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Financial Services Law Insights and Observations

FDIC issues brokered-deposits proposal

Agency Rule-Making & Guidance FDIC Brokered Deposits Fintech

Agency Rule-Making & Guidance

On December 12, the FDIC issued a notice of proposed rulemaking (NPRM) requesting comments on revisions to the agency’s brokered deposit regulations implementing Section 29 of the FDI Act, and also issued an associated factsheet.  The regulations were originally implemented in the late 1980s, and the FDIC more recently issued guidance in the form of FAQs in 2016. The FDIC’s NPRM follows an advanced notice of proposed rulemaking issued last December (previously covered by InfoBytes here), that requested feedback on ways in which the agency could improve its brokered deposit regulation. According to the FDIC, the NPRM would modernize and establish a new framework to ensure the “classification of a deposit as brokered appropriately reflects changes in the banking system, including banks’ use of new technologies to engage and interact with their customers.” Among other things, the NPRM would: (i) revise the “facilitation” prong of the deposit broker definition so that it applies to persons who engage in specified activities; (ii) revise two exceptions under Section 29—the first would allow a wholly owned operating subsidiary to be eligible for the insured depository institution exception to the “deposit broker” definition in certain circumstances, while the second would amend the “primary purpose exception” for agents or nominees whose primary purposes are not the placement of funds with insured depository institutions for customers (the FDIC plans to establish an application process for third parties who want to take advantage of the primary purpose exception); and (iii) continue to consider an agent’s placement of brokered CDs as deposit brokering, and continue to be report such deposits as brokered. Chair McWilliams provided remarks (linked here) about brokered deposit regulation at a Brookings Institution event the day before the NPRM was adopted.

Board member Martin Gruenberg voted against the NPRM, stating that the proposal would “significantly weaken” the rule and would narrow the scope of deposits that are considered brokered “without adequate justification and expose the banking system to significantly increased risk.”

Comments on the NPRM are due within 60 days of publication in the Federal Register.

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