On March 29, 2019, the Federal Deposit Insurance Corporation (the “FDIC”) proposed changes to its Part 370 rule that would significantly reduce the compliance burdens on large insured depository institutions subject to that rule. The Part 370 rule, entitled Recordkeeping for Timely Deposit Insurance Determination, imposes new requirements on certain large insured depository institutions to facilitate the prompt payment of insured deposits in the event of the institution’s failure. The Part 370 rule became effective on April 1, 2017, but has a compliance deadline of April 1, 2020.

The Part 370 rule requires a “covered institution” to adopt information technology and recordkeeping capabilities that enable it to quickly calculate the insured and uninsured amounts in each deposit account. A “covered institution” is an insured depository institution with at least 2 million deposit accounts during any two consecutive quarters.

The FDIC is proposing the following key changes to the Part 370 rule:

Compliance deadline. The existing Part 370 rule imposes a compliance deadline of April 1, 2020 (or three years after an insured depository institution becomes a covered institution). The proposed amendments would allow covered institutions that are subject to the April 1, 2020 compliance deadline to extend the compliance deadline by one year (to April 1, 2021) by providing notice to the FDIC. An institution taking advantage of this extension must notify the FDIC of the number and dollar amount of deposit accounts for which the institution expects its IT system will not be able to calculate deposit insurance coverage as of the original April 1, 2020 compliance date.

Effect of mergers. The existing Part 370 rule does not address mergers involving a covered institution. The proposed amendments would grant a one-year post-merger grace period during which a covered institution involved in a merger can ensure that new deposit accounts and IT systems comply with the Part 370 rule.

Voluntary compliance. The proposed amendments would allow insured depository institutions with fewer than 2 million deposit accounts to opt in to the Part 370 rule on a voluntary basis. This election might be attractive in the case of affiliated institutions where one institution is a “covered institution” and the other institution is not. In that case, a single IT and recordkeeping system could be implemented across both institutions in the event that the smaller institution opted to comply with the Part 370 rule voluntarily.

Accounts with “transactional features.” The existing Part 370 rule imposes special certification and other compliance requirements with respect to accounts with “transactional features.” An account had “transaction features” where it could be used to make payments to third parties (including to another account of the depositor or account holder) by use of any of a long list of methods (such as by check). The FDIC’s concerns with such accounts are that transactions may take several days to clear, and that their owners may not be able to conduct day-to-day financial transactions immediately following a bank failure (during which period the account is frozen while the deposit insurance calculation is completed). The proposed amendments would narrow the definition of accounts with “transactional features” in several ways, including focusing on payment methods that result in the transfer not being reflected in the close-of-business ledger balance for the account on the day the transfer is initiated, even if initiated prior to the institution’s normal cutoff time. The amendments would also replace the original certification requirement, which requires covered institutions to certify that the account holder will provide missing information about the transactional account necessary to make the deposit insurance calculation within 24 hours, with a requirement that a covered institution take “steps reasonably calculated” to ensure that the account holder will provide such missing information. Finally, the proposed amendments would expand the list of accounts that are exempted from the requirements applicable to accounts with transactional features to include more types of accounts that are insured on a pass-through basis (e.g., certain trust accounts).

Relief policy. The existing Part 370 rule allows covered institutions to apply to the FDIC for an exception to any specific requirement of the rule that is “impracticable or overly burdensome” under the circumstances. The proposed amendments would allow covered institutions to jointly submit such exception requests, and provides that the FDIC’s response to such exception requests will be published in the Federal Register. Other covered institutions with similar facts and circumstances would be able to rely on a previously published exception by providing notice to the FDIC.

Additional changes. The proposed amendments would make additional changes to the existing Part 370 rule, including changes to the alternative recordkeeping requirements applicable to certain accounts involving fiduciary relationships (such as certain trust accounts), and additional recordkeeping requirements applicable to credit balances on an account for debt owed to the covered institution.

The public comment period for the proposal ends May 13, 2019.