FDIC Recognizes Additional Designated Business Relationship Meeting Primary Purpose Exemption

July 29, 2022

The Federal Deposit Insurance Corporation (“FDIC”) has recognized a new designated business relationship that confirms that an agent, such as a broker-dealer, placing deposits of a customer with an insured depository institution (“IDI”) upon specific direction of the customer qualifies for the primary purpose exception from the definition of “deposit broker.”1 This determination is consistent with our long-standing advice to clients.

The new designated exception is available when:

The agent or nominee is “engaged in the business of placing” customer funds at IDIs, in a custodial capacity, based upon instructions received from a depositor or depositor’s agent specific to each IDI and deposit account, and the agent or nominee neither plays any role in determining at which IDI(s) to place any customers’ funds, nor negotiates or set rates, terms, fees, or conditions, for the deposit account.

An agent relying on the new designated exception is not required to file a notice or application in order for the deposits it places at IDIs to be considered non-brokered.

The new designated exception permits custodians to deposit customer funds into deposit accounts at a specific IDI upon direction from the customer. For example, a broker-dealer may, upon a specific customer instruction, transfer funds from a customer’s securities account into the customer’s deposit account at an IDI specified by the customer without the deposits being considered brokered and without relying on any other exception from the definition of deposit broker.2 It is clear, that the new designated exception does not apply to broker-dealer sweep programs.

The FDIC warns that deposits placed by a custodian acting pursuant to this designated exception may still be “brokered deposits” if the custodian is acting for a person that otherwise meets the deposit broker definition. Likewise, deposits placed using the assistance of a third-party administrator engaged in “matchmaking activities” are “brokered deposits” even if the custodian placing deposits into an IDI relies on the designated exception. Further, the new designated exception is available only when a custodian plays no role in “creating, operating, or using an algorithm that is used to determine or recommend at which IDI(s) any customer funds are placed.”

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If you have any questions or concerns, please feel free to contact Paul Clark or Casey Jennings.


1 https://www.fdic.gov/resources/bankers/brokered-deposits/2021-12-29-federal-register-notice.pdf.

2 Such other exceptions may include the exception available to agents that place less than 25% of their assets under administration with IDIs.


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