The FDIC issued a final rule that includes an additional business relationship that meets the "primary purpose" exception to the definition of "deposit broker" in Section 29 of the Federal Deposit Insurance Act. The final rule became effective on January 10, 2022.
Under the rule, an agent or nominee will meet the exception if it (i) is engaged in the business of placing customer funds at insured depository institutions ("IDIs"), (ii) acts in a custodial capacity based on specific instructions received from a depositor, and (iii) neither determines at which insured depository institutions to place funds nor negotiates any rate, terms, fee or conditions for the deposit account. Entities that meet the above criteria are able to rely upon the primary purpose exception to the deposit broker definition, and they need not submit an application or notice.
In the final rule, the FDIC clarified that the exception applies when the primary purpose of the business relationship between the agent and its customers is something other than the "the placement of funds with depository institutions." The FDIC noted various business relationships that categorically meet the exception. The FDIC recognized that depositors often use custodial agents to place their funds at insured depository institutions. In these instances, custodial agents act solely upon the instruction of the depositor and have no discretion over where the funds are placed or the terms of the deposit account. However, the FDIC noted, these custodial agents could fall within the present definition of "deposit broker" because they are "'engaged in the business of placing' customer funds at IDIs." The FDIC now interprets the primary purpose exception to include these types of business relationships.
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