4000 - Advisory Opinions
Recordkeeping Requirements for CDs Purchased by Multi-Tiered Agents or Nominees
August 31, 1988
Patti C. Fox, Attorney
Your letter of May 27, 1988 to Ms. Rae Nathan, Regional Counsel of the New York Regional Office, has been forwarded to me for reply. As I mentioned in my conversations with *** the recordkeeping requirements for multi-tiered agency relationships were under review and thus delayed the preparation of a written response.
You requested information regarding FDIC recordkeeping requirements for certificates of deposit ("CDs") purchased by *** on behalf of its correspondent bank members. Although I am unclear as to whether *** retains ***, to hold the CDs in safekeeping or registers the instruments in *** name as a nominee, I will assume the latter. The CDs, then, are held in an agency capacity by *** as nominee for *** which acts as agents for participants purchasing shares of the CD. The participants, in turn, may be holding their shares in an agency or custodial capacity for third parties. Further, I will assume the CDs are non-negotiable.1
FDIC recordkeeping regulations provide that the deposit account records of an insured bank are conclusive as to the existence of any relationship pursuant to which funds in the bank are deposited. 12 C.F.R. § 330.1(b)(1). If the account records disclose an agency, trustee, or other custodial relationship, the details of the relationship and the beneficial interest of the owner(s) of the funds must be ascertainable from bank records or the depositor's records maintained in good faith and in the regular course of business. 12 C.F.R. § 330.1(b)(2).
Where multi-tiered agency relationships exist, there are two alternative methods to establish the interests of beneficial owners that will satisfy the FDIC recordkeeping requirements. The following designation would be one appropriate means for identifying all the agency relationships in the situation you described:
*** as nominee for *** as custodian for [name of participants] and other participants, each for itself and as nominee or custodian for others, including trusts, pension and retirement plans and accounts, fiduciaries, custodians, and nominees.
Once all agency relationships have been established on the deposit account records of the bank in the above manner, the FDIC will look to the various agents' or custodians' records to ascertain the actual ownership interest of each tier. In the event of a bank failure, *** would be asked to produce the name and amount of interest of each participant, assuming bank records do not contain this information. If the bank's deposit account records also indicate that a participant may be acting as an agent for others, the participant must produce the name and amount of interest of any beneficial owners from its records. (In lieu of registering the CD as suggested, *** could provide the issuer with a letter indicating the multi-tiered relationships. The letter must be kept with the bank's deposit account records and not in another department of the bank.)
Under the second method, the bank's records must establish the existence of an agency relationship, and the FDIC will then look to that agent's records to determine whether the beneficial owner listed on those records is, in turn, acting in an agency capacity. By way of illustration, bank records and each successive agent's records could read as follows:
1. Bank records: *** nominee.
2. *** records: *** as agent for others.
3. *** records X Y Z, as custodian for A and B
4. Z's records A, as trustee for K B
The ultimate beneficial owners in this example are X, Y, K, and B. In each instance, the agency capacity under which the true beneficial owner claims has been established on the records of the prior tier, i.e., the records belonging to the agent of the beneficial owner's agent or custodian. No insurance claims by third parties stating that B, for example, was acting in a fiduciary capacity on their behalf would be recognized, because B's fiduciary relationship is not found in Z's records.
If the nominee does not keep records regarding its principal's relationships with others, bank records would have to reflect the principal's agency status: *** as nominee for *** as agent for others. The FDIC would then look to records, as previously illustrated.
On June 16th, I asked *** to clarify your request for a description of the claims procedure in a closed bank. He asked whether the FDIC employed the same process currently used by FSLIC with respect to negotiable CDs. Apparently, FSLIC enters into agreements with depository institutions acting as nominees on behalf of third parties, such as brokers, who are acting as agents for others. These agreements are used to satisfy the FSLIC recordkeeping requirements for negotiable CDs and form the basis for a claims procedure in a failed institution.
The FDIC does not have a similar procedure. When the FDIC pays off the depositors in a failed bank, it notifies each depositor who then has 18 months in which to file a claim. In a purchase and assumption transaction, the deposits are purchased by the assuming bank; typically, the depositor has immediate or next day access to his funds.
1 Negotiable instruments are the subject of a limited exception
to the recordkeeping requirements pursuant to section 330.11. In the
case of an insured deposit evidenced by a negotiable instrument,
"the owner of such deposit obligation will be recognized . . . to
the same extent as if his name and interest were disclosed on the
records of the bank provided the instrument was in fact negotiated to
such owner prior to the date of the closing of the bank. Affirmative
proof of such negotiation must be offered in all cases to substantiate
the claim." 12 C.F.R. § 330.11