clear and
settle the transfer of the customer’s
funds into the transaction recipient’s
bank account. In providing cross-border
clearing functions, the customer’s funds
are placed in deposit accounts at the
clearing IDI for a very limited period of
time and are typically disbursed to the
recipient immediately (or almost
immediately).
Under these circumstances, the third
party’s primary purpose in placing, or
facilitating the placement of, deposits at
the clearing IDI is to facilitate the
clearing of payments and will be
deemed to meet the primary purpose
exception and qualify for a designated
exception. This outcome is consistent
with previous staff advisory opinions
related to clearing services provided by
insured depository institutions.35
The FDIC recognizes that IDIs provide
a variety of clearing services that may be
outside of the scope of the specific
cross-border clearing services
designated exception described above.
At this point, the FDIC will evaluate
whether these other clearing services
provided to customers will meet the
primary purpose exception as part of the
application process. As described in
section I(C)(3)(h), if the FDIC determines
that other clearing services meet the
primary purpose exception, then it will
also consider whether additional
particular clearing services should be
identified as designated exceptions.
Real Estate Related Transactions
Mortgage servicing. Mortgage
servicing rights are often sold to
mortgage servicers that are responsible
for the day-to-day management of a loan
account, including collecting a
borrower’s monthly payments of
principal and interest and disbursing
these funds to stakeholders pursuant to
the terms of servicing agreements
identified as designated exceptions.
Real Estate Related Transactions
Mortgage servicing. Mortgage
servicing rights are often sold to
mortgage servicers that are responsible
for the day-to-day management of a loan
account, including collecting a
borrower’s monthly payments of
principal and interest and disbursing
these funds to stakeholders pursuant to
the terms of servicing agreements.
Mortgage service providers also collect
from borrower’s prepayments of each
borrower’s respective property tax and
property insurance premiums and hold
such funds in escrow accounts until
such payments are due, at which time
they use the escrowed funds to make
payments. As part of managing these
services, mortgage servicers place funds
into omnibus deposit accounts at
insured depository institutions. The
primary purpose of the mortgage
servicer’s relationship with its
customers is providing the services
listed above related to the loan account,
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Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
36 See generally, FDIC Staff Advisory Opinion 92–
78 (Nov. 10, 1992); see also FDIC Staff Advisory
Opinion 17–02 (June 19, 2017).
37 See FDIC Staff Advisory Opinion 17–02 (June
19, 2017).
38 See id.
39 17 CFR 240.15c3–3(e), 240.15c3–3a. The
amount required to be held in the Special Reserve
Account is determined pursuant to an SEC formula
where, for each customer, the broker dealer adds up
free credit balances and other credits in the
account, and then reduces that number by certain
debits. The broker dealer then aggregates the
calculation for all customers and this aggregate
represents the amount that a broker dealer must
keep, in cash or qualified securities, in the Special
Reserve Account at a bank. Id
to an SEC formula
where, for each customer, the broker dealer adds up
free credit balances and other credits in the
account, and then reduces that number by certain
debits. The broker dealer then aggregates the
calculation for all customers and this aggregate
represents the amount that a broker dealer must
keep, in cash or qualified securities, in the Special
Reserve Account at a bank. Id.
‘‘Free credit balances’’ are defined as liabilities of
a broker or dealer to customers which are subject
to immediate cash payment to customers on
demand, whether resulting from sales of securities,
dividends, interest, deposits or otherwise, and can
include funds carried in a certain securities
account, including variation margin or initial
margin, marks to market, and proceeds resulting
from margin paid or released in connection with
closing out, settling or exercising futures contracts
and options thereon. 17 CFR 240.15c3–3(a)(8).
40 17 CFR 240.15c3–3(e).
41 See, FDIC Staff Advisory Opinion 94–39 (Aug.
17, 1994). To the extent that the balance of a Special
Reserve Account is owned by the broker dealer and
only becomes owned by its customers when a
liquidating agent of a failed broker dealer is
appointed and distributes the funds to all customers
on a pro rata basis, then the broker dealer would
not be a third party placing or facilitating the
placement of funds of others, and would be outside
the scope of the deposit broker definition. The FDIC
is not addressing the ownership of Special Reserve
Accounts in this final rule.
