[Federal Register Volume 87, Number 6 (Monday, January 10, 2022)]
[Rules and Regulations]
[Pages 1065-1066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28540]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 337

RIN 3064-ZA30


Unsafe and Unsound Banking Practices: Brokered Deposits

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notification of additional designated business relationship 
that meets the primary purpose exception.

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SUMMARY: The FDIC is identifying an additional business relationship, 
or ``designated exception,'' that meets the ``primary purpose'' 
exception to the deposit broker definition. The business relationship 
relates to specific, non-discretionary custodial services offered by 
third parties to depositors or depositors' agents. Entities that meet 
the criteria detailed below will be permitted to rely upon the primary 
purpose exception without submitting a notice or application.

DATES: 
    Effective date: January 10, 2022.
    Applicability date: December 29, 2021.

FOR FURTHER INFORMATION CONTACT: Division of Risk Management 
Supervision: Rae-Ann Miller, Associate Director, (202) 898-3898, 
[email protected]. Legal Division: Vivek V. Khare, Counsel, (202) 898-
6847, [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On December 15, 2020, the FDIC adopted a final rule on brokered 
deposits and the interest rate restrictions that apply to less than 
well capitalized insured depository institutions (``IDIs'').\1\ For 
brokered deposits, the final rule established a new framework for 
analyzing certain parts of the ``deposit broker'' definition, including 
a new interpretation for the ``primary purpose'' exception and the 
business relationships that meet the exception. The final rule took 
effect on April 1, 2021. Full compliance with the rule was extended to 
January 1, 2022.
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    \1\ 86 FR 6742 (Jan. 22, 2021); 12 CFR 337.6.
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II. Primary Purpose Exception

    Section 29 of the FDI Act provides that the primary purpose 
exception applies to an ``agent or nominee whose primary purpose is not 
the placement of funds with depository institutions.'' \2\ In the final 
rule, the FDIC provided that the primary purpose exception will apply 
when the primary purpose of the agent or nominee's business 
relationship with its customers is not the placement of funds with 
depository institutions.\3\ In addition, the FDIC identified a number 
of business relationships (or ``designated exceptions'') that meet the 
``primary purpose'' exception. The final rule also provided that, as 
part of the enumerated list of designated exceptions, the FDIC would 
make publicly available any additional business arrangements not 
described in the rulemaking that the FDIC later determines meet the 
primary purpose exception (without requiring an application).\4\
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    \2\ 12 U.S.C. 1831f.
    \3\ 86 FR 6742, 6749 (Jan. 22, 2021).
    \4\ Id. at 6755; 12 CFR 337.6(a)(5)(v)(I)(1)(xiv).
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III. Additional Designated Exception

    As described below, the FDIC has identified the following 
additional business arrangement that meets the primary purpose 
exception and intends

[[Page 1066]]

to make conforming changes to the Call Report instructions in 
coordination with the Federal Financial Institutions Examination 
Council.\5\
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    \5\ The additional designated exception will be posted to the 
FDIC's Banker Resource Center (Brokered Deposits web page), 
available at: https://www.fdic.gov/resources/bankers/brokered-deposits/, will be updated to reflect this additional designated 
business exception.

    The agent or nominee is ``engaged in the business of placing'' 
customer funds at IDIs, in a custodial capacity, based upon 
instructions received from a depositor or depositor's agent specific 
to each IDI and deposit account, and the agent or nominee neither 
plays any role in determining at which IDI(s) to place any 
customers' funds, nor negotiates or set rates, terms, fees, or 
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conditions, for the deposit account.

    Over the past several months, in response to questions received, 
the FDIC has been considering the role that certain custodial agents 
play in various deposit placement arrangements. Specifically, in some 
deposit placement arrangements, a depositor, or a depositor's agent, 
uses a custodial agent in placing depositor or customer funds at IDIs. 
Based on the ``deposit broker'' definition, these agents likely meet 
the ``engaged in the business of placing'' part of the definition 
because they receive third party funds and place those funds at more 
than one IDI.\6\
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    \6\ 12 CFR 337.6(a)(5)(i)(A).
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    The FDIC recognizes, however, that in certain arrangements, the 
agent or nominee, in a custodial capacity, places deposits but has no 
discretion over where the deposits are placed and acts solely upon 
instructions given by the depositor or the depositor's agent specific 
to each deposit account. Moreover, in these arrangements, when the 
agent or nominee, acting in a custodial capacity, places deposits based 
upon instructions received from a depositor or depositor's agent, it 
does so without playing any role in determining at which banks the 
depositor's funds are to be placed nor does the agent negotiate or set 
rates, terms, fees, or conditions for the deposit account.
    As such, in these specific arrangements, it is the FDIC's view that 
the agent or nominee's primary purpose in placing deposits at IDIs is 
to provide non-discretionary custodial services on behalf of the 
depositor or depositor's agent. Therefore, such entities will be deemed 
to meet the primary purpose exception. Accordingly, through this 
Notice, the FDIC is identifying this specific business relationship as 
a designated business relationship that meets the primary purpose 
exception. Entities that meet the criteria described in this Notice 
will be permitted to rely upon the exception without the submission of 
an application or notice.
    As noted above, a custodial agent that plays any role in 
determining at which IDI(s) to place any customers' funds will not be 
eligible for the designated exception. As an example, a custodial agent 
that plays any role in creating, operating, or using an algorithm that 
is used to determine or recommend at which IDI(s) any customer funds 
are placed would be viewed as playing a role in determining at which 
banks the depositor's funds are to be placed and thus not eligible for 
the designated exception.

Involvement of Additional Third Party Deposit Brokers

    The FDIC notes that a depositor or depositor's agent that meets the 
deposit broker definition and uses the services of a custodial agent 
that meets this designated exception to place deposits would result in 
such deposits being classified as brokered deposits. The involvement of 
the non-discretionary custodial agent does not change the 
classification of deposits placed by, or through the facilitation of, 
an entity that otherwise meets the deposit broker definition.

Federal Deposit Insurance Corporation.

    Dated at Washington, DC, on December 29, 2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021-28540 Filed 1-7-22; 8:45 am]
BILLING CODE 6714-01-P