4000 - Advisory Opinions
Domestic Brokered Deposits of Foreign Bank Customer Funds: Recordkeeping Requirements
August 17, 1990
Adrienne George, Attorney
I am writing in response to your letter of June 14, 1990. In that letter, you described the situation in which an offshore bank (Bank X in the ***) would be providing investment services for its clients through ***. In the course of this relationship, *** would be purchasing certificates of deposit from one or more FDIC-insured institutions for Bank X's clients. Bank X would have already opened various accounts with *** or each of its (Bank X's) clients stipulating, in the case of each client, "Bank X for sub-account _______." Each of these sub-accounts would correspond to a particular client of Bank X, but the actual identity of each client might not be known to ***. Bank X would maintain its own records and report *** investment activities to each of its clients. Further, Bank X would be able to identify the client corresponding to each sub-account number should the need arise.
You ask whether each of the sub-accounts described above would be entitled to up to $100,000 of FDIC insurance. If so, you ask what record-keeping requirements would be necessary to secure such insurance.
The answer to your first question is yes, the sub-accounts would be entitled to up to $100,000 of FDIC insurance coverage, provided that certain record-keeping requirements are satisfied.
First, we should note that, as a threshold question, deposits payable solely outside the United States are not considered to be "deposits" for purposes of the FDIC's insurance regulations and so, would not be entitled to insurance. 12 C.F.R. §330.3(e). However, this rule will not pose a problem for the deposits here because, as you have told me, these deposits would be payable in Florida, that is, within the United States.
Next, it appears that the deposits in question are held within the given insured depository institution in a series of agency relationships -- i.e., *** as Agent for Bank X as Agent for the Sub-accounts of its various clients. Section 330.6(a) of the FDIC's regulations states that "[f]unds owned by a principal or principals and deposited into one or more deposit accounts in the name of an agent, custodian or nominee, other than an insured depository institution, shall be insured to the same extent as if deposited in the name of the principal(s)." 12 C.F.R. §330.6(a). However, the regulation goes on to state that "[w]hen such funds are deposited by an insured depository institution acting in a fiduciary capacity, the insurance coverage shall be governed by the provisions of section 330.10" of the FDIC's regulations. Id.
In your case, ***, the depositor, does not qualify as an "insured depository institution," so that §330.6(a) would apply. According to this regulation, the funds of each principal (the owner of a sub-account) would be insured to the same extent as if deposited in the name of that principal--that is, the funds in the sub-account of that principal would be added together with any other individually-owned funds of that principal held in the same depository institution (including any other funds which other agents might be holding for the same principal in the same institution), and that entire amount insured up to $100,000. Certain record-keeping requirements must be complied with, however, before such insurance coverage is available.
There are three main record-keeping requirements. First, the deposit account records of the insured depository institution must disclose the existence of any fiduciary relationship, including that of an agent. 12 C.F.R. §330.4(b)(1). The regulations define "deposit account records" as follows:
(d) "Deposit account records" means account ledgers, signature cards, certificates of deposit, passbooks, corporate resolutions authorizing accounts in the possession of the insured depository institution and other books and records of the insured depository institution, including records maintained by computer, which relate to the insured depository institution's deposit taking function, but does not mean account statements, deposit slips, items deposited or cancelled checks.
12 C.F.R. §330.1(d). The best place to indicate the string of agency relationships you have in your case is in the title of the account, on the signature card. Thus, the title of the account should read, *** as Agent for Bank X as Agent for the Sub-accounts of Its Various Clients."
Second, if the deposit account records of an insured depository institution disclose the existence of a relationship which might provide a basis for additional insurance (in our case, insuring the interest of each client of Bank X up to $100,000 rather than insuring the lump sum of *** deposit up to $100,000), "the details of the relationship and the interests of other parties in the account must be ascertainable either from the deposit account records of the insured depository institution or from records maintained, in good faith and in the regular course of business, by the depositor or by some person or entity that has undertaken to maintain such records for the depositor." 12 C.F.R. §330.4(b)(2). This means that the identities of the owners of the sub-accounts can be kept in the records of Bank X, and need not be present in the records of ***.
Third, 12 C.F.R. §330.4(b)(3) further elaborates on two alternative means by which the record-keeping requirements of (b)(1) and (b)(2) might be met. The first alternative would require *** to disclose the identities of the sub-accounts' various owners but the second alternative, quoted below, would not:
(ii) An alternative method is to (A) expressly indicate, on the deposit account records of the insured depository institution, that the depositor is acting in a fiduciary capacity on behalf of certain persons or entities who may, in turn, be acting in a fiduciary capacity for others; (B) disclose the existence of additional levels of fiduciary relationships in records, maintained in good faith and in the regular course of business, by parties at subsequent levels; and (C) disclose, at each of the levels, the name(s) and interest(s) of the person(s) on whose behalf the party at that level is acting.
No person or entity in the chain of parties will be permitted to claim that they are acting in a fiduciary capacity for others unless the possible existence of such a relationship is revealed at some previous level in the chain.