42 17 CFR 1.20(a). The formula set in CFTC
regulations calls for the amount to be maintained
in the segregated customer account the market
value of futures customer funds subject to certain
adjustments. 17 CFR 1.20(i)
of funds of others, and would be outside
the scope of the deposit broker definition. The FDIC
is not addressing the ownership of Special Reserve
Accounts in this final rule.
42 17 CFR 1.20(a). The formula set in CFTC
regulations calls for the amount to be maintained
in the segregated customer account the market
value of futures customer funds subject to certain
adjustments. 17 CFR 1.20(i). ‘‘Futures customer
funds’’ include all money, securities, and property
received by a futures commission merchant from,
for, or on behalf of, futures customers to margin,
guarantee, or secure contracts for future delivery on
or subject to the rules of a contract market or
derivatives clearing organization, as the case may
be, and all money accruing to such futures
customers as the result of such contracts.’’ 17 CFR
1.3.
and not the placement of deposits at
IDIs. Accordingly, under this final rule,
mortgage servicers that place deposits at
insured depository institutions to fulfill
their obligations under servicing
agreements meet the primary purpose
exception and qualify for a designated
exception. This outcome is consistent
with previous staff advisory opinions
related to mortgage servicers.36
Residential/Commercial Escrow
Services. Prior to closing a real estate
transaction, the parties involved (e.g.,
the seller and buyer) often times have
the funds necessary to complete the
pending real estate transaction held by
a title insurance company in a deposit
account at an insured depository
institution. The purpose of having a
third party title company hold funds in
an escrow account is to protect the
interests of all parties involved by
ensuring that no funds or property will
be transferred until every escrow term
and condition has been met
essary to complete the
pending real estate transaction held by
a title insurance company in a deposit
account at an insured depository
institution. The purpose of having a
third party title company hold funds in
an escrow account is to protect the
interests of all parties involved by
ensuring that no funds or property will
be transferred until every escrow term
and condition has been met. The
primary purpose of the third party title
company’s relationship with its
customers in such an arrangement is
typically providing title services or
facilitating the closure of the real estate
transaction, and in any case not the
placement of deposits at IDIs.
Accordingly, under the final rule, title
companies that place deposits at
insured depository institutions to
facilitate a real estate transaction are
deemed to meet the primary purpose
exception and qualify for a designated
exception. This outcome is consistent
with previous staff advisory opinions
related to title companies.37
1031 Like-Kind Exchanges. Some
deposits are placed at banks by financial
intermediaries known as ‘‘qualified
intermediaries’’ or ‘‘QIs.’’ Under section
1031 of the Internal Revenue Code (26
U.S.C. 1031), the role of a QI is to
facilitate the exchange of ‘‘like kind’’
properties on behalf of clients known as
‘‘exchangers.’’ Pursuant to a written
agreement, the QI acquires property
from the exchanger and then arranges
for its resale. With the proceeds, the QI
acquires another property and then
transfers it to the exchanger. If the
transaction is handled properly, the
exchanger receives favorable tax
treatment.
Before the QI uses the proceeds of the
first property to purchase the second
property, the funds are held by the QI
in a deposit account at a bank. In this
case, the primary purpose of the QI’s
relationship with its clients is to
facilitate the exchange of property, not
to place deposits at IDIs
ger. If the
transaction is handled properly, the
exchanger receives favorable tax
treatment.
