In November 2016, the FDIC approved a final rule establishing recordkeeping requirements for insured institutions with a large number of deposit accounts. The rule is intended to facilitate rapid payment of insured deposits to customers if the institutions fail. The adopting release may be found at the following link: https://www.fdic.gov/news/news/press/2016/pr16101a.pdf. Broker-dealers who sell structured CDs and other forms of brokered CDs will most likely be pleased that the FDIC revised some of the proposed provisions that would have been the most challenging in connection these types of products. We discussed the proposed rule in our March 31, 2016 issue of this publication: https://media2.mofo.com/documents/160331structuredthoughts.pdf. The rule applies to insured depository institutions with more than 2 million deposit accounts. (The FDIC expects that the rule will affect 38 U.S. banks.) Generally, the new rule requires these institutions to maintain complete and accurate data on each depositor. These institutions are also required to ensure that their IT systems are able to calculate the amount of insured deposits for most depositors within 24 hours of a failure. The new rule provides a three-year period for developing the required recordkeeping and IT systems.
In response to comments received in the FDIC's original proposal as to certain deposit accounts, including trust deposits, brokered deposits and other accounts that qualify for "pass through" deposit insurance coverage, the new rule establishes alternative requirements for these accounts. Under the final rule (and consistent with the recordkeeping requirements of 12 C.F.R. 330.5 and 330.7), deposit records for these accounts may be maintained off-site with a third party, rather than at the issuing bank. The new rule also permits institutions to develop systems that process these accounts for a longer period after a failure, except for certain accounts that have "transactional features."1
Under the original proposals, access to account information could have changed significantly. Issuing banks would have needed to obtain this information from their brokers, in the new format required. Any sub-distributors used by the brokers would have needed to furnish this information up the distribution chain, so that it could reach the issuing bank. The FDIC's accommodation for brokered deposits removes this proposed requirement, making the rule more palatable for issuers of structured CDs that are sold through multiple broker-dealers.