Banking and Finance Law Daily FDIC finalizes recordkeeping rule for large depository institutions
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Tuesday, November 15, 2016

FDIC finalizes recordkeeping rule for large depository institutions

By Lisa M. Goolik, J.D.

At its Nov. 15, 2016, meeting, the Federal Deposit Insurance Corporation adopted a final rule that is intended to facilitate the rapid payment of insured deposits to customers if a FDIC-insured institution with a large number of deposit accounts were to fail. The final rule requires that insured depository institutions with more than two million deposit accounts maintain complete and accurate data on each depositor and ensure that their information technology systems are capable of calculating the amount of insured money for most depositors within 24 hours of a failure. The FDIC anticipates the final rule will take effect on April 1, 2017.

According to the FDIC, the rule would currently apply to 38 institutions. The institutions would have three years to develop the recordkeeping and IT systems required for compliance.

"Timely access to insured deposits is critical to maintaining public confidence in the banking system," said FDIC Chairman Martin J. Gruenberg. "This rule bolsters the FDIC's ability to provide depositors at banks with a large number of deposit accounts the same rapid access to their insured funds in the case of a failure as the FDIC does in smaller resolutions."

Delayed payments. The FDIC is required to provide depositors with access to their insured accounts as soon as possible after an institution fails. While the funds are typically available by the next business day, for a bank with a large number of deposit accounts where records are unclear or incomplete, the payments might be delayed, the FDIC said.

To address these concerns, the FDIC began what Gruenberg referred to as "a deliberative rulemaking process" in April 2015, releasing an Advanced Notice of Proposed Rulemaking, followed by a proposed rule in February 2016. The FDIC later extended the comment period to allow for interested parties to further consider the cost of compliance.

Final rule. Under the final rule, insured depository institutions with more than two million deposit accounts must configure their IT systems to be capable of accurately calculating the deposit insurance available for each deposit account in accordance with the FDIC’s deposit insurance rules should the covered institutions fail.

Under the final rule’s general recordkeeping requirements, a covered institution will need to ensure that their deposit account records contain the information needed for its IT system to be able to calculate deposit insurance coverage for those deposit accounts for which it already maintains the necessary information.

A covered institution should, in the normal course of business, already maintain in its deposit account records the information necessary to do this for: single ownership accounts; joint ownership accounts; accounts held by a corporation, partnership, or unincorporated association for themselves; informal revocable trust (i.e., "payable-on-death" or "in-trust-for") accounts; and any account of an irrevocable trust for which the covered institution itself is the trustee.

With respect to certain types of deposit accounts for which a covered institution is not currently required to maintain in its deposit account records the necessary information, the covered institution may meet alternative recordkeeping requirements so long as the covered institution maintains in its deposit account records certain information that will facilitate the FDIC’s prompt collection of the information needed.

The alternative recordkeeping requirements would apply to deposit accounts insured on a "pass-through" basis (such as brokered deposits) because beneficial owner information is not maintained by the covered institution, and to deposit accounts for which the amount of insurance is dependent on additional facts (such as deposit accounts held in connection with a trust).

Comments addressed. In crafting the final rule, the FDIC took into consideration the comments received on the proposed rule. For example, the alternative recordkeeping requirements were established to address commenters’ concerns that covered institutions could have difficulty meeting the new recordkeeping requirements with respect to certain deposit accounts, including trust deposits, brokered deposits, and other accounts that qualify for "pass through" deposit insurance coverage.

The FDIC also adjusted the rule to extend the compliance period from two years to three years and simplify the process to consider exemptions from portions of the rule.

In the agency’s press release, the FDIC vowed to work closely with institutions as they develop new capabilities. The FDIC also said that it intends to issue functional design assistance for system programming prior to the effective date.

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