Seward & Kissel is the leading law firm advising broker-dealers and banks on the brokering of deposits, including CD programs, “sweep” programs, reciprocal deposits, deposit referrals and other deposits facilitated by third parties. The firm also structured the first program for brokers to offer credit union share certificates using The Depository Trust Company.
Since the adoption of the Monetary Control Act of 1980, which de-regulated interest rates on bank and thrift deposits, Seward & Kissel has been at the legal forefront of products that today account for over 14% of all deposits in the US banking system. Beginning with the earliest CD programs and the first broker-dealer deposit “sweep” program, Seward & Kissel has developed the legal structures and documentation supporting deposit products offered through financial intermediaries.
Seward & Kissel has assisted numerous broker-dealers and banks in establishing CD programs. Beginning in 2000, we have advised brokers on the implementation of sweep programs that have resulted in the transfer of hundreds of billions of dollars of customer funds from money market funds to bank programs.
Our practice in this area is robust, bringing together attorneys with expertise in the diverse areas of the law that affect the offering of bank deposit products through broker-dealers and other financial intermediaries.
This expertise includes:
- Advice on determining whether a deposit is “brokered” and the availability of exemptions, including “primary purpose” and “reciprocal deposit” exemptions;
- Advising on the availability of FDIC “pass-through” deposit insurance;
- Structuring deposit programs to avoid creating a “security” or an “investment company” under the federal securities laws;
- Compliance with Federal Reserve Board Regulation W (Transactions with Affiliate) when deposit accounts are offered by an affiliate of a bank;
- Compliance with Federal Reserve Board Regulation D (Reserves);
- Compliance with the Liquidity Coverage Ratio regulation;
- Compliance with TISA advertising and Rule 10b-b confirmation requirements;
- Compliance with SEC rules on “possession and control” of customer assets;
- Compliance with SEC rules on the use of “negative consent” to change a broker-dealer customer’s “sweep” investment;
- FINRA disclosure guidelines for CD programs;
- State securities, banking and credit union laws;
- Issues related to offering deposit products to retirement accounts;
- Drafting of agreements and customer disclosures;
- Rules relating to using The Depository Trust Company as a sub-custodian;
- Application of the Uniform Commercial Code to deposit products; and
- Tax treatment of various deposit products.
Seward & Kissel attorneys have more experience with deposit programs than any other law firm, with over 35 years’ experience in this product area. Lead by Paul Clark, often referred to as the “Dean” of brokered deposit lawyers, Seward & Kissel brings more experience to a project than any other law firm.
Paul Clark has over 30 years’ experience with brokered deposit products and issues. He has represented clients on every regulatory issue affecting brokered deposits and in structuring every type of deposit product offered by broker-dealers. Paul oversees every project undertaken by our team.
Gerhard Anderson specializes in advising banks, broker-dealers, investment managers and other financial institutions on a wide variety of transactions, with a special focus on mergers and acquisitions, complex joint ventures and related regulatory matters. Gary’s general corporate work includes the formation and organization of various business entities, including corporations, partnerships and limited liability companies (particularly in the asset management industry), and negotiating a variety of transactional, commercial and operating agreements and arrangements. Gary has a broad background in securities laws and general corporate finance matters.
Jim Cofer advises clients in the financial services industry on federal income tax matters. Jim’s clients include banks, broker-dealers, private investment funds and regulated investment funds. Jim has worked closely with the other members of the brokered deposit practice in addressing tax issues that arise in various programs.
Marlon Paz advises broker-dealers and other financial services firms in matters related to financial regulation, SEC and FINRA enforcement, internal investigations and examinations, and compliance. Marlon Paz served in senior positions during his tenure at the U.S. Securities and Exchange Commission, where he played a key role in developing the SEC’s positions on many important regulatory and enforcement matters. Of note, Marlon Paz has particular expertise in matters related to financial responsibility (net capital rule, customer protection rule), sales practices (advertising and use of social media), and books and records requirements.
John Ryan advises banks, broker-dealers and investment managers on ERISA. John has worked closely with the other members of the brokered deposit practice in addressing the fiduciary and prohibited transaction concerns and the application of exemptive relief for various programs.
Casey Jennings has advised bank and broker-dealer clients on all regulatory issues affecting brokered deposits, and has subject matter expertise in structuring, implementing, and revising sweep and reciprocal deposit programs. He has represented clients in applying for various brokered deposit exceptions recognized by the FDIC and developed relevant documentation to administer sweep programs. Additionally, Casey has advised clients on designing sweep and reciprocal deposit programs to comply with federal securities laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940, and FDIC regulations governing brokered deposits, such as the Liquidity Coverage Ratio (“LCR”) Rule. Casey has also prepared comments to the FDIC on brokered deposit issues.
Jessica Cohn advises clients on all regulatory issues affecting brokered deposit programs, including whether certain deposits qualify as “brokered deposits,” the availability of exemptions, the requirements of Truth in Savings (Regulation DD) and compliance with Regulation D (Reserves). Jessica has prepared disclosure documentation for brokers to implement deposit account sweep programs and credit union share certificate programs. Jessica also advises clients on amending deposit account sweep programs through the use of negative consent and limitations under state law for state chartered credit unions.
Chronology of Significant Accomplishments
1983. Obtained one of the first, if not the first, opinions from FDIC staff confirming the availability of “pass-through” deposit insurance on deposits accounts held by a broker for the benefit of its customers.
Developed the first broker-dealer “sweep” program offering bank and thrift savings deposits to a broker’s customers, including consulting with SEC staff on issues under the Securities Act of 1933 and the Investment Company Act of 1940.
