4000 - Advisory Opinions
Whether Independent Trust Company Which Conducts Activities On Behalf of Affiliated Bank Must Register as Deposit Broker
July 21, 1993
Valerie J. Best, Counsel
Your letter dated May 10, 1993 has been referred to me for a response. The *** (the "Trust Company") is an independent trust company chartered in the state of *** for the purpose of acting in a fiduciary capacity for a number of clients and accounts. Some of the types of fiduciary accounts you handle are estate settlement, conservatorships, investment management accounts, custodial accounts and "normal" trust accounts, both testamentary and inter vivos. The Trust Company is a subsidiary of a bank holding company. You contend that the Trust Company serves the same function as a trust department of a bank and conducts its activities on behalf of its affiliated bank.
``Traditional'' Trust Activities
You note that FDIC regulations implementing the brokered deposit statute generally exclude trust departments from the definition of "deposit broker." More specifically, the regulation excludes any
trust department of an insured depository institution, if the trust or other fiduciary relationship in question has not been established for the primary purpose of placing funds with insured depository institutions.
12 C.F.R. 337.6(a)(5)(i)(C).
You ask whether a trust company would be similarly excluded so long as the primary purpose test is satisfied.
A trust company affiliated with a bank and serving essentially the same function as a trust department for that bank would be excluded from the definition of deposit broker pursuant to 12 C.F.R. 337.6(a)(5)(i)(I), so long as the trust or other fiduciary relationship in question has not been established for the primary purpose of placing funds with insured depository institutions.
Attached for your review is a letter dated August 3, 1992 discussing the exclusion for trust departments in more detail. As noted therein, we anticipate that trust departments administering "traditional"1 types of trusts will not be "deposit brokers," as that term is defined in the statute and implementing regulations. Likewise, a trust company limited to administering traditional types of trusts would not be considered a deposit broker. For example, a trust company would not be considered a deposit broker by virtue of the fact that it is acting as an executor, administrator, guardian, or conservator.
It may also be helpful to remember that some types of trusts are excluded from the definition of "deposit broker," regardless of the trust's "primary purpose."2
The Custodial Agreement
In addition to "traditional" types of trusts administered by the Trust Company, you offer "non-discretionary custodial accounts." The Trust Company invests the customer's funds in the vehicle designated by the customer, whether it be mutual funds, certificates of deposit, stocks, bonds, etc. The "Custodial Agreement" included with your letter states that the Trust Company shall not render investment advice or investment counseling regarding the assets in the Custodial Account agreement. You ask whether such funds would be considered brokered deposits if a customer opts to invest all or part of their funds in certificates of deposit.
FDIC staff previously considered this issue and determined that such funds would be brokered deposits. Attached for your review is a letter dated December 9, 1992 that discusses a similar agreement in more detail. Consistent with that earlier opinion, the Trust Company is required to register as a deposit broker when it invests customer funds in certificates of deposit pursuant to the Custodial Agreement. The registration requirements are outlined in the enclosed financial institutions letter.
Please call me at (202) 898-3812 or write to me at the above address if you have any additional questions.
1Examples of "traditional" types of trust are family trusts created for estate planning purposes, charitable trusts, and testamentary trusts. Go back to Text
2The trustee of a pension or other employee benefit plan (with respect to funds of the plan) and the trustee of a testamentary account, are not "deposit brokers" regardless of the primary purpose of the trust. 12 U.S.C. 1831f(g)(2)(D), (F). Likewise, the primary purpose test is not applied to the trustee of a pension or profit sharing plan qualified under section 401(d) (plans benefiting owner-employees) or 403(a) (qualified annuity plans) of the Internal Revenue Code of 1986. Such trustees are not deposit brokers. 12 U.S.C. 1831f(g)(2)(H). Go back to Text