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On July 28, the FDIC and the Federal Reserve Board issued a joint letter demanding that a crypto brokerage firm cease and desist from making false and misleading statements regarding the company’s FDIC deposit insurance status and take immediate corrective action to address these false statements. The agencies claimed that the firm made false and misleading representations online, including on its website, stating or suggesting that: (i) it is FDIC–insured; (ii) customers who invested with the firm’s cryptocurrency platform would receive FDIC insurance coverage for all funds provided to, and held by, the firm; and (iii) the FDIC would insure customers against the failure of the firm. The FDIC noted that the false and misleading statements Violate the FDIC Act. The FDIC demanded that the firm take corrective actions by removing the misrepresentations or false statements and provide written confirmation to the FDIC and Board of Governors that it has fully complied with the removal request within two days.
On July 29, the FDIC announced an advisory addressing certain misrepresentations about FDIC deposit insurance made by some crypto companies. The advisory, among other things, reminded insured banks that they must be aware of how FDIC insurance operates as well as the need to assess, manage, and control risks arising from third-party relationships, including those with crypto companies. The advisory noted that recently “some crypto companies have suspended withdrawals or halted operations," and that in certain cases, "these companies have represented to their customers that their products are eligible for FDIC deposit insurance coverage, which may lead customers to believe, mistakenly, that their money or investments are safe.” In dealing with crypto companies, the agency cautioned that “FDIC-insured banks should confirm and monitor that these companies do not misrepresent the availability of deposit insurance.” The FDIC also issued a Fact Sheet reminding the public that the FDIC only insures deposits held in insured banks and savings associations and only in the event of an insured bank’s failure. The FDIC does not insure assets issued by non-bank entities, such as crypto companies.
On June 21, the FDIC Board of Directors issued a notice of proposed rulemaking to increase deposit insurance assessment rates by 2 basis points for all insured depository institutions to increase the likelihood that the reserve ratio of the Deposit Insurance Fund (DIF) reaches the statutory minimum of 1.35 percent by September 2028, the statutory deadline. In September 2020, the FDIC adopted a DIF restoration plan to restore the reserve ratio to at least 1.35 percent by September 2028. However, according to the press release, insured deposits continued to grow and, as of March 31, the reserve ratio declined by 4 basis points to 1.23 percent. The FDIC also adopted on June 21 an Amended Restoration Plan, incorporating the increase in assessment rates to provide a buffer to ensure that the DIF achieves the 2028 target and accelerate capitalization of the fund toward the long-term 2 percent goal. In a memorandum providing an update on the restoration plan to the Board of Directors, the FDIC stated that “for the industry as a whole, staff estimate that the estimated annual increase in assessments would average 1% of income, which includes an average of 0.9% for small banks and an average of 1% percent for large and highly complex institutions.” The FDIC also released a Fact Sheet on the DIF, which provides information on the amended restoration plan and notice of proposed rulemaking on assessments and revised deposit insurance assessment rate. The FDIC released a statement regarding the DIF Restoration Plan to incorporate a uniform increase in initial base deposit insurance assessment rates of 2 basis points and to accelerate the time for the reserve ratio to reach the statutory minimum, stating that it “would allow the banking industry to remain a source of strength for the economy during a potential future downturn, and would promote public confidence in federal deposit insurance.” CFPB Director Rohit Chopra released a statement expressing his support for the Amended Plan and proposed increase, referring to these as “important short-term actions.” Chopra also expressed support for the Board to, in the long term, “explore a new mechanism to automatically adjust premiums upward and downward based on economic conditions, rather than relying on ad-hoc actions.” Comments are due by August 20.
On May 18, the FDIC published a final rule that amends the deposit insurance regulations for trust accounts and mortgage servicing accounts. According to the FDIC, the final rule is “intended to make the deposit insurance rules easier to understand for depositors and bankers, facilitate more timely insurance determinations for trust accounts in the event of a bank failure, and enhance consistency of insurance coverage for mortgage servicing account deposits.”
The final rule, among other things: (i) establishes updates to the Banker Resources Guide Deposit Insurance Page with the Small Entity Compliance Guide (Community Bank Information) to promote understanding of the regulations; (ii) amends the deposit insurance regulations by merging the revocable and irrevocable trusts categories; (iii) “amends the regulation to expand the current per-borrower coverage of up to $250,000 to include any funds paid into the account to satisfy the principal and interest obligation of the mortgagors to the lender”; and (iv) establishes that certain “depositors within excess of $1.25 million in trusts deposits at a particular IDI may want to make changes given the new coverage limits” effective April 1, 2024.
