FDIC Proposed Rulemaking Will Create Additional Deposit Insurance Disclosure Obligations on Banks and Non-Banks | JD Supra

The Federal Deposit Insurance Corporation (“FDIC”) published for comment in December 2022 a notice of rulemaking (12 CFR Part 328) (“Proposed Rules”)1 applies to all FDIC-insured institutions and imposes new obligations on non-insured depository institutions (“IDIs”), such as retailers, FinTechs, etc.

The focus of this client reminder is on Part B of the Regulations,2 which will, among other things, require:

  • IDI establishes and maintains written policies and procedures to monitor and evaluate the activities of third parties – such as consumer-dealers or neobanks – that provide investment products. to their customers; and
  • IDIs, broker-dealers, or FinTechs review their sales information regarding arrangements that rely on deposit insurance, such as certificates of deposit (“Brokered CDs “), merchant sweeper program, and “neobank”.

Submissions to the Act are due by February 13, 2023. Due to the amendments it may be difficult for consumers to be informed by the Act. Specifically, we encourage IDIs, broker-dealers, and FinTechs to carefully review the Proposed Rule and determine whether a comment is needed.

If you would like to make a comment, please contact us and we are happy to provide assistance.

Regulatory Status

Section (18)(a)(4)3 The Federal Deposit Insurance Act (“FDI Act”) prohibits any person from misusing the name or logo of the FDIC, engaging in false advertising, or making false statements about deposit insurance. The Proposed Rule follows the FDIC’s May 2022 revisions to subpart B at 12 CFR part 328 regarding FDIC insurance-related misrepresentation and misuse. the FDIC logo.

IDI Supervision of Non-Banking Banks

The Act requires IDIs to establish written policies and procedures to monitor and evaluate the activities of financial service providers in the IDI or offering IDI services to third parties. If the Proposed Rule is finalized, IDIs will need to review their contracts with third parties, marketing materials, employee manuals and compliance checklists to ensure they are in compliance. the new rules.

This requirement would place IDIs at a disadvantage vis-à-vis other regulated entities, such as retail clients. This perspective needs to be included in the contractual provisions governing the IDI’s relationship with a broker-dealer or FinTech. In addition, the FDIC may take enforcement action against an IDI that fails to properly monitor and supervise its third party relationships. The FDIC’s stance is ongoing outsourcing its enforcement duties in IDI.

Disclosure of Insurers

FDIC regulations have long provided for “pass-through” deposit insurance, meaning deposits placed in an IDI by a party acting on behalf of one or more insured owners. such as money deposited directly in the IDI by the owner (s) .

Under the Regulation, information about bus insurance, which does not contain signs on the required regulatory conditions, will be considered false. The Regulation requires institutions to clearly state and certify that deposit insurance is subject to certain regulatory requirements. satisfied. The Ordinance does not require specific advertising language, but it is sufficient for a notice to state that it is the only opportunity to obtain insurance coverage. when certain regulatory conditions are met, without specifically mentioning those conditions.

Despite the “flexibility,” the Proposed Rule may require IDIs to make significant changes to their customer information forms for Brokered CDs, sweepstakes programs, and neobanks plan. Such revisions are likely to be costly and time-consuming to implement, with no assurances from the FDIC that they will improve consumer understanding.

Additional Provisions on “False Information”

The Proposed Law stipulates that any information or material not created by non-banking organizations, such as entrepreneurs or FinTech “neobanks”, is removed or cannot be clearly and clearly disclosed information that may misleading a customer into thinking they are dealing with an IDI. , or deposit insurance with respect to their funds, may be misrepresented, even if the customer is misled.

For example, a non-bank’s use of the official logo or advertising information on its website or marketing materials it will be an error message unless that logo is placed next to the name of one or more IDIs. In addition, the bank’s use of the official FDIC symbol or code number will be a misrepresentation if the use could reasonably indicate that the non-bank is insured by the FDIC. and is supported by the full faith and credit of the United States government. In addition, for non-banks that include information about deposit insurance, it will be a non-bank that cannot clearly and clearly show that it is not itself It is FDIC-insured and is insured by the FDIC. the only protection against failure is an FDIC insured depository.

If finalized, the Act will require non-banking institutions to revise their public disclosures regarding deposit insurance. to ensure that they comply with the requirements in section 328. Additionally, the Ordinance is not clear in the language specifically identifying it as sufficient. The only example of sufficient notice provided by the Ordinance is a non-banking entity identified above. their website partner IDI provides banking services.

1 See FDIC, FDIC Proposes a Rule to Modernize the Use of the FDIC’s Official Mark and Disclosure Statement and Clarify Its Regulations regarding False Advertising, Misrepresentation About Insurance Conditions, and Misuse of the FDIC’s Name or Trademark. (Dec. 13, 2022), https://www.fdic.gov/news/press-releases/2022/pr22085.html; 87 Feeding. Reg. 78,017 (Dec. 21, 2023).

2 Part A of the Proposed Rule would change the requirements on the display of identification at branches, and require the use of the FDIC identification, a new digital identification, and other identifiers to identify deposits. from non-stored products, including digital channels (which are implemented as digital windows).

3 12 USC 1828(a)(4). Section 18(a)(4) gives the FDIC independent authority to investigate and make administrative decisions, including the power to issue to freeze and freeze orders and impose monetary penalties on any person who misuses the FDIC’s name or logo or makes false statements about. deposit insurance. 12 USC 1828(a)(4)(C)–(D). In addition, under Federal law, it is also a crime to misuse the FDIC name or make false statements about deposit insurance. See 18 USC 709.

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