U.S. FDIC Proposal Would Update Disclosure Rules for Federal … – Sidley Austin LLP

On December 13, 2022, the U.S. Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking that would modify its rules governing the use of the official FDIC sign to reflect how depositors do business today, including through digital and mobile channels (NPRM).1 The NPRM aims to enable customers of insured depository institutions (IDIs) to clearly understand when their funds are protected by the FDIC’s deposit insurance coverage. The NPRM sets forth requirements for an IDI’s use of FDIC signage in its digital deposit-taking channels. The NPRM would also apply to financial technology (fintech) companies and others that enable customers to access insured depository products offered by IDIs. For example, it would apply to broker-dealer sweep programs. Public comments on the NPRM are due by February 21, 2023.
The FDIC has observed that arrangements between IDIs and fintechs can make it more difficult for customers to understand when they are doing business with an IDI and when their funds are protected by the FDIC’s deposit insurance. The FDIC has also observed increased misleading representations about deposit insurance in internet banking channels, which the FDIC asserts can result in consumer confusion and harm. Through the NPRM, the FDIC hopes to bring the certainty and confidence provided by the FDIC sign to the varied and evolving digital channels through which depositors are increasingly handling their banking needs.
Signs for Deposit-Taking Channels
The NPRM would require the use of different signage in digital deposit-taking channels for deposit products and nondeposit products.2 A “non-deposit product” would be defined to mean any product that is not a deposit under the Federal Deposit Insurance Act and would include stocks, bonds, government and municipal securities, mutual funds, annuities (fixed and variable), life insurance policies (whole and variable), savings bonds, and cryptoassets and would exclude any credit product. Significantly, the NPRM would define a “crypto-asset” as any digital asset implemented using cryptographic techniques, but the NPRM does not define a digital asset.3
An IDI would have to clearly, continuously, and conspicuously display the FDIC’s sign for digital deposit-taking channels in the following pages or screens:
Moreover, if a digital deposit-taking channel offers both access to deposits at an IDI and nondeposit products, the IDI would have to clearly and conspicuously display signage indicating that the nondeposit products are not insured by the FDIC, are not deposits, and may lose value. This signage would have to be displayed
Disclosures by Fintechs
Fintechs and others that enable customer access to IDI deposit products would also have to comply with new requirements in the NPRM. The NPRM would prohibit use of the FDIC-associated terms or FDIC-associated images in a manner that inaccurately states or implies that a person other than an IDI is insured by the FDIC.6 Moreover, the NPRM would consider a statement materially false or misleading, and consequently a violation of the regulations, if it states, suggests, or implies that a person is insured or guaranteed by the FDIC and the person is not. Examples would include the following:
Considerations for Arrangements Between IDIs and Fintechs
The NPRM presents some potential questions and challenges for some online partnership between IDIs and fintechs. As an initial matter, while the FDIC’s objective is to require clear disclosures to customers to avoid misunderstandings, the repeated signage displays may create burdens on IDIs and fintechs without a commensurate improvement in clarity. Some of the disclosure requirements may also need to be reconsidered. For example, the use by a fintech of the FDIC signage would have to be specific to an IDI, so it would not be permissible for the fintech to use the signage in the context of general references to a multibank sweep program. Additionally, requiring disclosure to consumers that certain conditions must be satisfied for pass-through deposit insurance to apply might itself cause confusion because many consumers will not understand what this means.
Finally, by treating all cryptoassets as nondeposit products, the NPRM does not contemplate the possibility of a stablecoin that, as a matter of future legislation or regulation, provides the holder with pass-through FDIC deposit insurance.
1 87 Fed. Reg. 78,017 (Dec. 21, 2022), available at https://www.govinfo.gov/content/pkg/FR-2022-12-21/pdf/2022-27349.pdf.
2 The NPRM would define a “digital deposit-taking channel” as any electronic communications method through which an IDI accepts deposits.
3 However, the supplementary information to the NPRM includes a broad definition of “digital asset” as a digital representation of value that functions as a medium of exchange, a unit of account, and, or a store of value as well as a digital asset that has an equivalent value in and is convertible to real currency or that acts as a substitute for real currency and is not legal tender.
4 A digital sign continuously displayed near the top of the relevant page or screen in close proximity to the IDI’s name would be considered clear and conspicuous.
5 This nondeposit signage may not be displayed in close proximity to the FDIC’s sign for digital deposit-taking channels.
6 The existing regulation defines the terms “FDIC-associated terms” and “FDIC-associated images.”
“FDIC-associated terms” means the abbreviation “FDIC” and the following words or phrases: “Federal Deposit Insurance Corporation,” “Federal Deposit,” “Federal Deposit Insurance,” “FDIC-insured,” “FDIC insurance,” “insured by FDIC,” “member FDIC,” any similar words or phrases, or any other terms that may represent or imply that any deposit, liability, obligation certificate, or share is insured or guaranteed by the FDIC.
“FDIC-associated images” means the seal of the FDIC, alone or within the letter C of the term FDIC; the official sign and symbol of the FDIC; the official advertising statement, as set forth in the regulations; any similar images; and any other signs and symbols that may represent or imply that any deposit, liability, obligation certificate, or share is insured or guaranteed in whole or in part by the FDIC.
12 C.F.R. § 328.101.
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