On February 17, the FDIC released its 2021 Annual Report, providing an overview of the agency’s goals and agenda over the past year, and describing the financial health of the agency, its funds, and insured financial institutions. The report highlighted areas of focus for the FDIC over the past year, such as:
- Financial inclusion. According to the report, the FDIC “has seen meaningful improvements in recent years in reaching the ‘last mile’ of unbanked households in this country. Based on the results of our biennial survey of households, the proportion of U.S. households that were banked in 2019 – 94.6 percent – was the highest since the survey began in 2009.” The report noted several FDIC-led initiatives related to inclusive banking. In June 2021, the FDIC’s technology lab, FDiTech, announced a tech sprint, Breaking Down Barriers: Reaching the Last Mile of Unbanked U.S. Households, which challenged participants to “explore new technologies and techniques that would help expand the capabilities of banks to meet the needs of unbanked individuals and households.” (Covered by InfoBytes here.) The FDIC also expanded its #GetBanked public awareness campaign into the Los Angeles, Dallas, and Detroit metropolitan areas in continuation of the agency’s efforts to increase financial inclusion to the unbanked population. (Covered by InfoBytes here.)
- Mission-Driven Banks. According to the report, the FDIC increased Minority Depository Institutions (MDI) representation on the agency’s Community Bank Advisory Committee (CBAC), which “established a new MDI subcommittee of the CBAC to highlight the work of MDIs in their communities and to provide a platform for MDIs to exchange best practices, and enabled MDIs to review potential purchases of a failing MDI before non-MDI institutions are given this opportunity.” As previously covered by InfoBytes, these efforts were incorporated in a Statement of Policy.
- Competitiveness of Community Banking. According to the report, the FDIC held a “rapid phased prototyping competition” where more than 30 technology firms were invited to participate in the competition "to develop tools for providing more timely and granular data to the FDIC on the health of the banking sector while also making such reporting less burdensome for banks. Of those 30 firms, we asked four participants to move forward in the competition by proposing a proof of concept for their technologies – either independently or jointly.” The FDIC also facilitated the development of “a public/private standard-development organization to establish standards for due diligence of vendors and for the technologies they develop.”
- Deposit Insurance Fund (DIF). According to the report, the DIF balance increased to a record $123.1 billion in 2021–a $5.2 billion increase from the year-end 2020 balance. No insured financial institutions failed in 2021 and “contingent liability for anticipated failures declined to $20.8 million as of December 31, 2021, compared to $78.9 million as of December 31, 2020.”
Recently, the FDIC published a final rule that amends the deposit insurance regulations for trust accounts and mortgage servicing accounts. According to the FDIC, the final rule is intended to make the deposit insurance rules more understandable, facilitate timely insurance determinations for trust accounts in the event of a bank failure, and enhance consistency of insurance coverage for mortgage servicing account deposits. Highlights of the final rule include, among other things: (i) merging the revocable and irrevocable trust deposit insurance categories into a “trust accounts” category; (ii) establishing a consistent formula for calculating deposit insurance coverage for trust accounts; (iii) establishing that “a deposit owner’s trust deposits will be insured in an amount up to $250,000 per beneficiary, not to exceed five beneficiaries, regardless of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries”; and (iv) providing a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits. The final rule becomes effective on April 1, 2024, which provides “depositors and insured depository institutions more than two years to prepare for the changes in coverage.” The FDIC also released a fact sheet which provides information on the final rule.
On January 21, the FDIC published a final rule that amends the deposit insurance regulations for trust accounts and mortgage servicing accounts. According to the FDIC, the final rule is “intended to make the deposit insurance rules easier to understand for depositors and bankers, facilitate more timely insurance determinations for trust accounts in the event of a bank failure, and enhance consistency of insurance coverage for mortgage servicing account deposits.” The final rule, among other things: (i) establishes a formula to calculate deposit insurance coverage for all revocable and irrevocable trust accounts; (ii) “provides a maximum amount of deposit insurance coverage of $1,250,000 per owner, per insured depository institution for trust deposits”; and (iii) establishes that “a deposit owner’s trust deposits will be insured in an amount up to $250,000 per beneficiary, not to exceed five beneficiaries, regardless of whether a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries.” Additionally, the final rule allows principal and interest funds advanced by a mortgage servicer to be included in the deposit insurance calculation. The rule is effective April 1, 2024. In addition, the FDIC released a fact sheet on the final rule.
