On July 30, 2024, the Federal Deposit Insurance Corporation (FDIC) issued a proposed rule that would unwind and considerably revise parts of the FDIC’s 2020 final rule governing brokered deposits (the “Proposed Rule”). The brokered deposits rule implements Section 29 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831f (the “FDI Act”), and prohibits certain insured depository institutions (IDIs) that are not well capitalized from accepting, or requires a waiver to accept, deposits from a deposit broker. Generally, the 2020 final rule specified the types of deposit-related activities that are considered brokered and clarified the types of business relationships that are eligible to be excepted from the “deposit broker” definition.
The Proposed Rule would revise the definition of “deposit broker.” The FDIC would: (1) combine the currently separate “engaged in the business of placing deposits (“placing”) and “engaging in the business of facilitating the placement of deposits” (“facilitating”) prongs of the deposit broker definition; (2) include a deposit allocation provision to replace the complex concept of “matchmaking” from the 2020 final rule; and (3) add a new factor related to fees. Specifically, a person would be considered to be engaging in the business of placing or facilitating the placement of deposits of third parties if the person conducts one or more of the following activities:
The Proposed Rule would also:
According to the FDIC, if the Proposed Rule is finalized as proposed, an IDI that relies on (1) an existing approved primary purpose exception application, (2) a 25 percent test designated exception notice, or (3) an enabling transactions designated exception notice or application, would no longer be able to rely on the exception. Instead, these IDIs would be required to submit a new primary purpose exception application based upon updated criteria, or assert a new designated business exception that meets the primary purpose exception.
The Proposed Rule would significantly impact IDIs and third parties that are not currently “deposit brokers” under the FDI Act and the 2020 final rule. For example, the Proposed Rule would require that IDIs that partner with third parties, including fintech companies, reevaluate deposit classification and, perhaps, program economics. Additionally, institutions that rely on the 25 percent test designated business exception would also have to examine whether the proposed revisions to the asset threshold would disqualify them from the exemption.
The Proposed Rule initially was subject to a 60-day comment period, which began upon publication of the Proposed Rule in the Federal Register on August 23, 2024. However, on October 8, 2024, the FDIC announced an extension of the comment period deadline from October 22, 2024 to November 21, 2024, to provide the public with additional time to prepare comments.
Our team will continue to follow the rulemaking closely. Please contact us if you have any questions about how the Proposed Rule may impact your business operations.