In today’s financial landscape, consumers are increasingly drawn to online platforms that provide access to an array of financial products. Some of these platforms serve as a one-stop shop, offering investment products, deposit accounts, and alternative assets such as digital or crypto assets all in one location. By accessing multiple products through a single platform, consumers can easily manage their finances and make investment decisions in a convenient, accessible way. As these online financial supermarkets continue to proliferate, the existing regulatory boundaries around specific products can appear blurred to consumers and the platform operators.

A recent rule by the Federal Deposit Insurance Corporation (FDIC) enacts important updates on disclosures that online platform operators must provide to consumers – specifically, how and when FDIC depository insurance applies to these products, as well as the consequences of misrepresenting how that depository insurance applies.

It’s worth noting that while some of these online platforms are licensed banks, many others are not.  Companies that offer or facilitate access to deposit accounts through their platforms might struggle to understand exactly what they can say about these accounts and the applicability of FDIC insurance. The FDIC’s final rule provides needed clarity by identifying a non-exhaustive list of specific activities that would amount to misrepresentations about FDIC deposit insurance. Among other things, the FDIC release highlights examples relating to non-bank platforms that offer deposit accounts, platforms that offer both deposit and non-deposit accounts, and platforms that offer “pass-through” insured deposit accounts.

Use of FDIC’s Official Advertising Statement or FDIC-Associated Terms or Images

The FDIC’s final rule provides that the following would be an actionable misrepresentation under the rule:

• A non-bank cannot use the “Member FDIC” logo on its website or in its marketing materials unless that logo is next to the name of one or more insured depository institutions (IDIs).
• A non-bank cannot use the FDIC official sign or the FDIC official digital sign if it inaccurately implies that the non-bank is insured by the FDIC and backed by the full faith and credit of the U.S. Government.
• Similarly, a non-bank cannot use “FDIC-Associated Terms” in statements suggesting that the non-bank is insured by the FDIC.

Statements Made by a Non-Bank Regarding Deposit Insurance

The FDIC’s final rule addresses circumstances where a non-bank offers to deposit customer funds at an IDI and requires that clear and conspicuous disclosures be made, to wit:

• If a non-bank platform makes statements regarding deposit insurance for its customers, the non-bank must clearly and conspicuously disclose that it is not itself an FDIC-insured institution, and that the FDIC’s deposit insurance coverage only protects against the failure of an FDIC-insured depository institution.
• For example, a non-bank crypto platform might offer deposit accounts through a partner IDI bank, in which case the platform must make it clear that notwithstanding the deposit product being offered, the platform operator is nonetheless not an FDIC-insurance bank.

Statements Made About Non-Deposit Products Must Say They Are Not Insured by the FDIC

The FDIC’s final rule speaks to circumstances where a bank or non-bank offers both deposit and non-deposit products, and provides:

• If a platform operator makes statements regarding deposit insurance in a context that involves both deposits and non-deposit products, it must disclose that non-deposit products “are not insured by the FDIC, are not deposits, and may lose value.”
• For example, “if a non-bank’s website offered customers the option to have their funds deposited at an IDI and protected by deposit insurance or invested in non-deposit products, it would be a material omission if the non-bank’s website failed to state that the non-deposit products are not insured by the FDIC, are not deposits, and may lose value.”
• Regarding payment products that are not FDIC-insured that allow consumers to store, send, or receive U.S. dollars electronically (e.g., stablecoins), the final rule provides that a non-bank must disclose that such products are “not insured by the FDIC and are not deposits.”
• The rule goes on to note that where deposit products and non-deposit products are offered on the same webpage or as part of a single social media post, such offerings “in close proximity” represent clear scenarios where the entity must disclose that the non-deposit product is not insured by the FDIC, is not a deposit, and may lose value.

Conditions for Allowing Pass-Through Deposit Insurance

The FDIC release notes that “pass-through” deposit insurance has been a part of deposit products for some time and can involve a third party placing multiple customers’ deposits in aggregate with an IDI. In this arrangement, the individual owner of the funds can be separately insured up to the statutory deposit insurance limit, which is currently $250,000, regardless of the total deposits of all owners (in the aggregate) exceeding the $250,000 limit. Certain regulatory conditions, however, must be met to enable “pass through” deposit insurance.

The final rule provides that:

• If a platform operator makes statements regarding pass-through deposit insurance for its customers’ funds, it must clearly and conspicuously disclose that certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
• The person making a statement regarding pass-through deposit insurance need not list the specific conditions that must be satisfied; simply referencing the fact that conditions must be satisfied would be sufficient under the rule.
• The rule also provides flexibility in how parties may wish to express the required information about those conditions.

One final note:  the FDIC rule does not include a definition of “crypto asset” as the proposed rule had done.  Instead, the final rule includes “crypto asset” as a “non-deposit product” and within the list of “uninsured financial products” defined therein, but otherwise demurs on a specific definition for this asset type.  Violations of this rule could result in an enforcement action by the FDIC or other relevant authority under the statute.

Conclusion

The FDIC’s final rule responds to the ongoing innovation in provisioning financial products, thanks in large part to the internet, which allows collaborations between licensed and non-licensed entities offering these products, and enables online platforms to reach an enormous network of potential customers without physical or geographical limitations. Platform operators must carefully review the final rule and make any needed updates to specific content on their websites to conform to the rule, as well as update their policies and procedures as applicable.

Patomak has deep experience in helping online platform operators offering various financial products identify and manage risks and respond to developments in banking regulation and supervision. Patomak can work with boards and management to assess their governance and internal risk and control functions proactively to ensure they exceed supervisory expectations and support their business objectives. If you would like to learn more about how Patomak can partner with you, please reach out to Mark Wetjen, Senior Advisor, at mwetjen@patomak.com.