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FDIC releases NPRs on recordkeeping for timely deposit insurance determination

Relief points and anticipated challenges

The FDIC released two NPRs addressing the signature card requirements of Part 330.9 and Part 370 “Recordkeeping for Timely Deposit Insurance Determination.” Learn more.

April 15, 2019 | Financial services

On Friday, March 29, the Federal Deposit Insurance Corporation (FDIC) released two Notices of Proposed Rulemakings (NPRs) affecting its deposit insurance regulations, which are now in the open comment period.

Part 330.9 - The “signature card requirement” for Joint Ownership Deposit Accounts: Part 330.9 details the methods that satisfy the identification requirements of ownership for joint accounts, one of the 16 unique ownership right and capacity (ORC) codes which a depositor may be separately insured at each institution.1

Part 370 - Recordkeeping for Timely Deposit Insurance Determination: Part 370 became effective on April 1, 2017 and required covered institutions2 (CIs) to maintain complete and accurate records on deposit accounts’ ownership and insurability, as well as implementing an information technology (IT) system within three years of the effective date that comprehensively manages the calculation and payment of deposit insurance in the event of failure.3

As the nation’s largest banks who are subject to Part 370 began developing their capabilities in order comply with the regulation, they identified components of the rule that were insufficiently clear or unduly burdensome. The resulting NPRs provide for most CIs material relief in certain areas. However, in some cases the changes add challenges that CIs may want to consider providing comments based on the impact should the rules be finalized as they are currently written.

Key implications

Deloitte has identified the most consequential potential relief points and challenges banks should take into consideration regarding their impact.

Relief points

Part 330.9
Signature card

The FDIC’s proposal amends the regulation to state expressly that the signature card requirement may be satisfied electronically, a point of guidance previously stated in the IT Functional Guide and FAQs, but now proposed to be amended in the rule. The proposal also adds an alternative method to satisfy the signature requirement. This is significant as many impacted banks do not have the required documentation to meet the signature card requirement.

It also reflects the reality that changes have taken place in how accounts are established and used in the time that has passed since the signature card requirement was put in place. It now allows the signature card requirement to be satisfied by information contained in deposit account records to establish co-ownership. This includes evidence that an institution has issued a mechanism for accessing the account to each co-owner, such as a debit card, or evidence of usage of the deposit account by each owner, which can include any form of transactions that can be tracked to the individual participating depositors. The rule is flexible as to how these requirements are satisfied allowing them to be adopted to the individual circumstances at each institution. This change applies to all insured institutions, not just CIs.

These changes, depending on the circumstances at each CI, should significantly reduce the compliance burden by providing flexibility on how an institution chooses to identify activity and evidence of use by deposit account owners. Institutions should perform data availability and quality analysis to determine the best approach to take advantage of this added flexibility, as the transaction to account holder linkages may not be readily available in all instances.

Part 370
Proposed amendments to the definition of accounts with “transactional features”

The FDIC refined its definition of what constitutes a deposit account with “transactional features” to apply to accounts that have transactions that are executed but not completed in the end-of-day processing with the transaction being reflected on a later day than the initial transaction. The focus of the FDIC is on accounts that have regular transactions that could have rejected items causing disruption. They also include accounts that provide for the transfer from deposits accounts with non-transactional features to deposit accounts within the same institution that have transactional features.

A distinction was also made regarding treatment of pass-through related accounts with transactional features. These now only include pass-through accounts where the pass-through depositors’ transactions clear directly with the CI. If they clear through another institution, and then in aggregate clear with the CI, they are not captured under the transitional features definition. This should have a beneficial impact on most CIs by reducing the number of pass-through entities that have to provide information within the first 24 hours of close.

Attestation language

The FDIC softened the language in several areas surrounding the bank certifying official’s attestation. The first involves the overall certification, allowing the chief executive officer (CEO) or chief operating officer (COO) to confirm that the institution has implemented all required capabilities and tested its IT system during the preceding 12 months and made with the best of “his or her knowledge after due inquiry.” Previously, the certification required “successful testing” of the IT system that indicated that the institution is “in compliance,” which posed concerns about the absolute nature and implied liability of the original language. CEOs and COOs should find the updated language on the certification process to be more reasonable.