Obtained the first opinion from the Federal Reserve Board on compliance with the definition of “savings deposit” in Regulation D by banks and thrifts accepting brokered savings deposits.
1985. Developed documentation to respond to the 2nd Circuit’s ruling in Gary Plastic v. Merrill Lynch that a broker’s CD program can be an “investment contract” under the Securities Act of 1933.
1988. Obtained additional relief from the Federal Reserve Board under Regulation D for brokered savings deposit programs.
Worked with the FSLIC on protocols for insurance payments for brokered CDs in the failure of First South, the first major thrift failure with brokered deposits.
1989. Represented major brokerage firms in connection with the adoption of the Financial Institutions Reform, Recovery and Relief Act by Congress and its implementation by the FDIC.
1990. Represented major brokerage firms in connection with the U.S. Treasury Department’s deposit insurance study and its recommendation that pass-through insurance on brokered deposits be eliminated.
1991. Represented major brokerage firms in connection with adoption by Congress of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), including drafting and lobbying through the House Banking Committee an amendment to the
Treasury Department’s proposal to eliminate pass-through deposit insurance on brokered deposits, replacing it with qualifying standards for banks and thrifts to accept brokered deposits. Represented the firms during Senate consideration of thelegislation and adoption by the House/Senate Conference Committee of the current law tying brokered deposit acceptance to capital categories.
1992. Represented the Securities Industry Association in connection with the FDIC’s adoption of regulations implementing the FDICIA brokered deposit restrictions, including meeting with FDIC staff and preparing an industry comment letter.
Prepared comment letters to the Federal Reserve Board on implementation of the Truth in Savings Act (TISA), which was included in FDICIA.
1993. Represented the Securities Industry Association in addressing flaws in the formula for calculating the Annual Percentage Yield on coupon-bearing CDs in the TISA regulations (Regulation DD). Met with staff of the Federal Reserve Board and members of the Board.
Developed standard industry documentation for offering CDs, including underwriting agreements, selling group agreements and disclosure documents.
1994. Filed comment letters with the Federal Reserve Board on problems with the APY calculation. Worked with Professor Burton Malkiel of Princeton University (author of a Random Walk Down Wall Street) on issues related to flaws in the APY formula.
Prepared the first disclosure document for Callable CDs. Worked with broker-dealer clients on documentation for the offering of such CDs.
1995. Successfully obtained an amendment to Regulation DD to correct flaws in the APY formula.
1997. Obtained the first letter from the National Credit Union Administration (NCUA) confirming pass-through share insurance for credit union shares held by brokers for their customers.
1998. Began working with Merrill Lynch on structuring the first dual account (savings deposit linked to a transaction account) broker-dealer “sweep” program to deposit customer funds in FDIC-insured banks, including reviewing relevant state laws and Regulation D implications.
1999. Worked with Merrill Lynch on a customer notice changing the available sweep investment from a money market mutual fund to the new bank deposit program and prepared customer disclosures for the program.
2000. Prepared an opinion of counsel concerning interest rate tiering of sweep deposits. Worked on implementing similar sweep programs for other broker-dealers.
Represented the Securities Industry Association on issues related to Callable CDs raised by the New York Stock Exchange and the NASD. Successfully had published guidance on Callable CDs retracted and re-issued with greater clarity.
2002. Represented Promontory Interfinancial Network on structuring the first “reciprocal” CD program (CDARS).
2005. Represented Promontory in structuring the Insured Network Deposit service, a multi-bank sweep program offered to broker-dealers.
Represented the Securities Industry Association in connection with New York Stock Exchange guidance on bank deposit sweep programs and in briefing the NASD on such programs. As a result of these efforts, the NASD declined to issue formal guidance.
2006. Represented the Securities Industry Association in negotiating “guidelines” on compliance of broker-dealer sweep programs with SEC Rule 15c3-3 and other customer protection rules.
Prepared comments for submission by the Securities Industry Association to the SEC on proposed amendments to Rule 15c3-3 to permit the use of negative consent to change a customer’s sweep investment.
2010. Represented an industry group in successfully having rules of The Depository Trust Company amended to preclude banks from calling non-callable CDs. The rule became effective in 2011.
2011. Submitted comments to the FDIC on behalf of an industry group in connection with the FDIC’s Core/Brokered Deposit Study. Advised various participants in an FDIC Roundtable on Core/Brokered Deposits.
2013. Publication of Just Passing Through: A History and Critical Analysis of FDIC Insurance of Deposits Held by Brokers and Other Custodians by Paul Clark in the Review of Banking & Financial Law, the leading scholarly analysis of FDIC “pass-through” insurance.
2014. Submitted comments to the federal banking agencies on behalf of an industry group on proposed Liquidity Coverage Ratio regulations.
2016. Represented SIFMA in connection with preparation of a joint comment letter with the ABA to the FDIC on proposed changes to bank recordkeeping requirements for deposits.
Submitted comments to the federal banking agencies on behalf of an industry group in response to agency review of brokered deposit regulations under the Economic Growth and Regulatory Paperwork Reduction Act of 1996.
2018. Developed standard documentation for credit union share certificate programs.
2019. Representing an industry group in negotiating the implementation of an “Electronic Master Certificate of Deposit” with The Depository Trust Company to replace paper certificates.
Representing an industry group in preparing a letter in response to an FDIC request for comments on current brokered deposit regulations.
Advised on the structuring of the first “reciprocal” sweep product.