I. INTRODUCTION
The Federal Deposit Insurance Corporation (FDIC) has issued a Guidance on deposit placement and collection activities at FDIC-insured institutions and their affiliates. The FDIC Guidance outlines steps that insured depository institutions should take to avoid customer misunderstanding about deposit insurance coverage when the institutions enter into third-party arrangements to collect and place deposits (such as the Certificate of Deposit Account Registry Service “CDARS”). Failure to properly administer these deposit collection practices in a manner that prevents customer confusion and complies with federal deposit insurance rules will be factored into the supervisory assessment of the institution and may result in enforcement actions and penalties.
Some FDIC-insured depository institutions/affiliates have entered into agreements with third-party affinity groups or trade associations (groups) to collect and place deposits. In these arrangements, members of the group are referred to the institution/affiliate. In exchange for the “introduction” to new depositors, the group receives a referral fee.
Such deposit collection and placement practices add a level of complexity to the operations and handling of these accounts, making it more likely that customers could be confused about where their money is deposited, or whether their funds are fully insured. These complexities create additional risks that the institution/affiliate must manage. Institutions that accept deposits with the intent of placing a portion or all of these deposits must establish governing controls over this activity to prevent customer confusion and ensure that all activities comply with deposit insurance regulations.
II. FDIC GUIDANCE
Institutions or affiliates that collect or place deposits are expected to:
An insured depository institution (or affiliate of an insured depository institution) should not enter into any deposit collection arrangements without a complete understanding of the FDIC’s rules governing the insurance coverage of accounts held by agents or custodians. A misunderstanding of the rules could lead to a situation in which a customer’s funds are not fully insured by the FDIC.
Under FDIC insurance rules, the placement of deposits at an FDIC-insured depository institution on behalf of the owner or owners of the funds may raise problems regarding “pass-through” deposit insurance. “Pass-through” insurance means the insurance coverage (up to the current $250,000 limit) “passes through” the fiduciary to the actual owners of the funds. However, this pass-through coverage is available only if (1) the institution’s records expressly disclose the fiduciary relationship on behalf of others (for example, “XYZ Broker for its clients”); (2) the records maintained by either the institution, the fiduciary, or an authorized third party identify the actual owner or owners of the funds in the account and their respective ownership interests in the account; and (3) the funds actually are owned by the customer(s) and not the entity performing in a fiduciary capacity. This third requirement is likely not satisfied if the interest rate and the maturity date offered to the customer do not match the interest rate and maturity date of the certificate of deposit (CD) purchased.
“Receiving” insured depository institutions are reminded that deposits accepted from agents or custodians (including insured depository institutions acting as agents or custodians) generally are “brokered deposits.” A well-capitalized, insured depository institution may accept brokered deposits without restriction. However, an adequately capitalized institution cannot accept brokered deposits unless the institution obtains a waiver from the FDIC. An under capitalized institution cannot accept brokered deposits under any circumstances.