Second, the certification requirements have been removed with regard to accounts with transactional features. What is required under the proposal is a CI “must take steps reasonably calculated to ensure that the account holder will provide to the FDIC the information needed” to calculate deposit insurance coverage within 24 hours of close. Those steps include implementing contractual arrangements with account holders to deliver information needed in a format compatible with the CI and a disclosure notifying of possible delays due to inability to provide the CI with the necessary information. This transfers responsibility to the pass-through entities to perform, which makes practical sense since they, not the CI, have the required information and relieves the CI from a significant burden supporting the certification that included the performance of others.

Relief for record keeping requirements for certain trusts

Two proposed revisions were made regarding trust accounts that is expected to be helpful. First, formal revocable trust accounts, irrevocable trust accounts and accounts where the bank is the trustee, known as “DIT accounts,” are now excluded under accounts with transactional features. Second, DIT accounts are included as part of alternative recordkeeping. This exempts these accounts from the requirement of needing to be addressed within the first 24 hours of close. This is important as most trust operations do not have the documentation required to produce this information within 24 hours.

Anticipated challenges

Data changes to alternative record keeping requirements for certain trusts

While the FDIC expanded the trust accounts allowed for alternative record keeping accounts to include DIT accounts, the FDIC also changed one of the data requirements from “pending reason” to “right and capacity.” CIs could find this to be an issue as this information is generally not known by the bank. The requirement to identify grantor also remains, which also could be a challenge for many trust operations.

Loan overpayments

The FDIC proposed to amend recordkeeping requirements for deposits resulting from a borrower making an overpayment on a loan account (e.g. credit card, auto loan, etc.) where there is no principal balance. Upon failure, the CI must restrict credit balances owed on the borrower's account. If this cannot be done, the CI can restrict an equal amount in that borrower’s deposit account at the CI, in the event the borrower has a deposit account. The key is to be able to allow customer access to use credit facilities without impacting the credit balance until an aggregation can be performed. Since access is most critical to revolving credits, the CI must also have the capability to produce a list of all open (revolving)—which need access—and closed-ended accounts with overpayments at point of failure.

While more clarity has been provided regarding the requirements for credit balances on loans, it did not appear to come in the form of relief. For CIs that can isolate the credit balance, the impact will be more in the form of establishing a process to match the account holder information across loan and deposit systems to support an aggregation. For CIs that can’t isolate the credit balance, there could be system issues that will need to be addressed since the amendment requires the ability to restrict client access to overpayment balances which has proven to be an industry-wide issue.

To support the ability to perform aggregations between loan systems and deposit systems, the proposed amendment requires CIs to have the ability to produce a listing of customer information with loan overpayments (open and close-ended) upon bank failure in the file format similar to those used for pass-through accounts. The report for open-ended (revolving) credit needs to be produced within the first 24 hours since those accounts need access to their credit facility.

Conclusion and next steps

Overall the NPRs likely result in a net benefit for most CIs, and for some the benefit could be significant. There are areas that still result in burden that may have potential for further revision that could benefit from input by CIs during the comment period, including, but not limited to, the challenges identified here. The FDIC requested formal comments from each CI affected by the NPRs. The FDIC is accepting industry comments on the Part 330.9 NPR until May 5, 2019, and the Part 370 NPR until May 13, 2019.

In the coming weeks, Deloitte will publish an expanded point of view on the implications of these proposed rules in order to help CIs formulate responses, plan for implementation, and ultimately comply with these new regulations.

Endnotes

1  Federal Deposit Insurance Corporation, Joint Ownership Deposit Accounts (April 4, 2019), available at https://www.federalregister.gov/documents/2019/04/04/2019-06534/joint-ownership-deposit-accounts

2 A covered institution is defined as an insured depository institution (IDI) that has 2 million or more deposit accounts.

3 Federal Deposit Insurance Corporation Recordkeeping for Timely Deposit Insurance Determination (April 11, 2019), available at https://www.federalregister.gov/documents/2019/04/11/2019-06713/recordkeeping-for-timely-deposit-insurance-determination

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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