Before the QI uses the proceeds of the
first property to purchase the second
property, the funds are held by the QI
in a deposit account at a bank. In this
case, the primary purpose of the QI’s
relationship with its clients is to
facilitate the exchange of property, not
to place deposits at IDIs. Accordingly,
under the final rule, QIs that place
deposits into depository institutions to
facilitate the exchange of two properties
under section 1031 of the Internal
Revenue Code are deemed to meet the
primary purpose exception and qualify
for a designated exception. This
outcome is consistent with previous
staff advisory opinions related to certain
QIs.38
Deposits Related to Satisfaction of
Certain Regulations
Broker Dealer Funds in a Special
Reserve Account for the Benefit of
Customers. A broker dealer registered
with the United States Securities and
Exchange Commission (SEC) is required
to establish an account at a bank titled
‘‘Special Reserve Account for the
Benefit of Customers’’ and to keep in the
account cash or qualified securities
(Special Reserve Account).39
The Special Reserve Account protects
a broker dealer’s customers in the event
the broker dealer is liquidated, in which
case the funds and qualified securities
in the Special Reserve Account, in
addition to funds collected by the
liquidating agent from customers of the
firm that have debits, are used to satisfy
customer claims on a pro rata basis
before being available for the firm’s
general creditors. While the broker
dealer is operating as a going concern,
it is prohibited from using the funds or
qualified securities in the Special
Reserve Account as security for a loan
to the broker dealer by the bank.40
The primary purpose of the broker
dealer’s business relationship with its
customers is to facilitate the buying and
selling of securities on behalf of
customers
general creditors. While the broker
dealer is operating as a going concern,
it is prohibited from using the funds or
qualified securities in the Special
Reserve Account as security for a loan
to the broker dealer by the bank.40
The primary purpose of the broker
dealer’s business relationship with its
customers is to facilitate the buying and
selling of securities on behalf of
customers. As part of that relationship
a broker dealer is required to establish
a Special Reserve Account is to provide
customer protection in the event of a
broker dealer liquidation. Thus, to the
extent that the balance in a Special
Reserve Account is owned by customers
at the time funds are deposited into it,
such arrangement meets the primary
purpose exception and qualifies for a
designated exception.41
Futures Commission Merchant’s
Funds in a Segregated Customer
Account. Regulations of the Commodity
Futures Trading Commission (CFTC)
provide protections for futures customer
funds under a regulatory system similar
to the SEC’s requirements related to the
Special Reserve Account. Under the
CFTC’s regulations, a futures
commission merchant must maintain in
a separate account at a bank or trust
company money or permitted
investments in an amount at least
sufficient in the aggregate to cover its
total obligations to all futures customers
as computed under a formula
established by the CFTC (Segregated
Customer Account).42
The Segregated Customer Account
protects a futures commission
merchant’s customers in the event the
futures commission merchant is
liquidated, in which case the Account
balance and permitted investments in
the Segregated Customer Account, in
addition to funds collected by the
liquidating agent from customers of the
firm that have debits, are used to satisfy
customer claims on a pro rata basis
before being available for the firm’s
general creditors
merchant’s customers in the event the
futures commission merchant is
liquidated, in which case the Account
balance and permitted investments in
the Segregated Customer Account, in
addition to funds collected by the
liquidating agent from customers of the
firm that have debits, are used to satisfy
customer claims on a pro rata basis
before being available for the firm’s
general creditors.
The primary purpose of a futures
commission merchant’s business
relationship with its customers is to
facilitate the buying and selling of
futures and other investment products
on behalf of customers. As part of that
relationship, the futures commission
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6754
Federal Register / Vol. 86, No. 13 / Friday, January 22, 2021 / Rules and Regulations
43 See FDIC Staff Advisory Opinion 17–02 (June
19, 2017).
44 See FDIC Staff Advisory Opinion 94–13 (Mar.
11, 1994).
45 26 U.S.C. 223.
46 26 U.S.C. 529.
47 12 U.S.C. 1831f(g)(2)(D) and (E). Because the
exceptions for trustees, plan administrators, and
investment advisers for pension plans and other
employee benefit plans are provided in separate
statutory exception and are not related to the
primary placement exception, no notice or
application requirement would apply.
48 12 U.S.C. 1831f(g)(2)(H).
49 This treatment for IRAs and other retirement
plans that are not part of an employee benefit plan
is consistent with how the FDIC viewed such
accounts in a 1984 final rule, along with the Federal
Home Loan Bank Board, when it adopted the
definition of ‘‘deposit broker’’ upon which the
current statutory definition is based.
