4000 - Advisory Opinions
Where Company and Its Clients Are Deposit Brokers, Company May File Master Notice Registering as Deposit Broker on Behalf of Clients
August 17, 1992
Valerie J. Best, Counsel
This is in response to your recent inquiry concerning deposit brokers. In your letter you stated that [Company] and its clients (as described below) are "deposit brokers" as that term is defined in the Federal Deposit Insurance ("FDI") Act.1 Consequently, [Company] and its clients are subject to the notification requirements imposed by the FDI Act and implementing regulations.2 You ask that [Company] be permitted to register as a deposit broker on behalf of its clients.
Based upon the information provided in your letter, we will permit [Company] to file a single notice on behalf of its clients provided, however, that the notice includes the name and required information as to each client.
Activities of [Company]
You write that [Company] offers an automated system for the placement of federally insured certificates of deposit ("CDs"). The system is exclusively available through a group of major regional banks and brokers which you refer to as "clients." Your clients place CDs, as agent, for their institutional, trust and individual customers, among others. You collect CD offerings from depository institutions wishing to obtain deposits through the system. These offerings are instantaneously made available, through an on-line, real-time system, to your client banks, who, in turn, make the offerings available to their customers. Clients may immediately execute trades through computer terminals linked to [Company].
[Company] transmits by facsimile a confirmation of the executed trade to the depository institution. The confirmation provides details of the incoming deposit, including the complete registration of the account. The client wires the deposit amount to the depository institution and the account is opened and registered in the client's name as agent.
[Company] maintains all contact with the issuing institution. You confirm the placement of each deposit, transmit all information regarding the deposit and arrange every redemption. You routinely generate and provide reports, when requested, to both the depository institution and the client.
You indicate that your clients, as described above, function as deposit brokers. You contend, however, that it would be more efficient and accurate if [Company] were permitted to register as a deposit broker for all of its clients by registering one time for itself. You state that your company is able to generate and immediately provide any historical or current data the FDIC may request regarding all deposits placed by your clients with specific depository institutions. You write that this data would not be duplicated due to multiple parties submitting information on the same deposit, should your company as well as its individual clients be required to submit FDIC requested reports. You state that all deposits placed through your clients would be reported to the FDIC.
We agree with your conclusion that [Company] is a deposit broker. 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."3 The activities of your company clearly make it easier for the owner of the funds to place its deposits with insured institutions.4 In connection with the collection and transmission of information concerning CD offerings, your company engages in the following activities, any one of which facilitates the placement of deposits of third parties: (1) the owner of the funds--or an intermediary for the owner of the funds--executes trades through computer terminals linked to your company; (2) your company transmits confirmation of the executed trade to the depository institution; (3) your company confirms the placement of each deposit; (4) your company transmits all information regarding the deposit and arranges every redemption.
Based on the foregoing, your company and its employees are "deposit brokers" as that term is defined in the FDI Act. We also agree with your conclusion that your clients are deposit brokers because they place deposits of third parties with insured institutions. As a result, neither [Company] nor its clients may solicit or place deposits with an insured depository institution unless they first notify the FDIC of their deposit-broker status.
As noted above, [Company] may file a master notice on behalf of its clients provided that the notice includes the name and, as to each client, all of the information required by the FDI Act and the implementing regulations. This means that the notice must describe generally the history, nature and volume of each client's deposit brokerage operations, including the sources and placement of such funds.
Aside from the notification requirements, the FDI Act and implementing regulations impose certain recordkeeping requirements. More specifically, a deposit broker must maintain records showing the volume of brokered deposits placed with any insured depository institution over the preceding 12 months. Such records must also show the maturities, rates, and costs associated with such deposits. As I understand your letter, [Company] is not asking for permission to maintain such records for its clients. Rather, each client will continue to bear individual responsibility for meeting the above-described recordkeeping requirements.
I trust this is responsive to your inquiry.
112 U.S.C. 1831f(g)(1)(A) and (B). Go back to Text
212 U.S.C. 1831f--1. 57 Fed. Reg. 23933, 23944 (June 5, 1992) (to be codified at 12 C.F.R. 337.6(h)). Go back to Text
3Black's Law Dictionary 591 (6th ed. 1990). Go back to Text
4Also see our letter to your company dated May 29, 1990. In that letter we rejected [Company]'s argument that, because its product represented less than 11% of the total gross revenues of its parent corporation, it was not a broker. Based on the information we had received, we concluded that [Company] does not qualify for the exclusion applicable to an "agent or nominee whose primary purpose is not the placement of funds with depository institutions." Go back to Text