FDIC Recordkeeping Rule Includes Alternative for Prepaid Accounts
The FDIC’s final rule establishing recordkeeping requirements for large financial institutions offers some relief for banks that hold prepaid accounts insured under pass-through coverage, but there’s still a lot of heavy lifting to be done for covered institutions.
Established with the goal of facilitating payment of insured funds in the event of a bank failure, the final rule requires institutions with more than 2 million deposit accounts to maintain “complete and accurate data on each depositor,” and ensure their IT systems are capable of calculating within 24 hours the amount of insured funds each depositor is due to be paid if the bank fails. Upon the rule’s projected effective date of April 1, 2017, institutions will have three years to develop and implement the required recordkeeping and IT standards. There currently are 38 FDIC-insured institutions with more than 2 million deposit accounts, according to the agency.
Following a 2015 advance notice of proposed rulemaking, the FDIC first issued a notice of proposed rulemaking in February 2016 with a May 26 comment deadline, which was later extended to June 27. Some commenters cautioned that the proposed rules would place an undue burden on banks that issue prepaid cards by requiring them to maintain complete records on the beneficial owners connected to each account, which typically are covered by the FDIC under pass-through deposit insurance. As a result of those concerns, the final rule does not require banks holding prepaid accounts insured on a pass-through basis to keep full records of each individual account holder. Instead, such banks must certify that the custodial accountholder or a third party will provide to the FDIC the information needed to calculate deposit insurance coverage for each beneficial owner within 24 hours in the event of a bank failure.
Meanwhile, the FDIC did not address a request in the NBPCA’s comment letter to clarify in the rule that each sub-account within a custodial account (such as one established for a prepaid card program) should not be counted as a separate deposit account when determining whether a bank exceeds the 2 million accounts threshold to be covered under the final rule.
While most financial institutions treat pooled custodial accounts established for prepaid card programs as a single account for call reporting purposes, the NBCPA noted that the FDIC potentially could mandate that each sub-account be counted separately by changing the call report instructions.
“While we continue to believe that the marginal benefits from this rule are greatly outweighed by the significant costs to covered institutions … we are also encouraged by the FDIC’s new alternative recordkeeping requirements, which allow covered institutions to retain less information on certain accounts that are maintained by third parties and provide insurance to account holders on a pass-through basis,” said Brad Fauss, president and CEO, NBPCA. However, Fauss noted that the NBPCA had hoped the agency would give banks more time to complete the “monumental task” of executing the required changes to comply with the rule. “As such, NBPCA will closely monitor for any problems experienced by our members as a result of this rapid implementation,” he said.