On December 15, the FDIC approved a final rule to revise and modernize its regulations relating to brokered deposits. The final rule establishes a new framework for analyzing whether deposits made through deposit arrangements qualify as brokered deposits, including those between insured depository institutions (IDIs) and third parties, such as financial technology companies. Specifically, the final rule:
- Clarifies when a person meets the deposit broker definition in a way that provides clear rules by which banks and third parties can evaluate whether particular activities cause deposits to be considered brokered;
- Identifies a number of bright-line categories (called “designated exceptions” which include deposits where the agent has less than 25% of the total “assets under administration” for its customers; health savings accounts; deposits related to certain real estate and mortgage servicing transactions; certain retirement funds; and customer funds held for various regulatory, tax and other government purposes) for business arrangements that automatically satisfy the primary purpose exception; and
- Establishes a transparent application process for entities that seek a “primary purpose exception” but do not meet one of the “designated exceptions.”
The final rule tracks the proposed rule, which was discussed in the December 18, 2019 edition of the Roundup, while providing additional relief in several key areas, notably replacing the proposed “information sharing” prong with a new, tailored prong that targets a specific active form of matchmaking. The rule also clarifies that a third party that has an exclusive relationship with only one bank – often seen between a fintech company and a partner bank – would not be captured by the deposit broker definition.
The final rule also amends the methodology for calculating the interest rate restrictions that apply to less than well-capitalized IDIs. Under the rule, the national rate cap will generally be the higher of (1) the average rate paid on deposits, plus 75 basis points, or (2) 120% of U.S. Treasury rates, plus 75 basis points. The rule becomes effective on April 1, 2021, with an extended compliance date of January 1, 2022.