Comments due on FDIC proposal on Custodial Accounts

On September 17, 2024, the FDIC issued for public comment a notice of proposed rulemaking to strengthen FDIC-insured depository institutions’ (IDI) recordkeeping for custodial deposit accounts with transactional features and preserve beneficial owners’ and depositors’ entitlement to the protections afforded by federal deposit insurance.

The proposal is intended to promote the FDIC’s ability to promptly make deposit insurance determinations and, if necessary, pay deposit insurance claims “as soon as possible” in the event of the failure of an IDI holding custodial deposit accounts with transactional features.

Under the proposal, IDIs holding custodial deposit accounts with transactional features, subject to a list of exemptions, would be required to maintain records relating to the account, using a specific file format provided by the rule. These records would identify, for each custodial account:

The beneficial owners of the custodial account,
The balance attributable to each beneficial owner, and
The ownership category in which the beneficial owner holds the deposited funds.

IDIs would be required to implement internal controls to ensure that account balances are accurate, including reconciliations no less frequently than as of the close of business daily. The rule would permit records to be maintained through a third party if certain specific requirements are satisfied.

The proposal’s provisions also provide for oversight by the banks’ primary federal supervisor to review for compliance with this rule and enforcement authority to compel compliance if the bank fails to meet these requirements.