On December 14, CFPB Director Rohit Chopra expressed concerns with the FDIC’s current plan to “restore the Deposit Insurance Fund to the statutory minimum in 2028.” The Federal Deposit Insurance Act requires the development and adoption of a Deposit Insurance Fund (DIF) Restoration Plan (Plan) when the fund’s reserve ratio drops below 1.35 percent or is expected to within six months. According to the FDIC, “[e]xtraordinary growth in insured deposits during the first and second quarters of 2020 caused the reserve ratio to decline below the statutory minimum as of June 30, 2020.” The FDIC Board adopted the Plan in September 2020 to restore DIF’s levels to at least 1.35 percent by September 30, 2028, but noted during the Plan’s semiannual update for 2021 that “the overall economic outlook has strengthened relative to when the Plan was first adopted in September 2020,” and that “the banking system continues to appear better positioned to withstand losses when compared to prior periods of stress.” FDIC Chair Jelena McWilliams also commented that since it is difficult to predict deposit trends and potential losses, the agency will continue to monitor this space.
Chopra cautioned that “[g]iven the significant uncertainty in the projections embedded in this plan—and the ultimate goal to have the Deposit Insurance Fund well exceed the 1.35% statutory minimum—we must continue to carefully analyze this plan to probe whether any amendments are necessary prior to the next semi-annual update to the Board of Directors.” He further noted that the 2008 financial crisis highlighted the importance of “countercyclical policy,” and that “regulatory and supervisory safeguards should be strengthened in stronger economic times, when risks tend to build in the financial system and when bank profits are robust.”
On October 7, the FDIC announced that it will conduct four identical seminars for bank employees and bank officers regarding FDIC deposit insurance coverage between October 21 and December 14. According to the FDIC, the seminars will: (i) provide an overview of FDIC-deposit insurance rules; (ii) cover topics such as the general principles of coverage, ownership categories, and requirements; (iii) provide information on additional deposit insurance resources; and (iv) include coverage examples and a live Q&A session. Registration will be required, but the seminars are free. Seminar participants must register at least two business days prior to the event, which can be accessed here.
FDIC proposes changes to deposit insurance regulations for trust accounts and mortgage servicing accounts
On July 20, the FDIC published a notice of proposed rulemaking (NPRM) that would amend the deposit insurance regulations for trust accounts and mortgage servicing accounts. The changes are intended to clarify the deposit insurance rules for depositors and bankers, enable more timely insurance determinations for trust accounts in the circumstance of a bank failure, and increase consistency of insurance coverage for mortgage servicing account deposits. According to the FDIC, some highlights include, among other things, that: (i) a deposit owner’s trust deposits would be insured up to $250,000 per beneficiary, but must not exceed five beneficiaries, regardless of if a trust is revocable or irrevocable, and regardless of contingencies or the allocation of funds among the beneficiaries; (ii) a maximum amount of deposit insurance coverage would be $1.25 million per owner, per insured depository institution for trust deposits; and (iii) “mortgage servicers’ advances of principal and interest funds on behalf of mortgagors in a mortgage servicing account would be insured up to $250,000 per mortgagor, consistent with the coverage for payments of principal and interest collected directly from mortgagors.” Additionally, the FDIC published a Fact Sheet on the NPRM, which provides an overview of simplifying deposit insurance rules for trust accounts and enhancing consistency for mortgage servicing account deposits. FDIC Chairman Jelena McWilliams released a statement specifying that the NPRM would, “merge the revocable and irrevocable trust categories into one uniform trust accounts category with one set of rules; establish a simple formula for calculating deposit insurance based on the number of beneficiaries; and eliminate the ability for a trust account to be structured to obtain unlimited deposit insurance at a bank, which is the case today, and certainly contrary to the spirit of the Federal Deposit Insurance Act.” Comments on the NPRM will be due 60 days after publication in the Federal Register.
- Kathryn L. Ryan to host the affiliate members meeting at AARMR’s 2022 Annual Regulatory Conference & Training
- Kathryn L. Ryan and Jedd R. Bellman to discuss “Risk and compliance management: Are you covered?” at a Mortgage Bankers Association webinar
- Melissa Klimkiewicz and Daniel A. Bellovin to discuss “Things to know about flood insurance” at a NAFCU webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Max Bonici will moderate a panel on “Enforcement risk and other regulatory and compliance issues related to crypto and digital assets” at the American Bar Association’s 2022 Annual Meeting
- John R. Coleman to provide a “CFPB Update” at MBA’s 2022 Regulatory Compliance Conference
- Amanda R. Lawrence to discuss “The shifting data privacy and data protection landscape” at MBA’s 2022 Regulatory Compliance Conference
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar