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4000 - Advisory Opinions
Company and Its Employees Offering Investment Advisory Services
and Purchasing CDs in Clients' Names Are Deposit Brokers Subject to
Registration Requirements of New Brokered Deposit Prohibitions
FDIC-92-52
August 3, 1992
Valerie J. Best, Counsel
This is in response to your recent letter concerning deposit
brokers. You write that your firm offers investment advisory services
to your clients and you purchase certificates of deposit in your
individual clients' names. You ask if your firm and its employees are
"deposit brokers" as that term is defined in the Federal Deposit
Insurance ("FDI") Act. The information provided is sketchy.
Nonetheless, it appears that your company and its employees may be
"deposit brokers." Please consider the following.
{{10-30-92 p.4659}}
Definition of ``Deposit Broker''
The term "deposit broker" is defined in section 29 of the FDI
Act to mean:
(A) any person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured
depository institutions or the business of placing deposits with
insured depository institutions for the purpose of selling interests in
those deposits to third parties; and
(B) an agent or trustee who establishes a deposit account to
facilitate a business arrangement with an insured depository
institution to use the proceeds of the account to fund a prearranged
loan.
12 U.S.C. 1831f(g)(1)(A) and (B).
Several exceptions to the definition of "deposit brokers" are
set out in the statute. Most of them, however, concern depositors
acting in certain, specifically described, fiduciary relationships
(e.g., the trust department of an insured depository
institution, the trustee of a pension plan,
etc.). 1
Discussion
As shown by the definition of "deposit broker" quoted above,
the FDI Act covers scenarios where the broker "facilitates the
placement" of deposits, as well as scenarios where the broker places
deposits in its name as nominee or agent for others. In common usage,
the term "facilitate" means "to free from difficulty or
impediment; to make easy or less
difficult." 2
For the most part, the definition of "deposit broker" used in
the FDI Act is derived from regulations issued by the FDIC and the
Federal Home Loan Bank Board in 1984 that were subsequently overruled
as an invalid exercise of authority. 3
The term "deposit broker" was broadly defined in those
regulations and, likewise, is broadly defined in the statute, because
deposit brokering may occur in any one of several ways.
For example, assume a broker, acting on its own or at the request of
an institution or institutions, solicits deposits from its customers.
Under one method of brokering deposits, the interested customer sends
funds directly to the institution which has been given notice by the
broker of the impending purchase. 4
Under a second method of brokering deposits, the broker itself
transfers the customer's funds to the institution and has the deposit
registered at the institution in its name as nominee or agent for the
customer. In turn, the broker maintains records reflecting the
ownership interest of each customer in the deposit.
Another way of brokering deposits is where a broker purchases a
certificate of deposit issued by an insured institution and sells
interests in it to customers. Upon sale of the participation in the
deposit to its customer, the broker so informs the issuing institution
and requests that the deposits be registered in its own name as nominee
for others. The broker's records, in turn, reflect the ownership
interest of each customer in the deposit.
{{10-30-92 p.4660}}
All of the foregoing scenarios are covered by the FDI Act. In the
first scenario, the broker is "facilitating the placement" of
deposits; in the latter two scenarios, the broker is "placing"
the deposits.
You indicate in your letter that your firm purchases certificates of
deposit in your individual clients' names. Again, although we do not
have many details as to your activities, it appears that you are
"engaged in the business of placing deposits, or facilitating the
placement of deposits, of third parties with insured depository
institutions."
Deposit Brokers—Recordkeeping Requirements
Assuming that your firm and its employees are "deposit
brokers" as that term is defined in the FDI Act, they are subject to
the registration requirements imposed by the FDI Act. Deposit brokers
are prohibited from soliciting or placing any deposit with an insured
depository institution unless the deposit broker has provided the FDIC
with written notice that it is a deposit
broker. 5
A company may file a single notice on behalf of all of its employees
and/or agents. However, the FDIC reserves the right to require
individual information at any time.
The notice may be in letter form and shall describe generally the
history, nature and volume of its deposit brokerage operations,
including the sources and placement of such funds. The notice should be
submitted to:
Federal Deposit Insurance Corporation
Office of Compliance and Special Activities
Division of Supervision
Washington, D.C. 20429.
A deposit broker must maintain records showing the volume of
brokered deposits placed with any insured depository institution
maturities, rates, and costs associated with such deposits. Upon
request from the FDIC, a deposit broker must file quarterly written
reports showing the volume, maturities, rates, and costs, of brokered
deposits placed with each depository institution during the applicable
quarter.
For your information, undercapitalized insured depository
institutions are prohibited from accepting funds obtained by or through
any deposit broker. Adequately capitalized insured depository
institutions are prohibited from accepting funds obtained by or through
any deposit broker unless they first obtain a waiver from the FDIC.
Well capitalized insured depository institutions, however, may accept
such funds without restriction. 6
A copy of the FDIC's regulations implementing section 29 of the FDI
Act is enclosed. Also enclosed is a memorandum summarizing the key
provisions of the implementing regulations.
You may write to me at the above address if you have additional
questions. If you have questions concerning the content and filing of
the notice, you should contact the FDIC's Office of Compliance and
Special Activities, Mr. Hugh W. Conway at (202) 898-6812 or Mr. Thomas
C. O'Nell at (202) 898-6863.
112 U.S.C. 1831f(g)(2)(C). Go Back to Text
2Black's Law Dictionary 591 (6th ed. 1990). Go Back to Text
3The brokered deposit amendments to Senate Bill 774 were
sponsored by Senator Murkowski. 135 Cong. Rec. S 4266 (daily ed. April
19, 1989) (statement of Sen. Murkowski). Sen. Murkowski had proposed
similar legislation to restrict brokered deposits prior to sponsoring
the amendment to Senate Bill 774. While introducing these earlier
bills, Mr. Murkowski referenced the 1984 regulations and stated that
the bills were intended to restore the provisions of the 1984 FDIC and
Federal Home Loan Bank Board regulation that was subsequently overruled
in federal court as an invalid exercise of authority. 134 Cong. Rec. S
11456 at 11457 (daily ed. August 10, 1988) and S 115999 at 11600 (daily
ed. August 11, 1988) (statements of Sen. Murkowski) and 135 Cong. Rec.
S 1418 (daily ed. February 9, 1989) and S 1934 (daily ed. March 1,
1989) (statements of Sen. Murkowski). Go Back to Text
4Even where the customer, after having been contacted by you,
calls the depository institution directly to establish an account, you
would be considered to be a deposit broker because you are
"facilitating the placement" of deposits; the broad definition of
deposit broker used in the FDI Act encompasses such
"match-making" or "finder" activities. Go Back to Text
512 U.S.C. 1831f--1(a). 57 Fed. Reg. 23933, 23944
(June 5, 1992) (to be codified at 12 C.F.R. 337.6(h)). Go Back to Text
612 U.S.C. 1831f. 57 Fed. Reg. 23933 (June 5, 1992)
(to be codified at 12 C.F.R. 337.6). Go Back to Text
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