The insurance coverage currently available to
deposits held in connection with pension funds and
other employee benefit plans will not be affected by
the rule unless such deposits are placed by or
through a deposit broker
a 1984 final rule, along with the Federal
Home Loan Bank Board, when it adopted the
definition of ‘‘deposit broker’’ upon which the
current statutory definition is based.
The insurance coverage currently available to
deposits held in connection with pension funds and
other employee benefit plans will not be affected by
the rule unless such deposits are placed by or
through a deposit broker. In addition, trustees and
custodians of IRA and Keogh accounts will not be
deemed to be deposit brokers. 49 FR 13003, 13009
(Apr. 4, 1984). (emphasis added)
merchant is required to establish a
Segregated Customer Account to
provide customer protection in the
event of a futures commission
merchant’s liquidation. Thus, to the
extent that the balance of a Segregated
Customer Account is owned by the
firm’s customers at the time funds are
deposited into it, such arrangement
meets the primary purpose exception
and qualify for a designated exception.43
The FDIC is aware of other deposit
arrangements in which entities place
deposits as required under federal or
state law. While the FDIC does not have
sufficient knowledge of such
arrangements to grant designated
exceptions for such arrangements in this
final rule, the FDIC expects it would
approve an application for a primary
purpose exception under such
circumstances when the primary
purpose is not the placement of
deposits. The FDIC will consider
identifying specific such arrangements
as designated exceptions in the future if
warranted.
Deposits Placed as Required Collateral
for Credit-Card Loans
Some deposits are placed at insured
depository institutions by third parties
that offer secured credit-card loans to
their customers. The loans are secured
by deposits belonging to the customers
and held at insured depository
institutions as required collateral that is
typically capped to the amount of the
credit line granted to the customer by
the third party
eral
for Credit-Card Loans
Some deposits are placed at insured
depository institutions by third parties
that offer secured credit-card loans to
their customers. The loans are secured
by deposits belonging to the customers
and held at insured depository
institutions as required collateral that is
typically capped to the amount of the
credit line granted to the customer by
the third party. Under this final rule, the
primary purpose of the third party’s
relationship with its customers is to
provide consumers access to credit card
loans and not to place deposits with
IDIs. Accordingly, under this final rule,
third parties that place customer funds
into depository institutions as collateral
for their customers to secure credit card
loans will meet the primary purpose
exception and qualify for a designated
exception. This outcome is consistent
with previous staff advisory opinions.44
Deposits Placed To Pay for or To
Reimburse Qualified Medical Expenses
Under Section 223 of the Internal
Revenue Code
Some deposits are placed with IDIs on
behalf of customers participating in
health savings accounts (HSAs).
Individuals that participate in an HSA
can use those funds to pay for or
reimburse qualified medical expenses
with certain tax benefits.45 Individuals
may place funds directly with IDIs into
HSAs, or, their funds may be placed
into HSAs through employers that
utilize third p

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- [FDIC FIL-4-2021 Revised Guidelines for Appeals of Material Supervisory Determinations](https://www.frixlaw.com/law-library/statutes/FDIC_FIL21004.md)
- [FDIC FIL-4-2023 Guidance to Help Financial Institutions and Facilitate Recovery in Areas of California Affected by Severe Winter Storms, Flooding, Landslides and Mudslides](https://www.frixlaw.com/law-library/statutes/FDIC_FIL23004.md)
- [FDIC FIL-4-2025 FDIC Statement of Policy on Bank Merger Transactions](https://www.frixlaw.com/law-library/statutes/FDIC_FIL25004.md)
- [FDIC FIL-5-2000 Consumer Credit Reporting Practices](https://www.frixlaw.com/law-library/statutes/FDIC_FIL00005.md)
- [FDIC FIL-5-2003 LETTER TO STAKEHOLDERS](https://www.frixlaw.com/law-library/statutes/FDIC_FIL03005.md)
- [FDIC FIL-5-2021 Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering (AML) Considerations](https://www.frixlaw.com/law-library/statutes/FDIC_FIL21005.md)
- [FDIC FIL-6-2000 Special Alert](https://www.frixlaw.com/law-library/statutes/FDIC_FIL00006.md)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FDIC_FIL20113. Check the current official text before relying on it. Not legal advice.