Kristy Curl is a Director with Treliant. She assists financial institutions of all sizes to establish robust compliance programs and perform compliance reviews related to deposits, lending, and Bank Secrecy Act/Anti-Money Laundering (BSA/AML) requirements. She also develops and conducts board, executive, and staff-level regulatory training programs. At Treliant, Kristy has…
- Source: fdic.gov
Amendments to FDIC signage and marketing rules, if adopted, will require financial institutions and fintech companies to create new written policies and procedures addressing traditional bank marketing and third-party service provider product offerings/relationships. Other requirements will include adjusting or amending marketing requirements, checklists, combined deposit and non-deposit product offerings and advertisements, website pages, mobile banking channels, due diligence checklists, etc. It is likely that this rule moves quickly through the process and finalizes soon. Treliant is uniquely positioned to assist financial institutions and non-financial institutions in analyzing their product offerings, marketing processes, third-party relationships, and associated compliance risks from a current- and future-state perspective.
On Tuesday, December 13th, the Federal Deposit Insurance Corporation (FDIC) published a Notice of Proposed Rulemaking and Request for Comment in which they outline their proposal to modernize the rules (12 CFR 328) governing the use of the official FDIC sign and insured deposit institution’s (IDIs) advertising statements. The proposed rule reflects how depositors do business with banks and credit unions today, including through non-traditional branches (i.e. café style branches), ATM machines, and digital channels. A surprising amendment in the proposal is the location of FDIC insured language in the footer of webpages may no longer meet the clear and conspicuous standard. For non-deposit products, the historical disclaimer below would be required to be provided as an initial, prominent display to alert consumers to these facts, and the consumer would need to take an action to dismiss the notification before accessing the relevant page/screen. The FDIC is soliciting comments on the final design requirements for the below disclosures which would have to be continuously displayed on each page with non-deposit products.
- Not insured by the FDIC;
- Not deposits;
- May lose value.
The proposal also would clarify the FDIC’s regulations regarding misrepresentation of deposit insurance coverage in order to enable consumers to better understand whether they are doing business with an insured deposit institution and when their funds are protected by FDIC deposit insurance. Of particular note, the proposal includes an additional disclosure requirement when “pass-through” FDIC insurance is applicable to the product. The proposal also requires IDIs to establish written policies and procedures related to the regulation’s requirements that are commensurate with the nature, size, complexity, scope, and potential risk of the institution. Such policies and procedures would also be required to include provisions related to monitoring and evaluating activities of third-party service providers such as fintech companies or other non-financial enterprises relative to compliance with this rule. Additionally, the FDIC states that it has recently noted a number of misrepresentations of insurance coverage in the crypto-asset space, and the proposal, in turn, amends the definition of “Non-Deposit Product” and “Uninsured Financial Product” to include crypto-assets and further defines what a crypto-asset is under the rules.
This rulemaking comes on the heels of the FDIC False Advertising Rule published on May 17, 2022 and effective July 5, 2022. The two rules are in direct response to the growth of fintech companies and resulting partner relationships with IDIs to offer their products, often times in combination with non-deposit products which do not come with FDIC deposit insurance. Additionally, banking customers now enjoy an increasingly wide array of products and services that do not require going to a traditional brick-and-mortar location or the intervention of a bank employee. These products and services can be accessed using an ATM, or connection through digital channels such as mobile applications, web-based applications, and websites. Of particular concern, as called out in the proposal, is IDIs offering ATM or digital banking customers the ability to purchase crypto-assets with their funds and the practice of simultaneously offering both insured deposit and non-deposit products. The FDIC takes the position that these practices may lead consumers to mistakenly conclude that all of the products offered are insured since they know that their bank is FDIC insured.
It will be important for IDI’s to review and analyze:
- All products (both direct and indirect) to ensure they are correctly categorized as deposit or non-deposit products;
- Third-party relationships and program structures to identify whether pass-through FDIC insurance applies, that all requirements are met to ensure it applies, and review advertising collateral to ensure pass-through insurance is disclosed appropriately;
- Marketing collateral checklists, websites, web-based applications, mobile applications to ensure both the spirit and intent of the advertising rules are being met, especially for combination products or marketing;
- Third-party marketing collateral, review checklists, monitoring and approval processes to ensure both the spirit and intent of the advertising rules are being met, especially for combination products or marketing; and
- Existing policies and procedures to address the proposed requirements in the rule, including consideration to developing new policies and procedures.